Anyone who is seeking an investment product which doesn’t necessitate playing the stocks is often interested in joint venture finance. This is especially popular amongst those professionals who have been involved with any area of real estate and would like to invest on a higher level than operating a brokerage firm. Residential property development is especially enticing because of the severe shortage of housing in the UK.
In other words, there is a ready-made market waiting for the right residential property to come along. If you have money to invest and are looking for what could be an extremely profitable venture, residential property development might be perfect for you. Following is some of what you need to know before getting your feet wet – a primer to help you determine whether or not this is the investment vehicle for you.
Which Professions Lend Themselves Well to Property Development?
Contrary to popular believe, property developers are not all builders, contractors or real estate agents. Actually, anyone with capital to invest can enter a property development joint venture finance, knowing very little about the real estate market whatsoever. Of course, it helps to understand real estate, but it isn’t necessary if you have skills in any of the industries closely associated with the buying and selling of real properties. These professions could include, but are not limited to:
- Accountants
- Attorneys
- Real estate agents
- Builders
- Surveyors
- Civil engineers
- Community planners
- Architects
- Leasing agents
- Inspectors or appraisers
And those are just a few of the professions which lend themselves well to property development. There are, in fact, joint venture finance teams that are comprised of a great number of investors representing several professions. When it comes to a successful development project, two heads are better than one and many heads are best of all. Each professional brings a special area of expertise to the table so that no stone is left unturned. From planners to organisers to accountants and attorneys, there is someone to offer advice and expertise every step of the way. Accountants do make very good property developers because they crunch numbers for a living. When it comes to financing, this is a helpful skill to have.
A Basic Definition of Property Development
Whilst you may think that a property developer buys land and builds structures from the ground up, there is so much more to the market than that. When it comes to residential property development, a developer will buy, improve or build, and sell domiciles. That is to say, they can be single family or multi-family residences. Sometimes it is referred to as the buying and development of land, but typically a residential property developer will be involved in every aspect from the acquisition of property through to the construction of homes to the sales of those subdivided properties.
Sometimes a residential property developer will buy a property which already has existing structures, renovate or improve them, and then put them back on the market for sale. Usually, this type of developer deals with multi-family buildings such as flats and apartment complexes, but it isn’t unheard of for developers to swoop up single-family detached units as well.
Joint Venture Finance and Property Development – A Match Made in Heaven
Typically, residential property development involves large parcels of land or large-scale housing developments. Because of this, several financial backers are often required. The cost of a project of this magnitude can be greater than the assets any one individual or business can liquidate. Here is where joint venture finance is a real benefit. This is where two or more investors finance the development and each has a share in the profits based on their percentage of venture capital invested.
However, some joint venture finance groups may require equal shares for participating members. Often there is a board who oversees the investment group and all members are held accountable to the board. You will find that this type of organisation is often a large investment group and a good way to learn the ropes of residential property development. The point is, since most property developers are involved in large-scale projects, they work well with joint venture financiers. In this light, it truly is a match made in heaven.
Residential Property Development from the Beginning
Before any calculations can be made, a great deal of research goes into a project. Not only will the property development team need to research neighbourhoods, but they will need to assess the needs of the demographics within that community. The size and price of new builds matters a great deal and so a housing project in a poor area of the inner city would not begin planning high-end homes like you’d see in the suburbs.
This is actually the very basis of supply and demand in the real estate market and a vital step in the development of any residential properties. The need must be identified along with an ability to pay for a home. Other residences in the neighbourhood will be compared to the projected new homes and if a profit can be realised, the next stages of planning and obtaining permits will ensue.
How Much Input and Responsibility Do You Want to Have?
If you are simply interested in funding a joint venture finance investment and want little to do with the actual development of the project, you may wish to join a large JV finance group. These typically hire all the necessary builders, planners, tradesmen and so forth while leaving the board responsible for tracking the investments. Profits are paid at predetermined times within a calendar year as are losses assessed, usually quarterly if not as semi-annual dividends.
You can think of this kind of joint venture finance in much the same way as you would a mutual fund. However, there are joint venture finance property development groups that are set up so that each individual has some amount of say in agreeing or vetoing proposals. With so many investment styles out there, you can pick and choose where you want to put your money down on the table.
Here’s Why Property Development Is Forecast to Have a Bright Future
Finally, if you are still on the fence in terms of whether or not you want to invest in property development, consider for a moment the critical housing shortage in the UK. In England alone, more than 240,000 residences are built each year and even this is insufficient for meeting the needs of those in the market for a new home. Over time and due to movement in the demographics of the nation, the shortage of adequate housing may even escalate.
The government is offering initiatives to builders and homebuyers alike in an effort to see everyone waiting for a home to be housed, but with a growing number of Millennials finally moving out of their parents’ homes and seeking a home of their own, this shortage will almost certainly continue. If you are looking to make money in the real estate market, property development offers a wide range of advantages over and above the buying and selling of homes to flip. Residential property development in the UK is expected to yield historic returns on investment, so now is probably a good time to enter the market.
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