Choosing the right developer and ultimately, the right development can be a daunting process. Here at Flambard Williams, we believe that the main initial concern when looking at the various sites and developments around the UK is how secure your money will be if you invest in their project. This is a key factor for us to ensure our clients’ funds are protected, therefore this should be the most important factor to you as an investor. It’s all very well promising outrageous returns and a great growth story, but if the company doing the development goes bust, this leaves your funds at great risk. So how do we mitigate as much of the risk we can when selecting our developers and their developments, and in doing so, offering you the returns you want?
This is an obvious question that we always ask and investigate. It is our job to look at their previous work, evaluating whether their projects have been delivered in a timely manner, and what issues there were (if any), and if so, how they were dealt with. It would be very unusual for projects of this magnitude not to have the odd challenge or delay, but the crucial aspect is how said issues are dealt with. Here at Flambard Williams, we believe the true test of any companies standing, is how they deal with clients when things become difficult. It’s very easy to be helpful when things are going well, but challenges often bring out the true colours of a business. So, it is our job to know any historical intelligence, and thereby only select reputable developers that deliver a great product and service, time and again. In summary, it’s our role to bring you peace of mind in the knowledge that we only work with the best operators in this industry.
This subject is one that we feel is heavily abused by the industry (and one that most people will fall foul of). There are numerous properties advertised as offering high returns, some suggesting 1-2% higher returns than others in the same city, which causes a number of problems. Many investors use these figures as a measure against other developments in the
area. However, when looking at these figures, it’s important to determine whether they represent a NET or Gross figure. There is a significant difference between the two, and we
never assume that ‘potential clients’ are aware of these differences. Generally, the rule of thumb is to deduct around 1.5% from the gross figure, giving you an estimated NET figure,
which is what you would receive before tax and mortgage costs.
So, how is it that these developers can offer a better return? Well, generally speaking, they can’t – that’s where we come in. We will avoid those developments that we feel will be unable to achieve numbers that we consider to be ‘unobtainable’. So, how is it that they can do this then? Typically, if a developer offers a higher return assured for a period, there is a chance that the sale prices are inflated, meaning some of the funds are paid back to the client in order to cover any rental difference for that period. From this, when you are ‘out of contract’ you will often find that the actual rent you can receive, will plummet. Due to our extensive industry knowledge, we recognise this, and therefore only partner with projects that are likely to hit the minimum rental incomes, or in many cases, exceed them when the fall out of contract. This is because developers will cover it with either a bond or a cash sum
that they deposit ahead of the project’s completion. As a company, we avoid residential projects that offer fixed returns, and we only sell student properties on these terms. In fact, the developers involved in the student market always work closely with the universities, so they know exactly what they will be getting from day one.
There is another reason for these variations in attainable rents, and that’s down to the location of the development. It’s very easy for a developer to offer you great rates on a property that is located on the outskirts of the city centre. This will usually be advertised as ‘minutes from the city centre’ but in reality, they are often much further away. In cases like this, the property will suffer from poor demand leading to void periods and lower rents, as tenants will always locate as close to the centre as their budget allows. At Flambard Williams, we understand the areas that attract both clients and renters, recognising any potential growth hotspots through deep market intelligence. We are dedicated to connecting our clients with their property aspirations by helping them through the often challenging subject of property investing. Remember, our reputation is everything, and we want our clients to trust us and moreover, recommend us to friends and colleagues. We recognise that we will only offer you projects that have realistic, achievable goals, at sustainable levels.
This is less about where the site of the project is located in a specific city or town, and more about which city, and the best part of the country. At Flambard Williams, when one of our specialist brokers is choosing you a development, we first listen to your requirements. Whether you are looking to adopt a pure income model, i.e. receive the best returns for your money, or, perhaps you prefer a mix of income and growth. Our ambition as an independent agent is to find you a unique property suited to your investment requirements. Obviously, we always follow the first two principles in this article; we never deviate, and we choose the right developer offering achievable returns.
If we don’t have the city or town that you have interest in, then it is highly likely that we have not seen the right development to market to you. If we are marketing a project to you, then you can rest assured that we have done our homework, knowing both; the location and it’s ability to deliver on its promises. In the UK, you must expect different things from different areas. The South East and London have low percentage returns against ‘high price entry’. Conversely, the South West, North West with cities like Manchester and Liverpool expect medium to high percentage returns against ‘medium price levels’. Areas like the North East boast high returns versus ‘low price entry’.
Deposit & Payment Structure
This subject can and has been under debate for a while now. We will usually work with developers that require low deposits, typically this will mean anywhere from 10-30%. Why is this? Well, in previous years, developers would use client monies to help finance a project, and this was always a fairly successful model. However, as of late, these developers have become more established and therefore the need for higher deposits has diminished. With that in mind, we will now only work on projects that fit low deposit criteria, working with developers that protect as much of that deposit as possible. Obviously, it is not always possible to ‘cover-off’ all the deposit that is put down, but we do tend to work with developers that can. This means the risk to our clients’ monies is now very much negated. There are still developers that will offer you a return if you place down more money, for example; there are deals that offer an interest rate of 4% against you depositing 50% of the purchase price. If we offer you a deal like this, rest assured that there is always protection in place should there be any issues. We do not like to sell a development that will leave you and your money at risk. With offers such as these, we follow a strict set of rules when choosing each project by providing the appropriate ‘cover’ for your money. If there isn’t the correct cover, then we will make you very aware of that fact – but we are unlikely to present these offers if we cannot guarantee them.
A very important factor for us when choosing the right developer (and their development), is how easy are they to work with. For example, do they deal with issues promptly, are they easy to contact, do they have their partners shared interest at heart – these are all crucial to a successful relationship and of course, a fruitful investment. This has been a more recent issue for us as we recognise (especially as projects of old near completion), which companies are better than others at dealing with client expectations. As a result, we have reduced the number of developers that we partner with and only work with those that live up to our high standards. No matter how good a property is, if a developers’ aftersales team are in any way troublesome (whether that’s you the client, or us as your representative), then the whole experience becomes negative.
The development itself is an extremely important subject (and arguably ‘the whole point’ of the investment). Many of our clients ask what the property will look like once finished? Often, clients are won over by glossy CGI’s and concept photos – mostly because many of the properties we sell are ‘off-plan’. So how do you determine what you will receive? Again, this is where our property specialists can help. We have loyal connections with developers, and they rightfully seek repeat business with us as their client and are therefore always keen to maintain our shared reputation. One bad project and their name (and ours), can become spoilt. If they are a new developer to us, or even a newcomer to the business, we always do our homework. If we are approached by a new developer, the first thing our team does is visit other projects that they have been involved in, whether completed or ongoing. Then we ask around our network, and rest assured, if the developer has a bad reputation, we will hear about it. What if they are new to the market? To be honest, seldom is the developer completely new, in fact, it’s likely they’ve never worked at this scale before. If they are new, we will take a look at the construction firm that is contracted to do the work and assess the project in full. By assessing this, we make assurances that the build we are of a quality that will hit the standards we expect and require. To be honest, many of the construction firms in the industry are known to us or our network, bad names do not last long.
The way we see it, it’s our job to make your purchase hassle free, and pleasurable. This is an exciting time, and you are embarking on a journey that we would like to share with you. In doing so, we like to mitigate any risks that there might be, whether large or small. To that end, we do all the hard work beforehand, working with projects that meet our criteria so that by the time you are being shown a particular development, you know that we have asked all those awkward questions, so you don’t have to!