#SQFT 10: Effective sales and marketing of your development

Experience

Sierra Whiskey has sold in the region of 20 properties to date. We have been fortunate enough to break price records on a number of streets in the area that we focus on. This has been in good times and bad and for no specific reason other than our aim to deliver properties that are in most demand. This is as opposed to creating the biggest, most beautiful house on the best street which, when demand drops, can be the biggest loss of profit when it fails to sell and wipes out any profit. Profit is most available in a crowded place.

Sierra Whiskey sold 3 properties in 2016 at record prices per square foot on their respective streets in what was very much a dropping market. A lot of success stories in property development come form those who are blessed with a rising market – though stories become rarer in a dropping market. The goal is always to create what is most in demand, put it in front of the biggest crowd and remove luck as a factor in breaking price ceilings over and above conservative estimations. Don’t build a 7 bedroom palace when first time buyers have nothing to chose from.

When a good product is put in front of a large audience, who are all seeking the same thing, the perfect scenario commonly occurs – competition. Without motivation, a lot of buyers  can sit by an wait for their perfect property. However if one other buyer is as interested as they are in your property, the developer can realise competetion. It is always inportant therefore to ask how can your units create the most competetive interest? What else do they have that others don’t and are you aiming towards the 2 bed market with outside space or the most expensive property in your area – with any hope, the former. Creating what is in most demand and ticks the most boxes, we have found has always been the “secret” to acheiving above average exit prices. To date, we have never lost money on a property deal by employing these simple guidelines in rising and falling markets.

Past Scenario

We had a recent development that we purchased in what was a tailing-off market. We converted it into 3 smaller units being two 1-beds and one 2-bed. The two 1-beds sold within 4 weeks at prices way above the record achieved on the street, however the two bed stuck with little interest. Our simple reasoning for this happening was that, in a dropping market, any fault a property has will be picked up and less than attractive to the buying public who suddenly have a “must-have” list – which they did not when they were being outbid. In this instance, the 2-bed property did not have any outside space which handicapped it’s attractiveness. In a rising market, this would probably not have been an issue – but take away competition, characteristic of a dropping market and the unticked boxes will become hurdles meaning properties have to be introduced to new market, i.e. people with lower budgets.

Thankfully, our risk mitigation factors in the deal mean that selling the two smaller units meant that most of our senior debt had been cleared – leaving only a small amount left against the final unit which was able to be remortgaged. By removing the senior debt lender’s high interest rate, we could take a very low buy-to-let mortgage rate on the small amount of debt so the property could be let out until some market recovery. Owning an asset that can cover it’s cost is always a better option as selling it which will only crystallise the loss.

In this instance, the subdivision of risk through multiple units helped us to clear the over-bearing concern of any development which is a large part of senior debt. This is not an uncommon occurence and will happen in a property developer’s lifetime so the value in diversifying risk wherever possible is exponential. Whatever market we are in now, approaching or leaving, one thing remains constant –  we model our deals at exit prices that are reasonable despite the market, not because of it.

3 top tips for young developers

1. Always give the estate agent that you bought a property from back to them to sell – this is an unwritten rule of courtesy. However, do not hand them the keys indefinately. Instead, offer a period of exclusivity of 4 weeks to perform before bringing on a second agent. This should create a sense of urgency which is required in disposing of development properties.

2. Don’t sell online. The attractiveness of online estate agency is their apparent low fees compared to traditional estate agents. However, in a development, the value of an individual handling both a seller and a buyer is immeasurable. Online agencies are not able to actively push the sale of properties like people and when a price is agreed, the deal is not done. Prices are very easy to agree but getting a deal to exchange always takes human interaction as problems will arise. You can’t solve these problems online.

3. Always budget to and dress your developments professionally. A newly refurbished property can have a bespoke kitchen and hand made joinery but unless it has proper furniture and dressing in place, it will never achieve it’s full potential. In creating  a new home, we want a buyer to walk in and see themselves living there. This is very difficult to achieve without professional staging. Early days might mean trips to Ikea but the sooner you can engage a professional company, the more success you will likely see in the disposal of your development properties as buyers struggle to feel comfortable in an empty space.

This story is listed in: Construction, Investment, London Property market, Property development, Property Investment, Property Market, Uncategorised

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£20,308,750

GDV to date

£970,308

Average acquisition

£1,562,212

Average GDV

£351,115

Average Equity raise per deal

£343,558

Average profit per deal

97.75%

Average ROI on equity

11

Deals completed

8

Currently units in progress