April 29, 2021

4 Ways to Manage Property Development Risks in BTR

LI 17.03.17 003

All large-scale building projects come with a certain degree of risk. That said, you shouldn’t take an unnecessary risk and pin all your hopes on everything going exactly to plan.

Let’s say you’re about to go on the motorway. The light on your petrol gauge starts to flash. You don’t know how long it will be until you come across a service station, and you can’t remember if it’s an offence or not to drive on the motorway knowing you’re short on fuel. Would you chance it? Probably not.

In terms of BTR property development risks, you occasionally have to roll the dice and hope everything turns out in your favour. It’s just the nature of the business. However, you significantly increase your chances of everything going well by doing a little preparation first.

There are many ways to reduce risks in BTR developments. Below, we have picked out four ways to mitigate potential problems.

Thoroughly Research the Area

Some cities are inherently more suitable for BTR. Busy metropolitan areas where there’s an imbalance between the population and property available are popular BTR hotspots. University cities where graduates want to continue with the PBSA lifestyle they’ve come accustomed to are good sites as well.

In cities where BTR is already a proven success, you’ll have better luck when talking to local planning authorities for planning permission. That’s not to say areas where there is little to no BTR development will flat-out reject your proposal, but you need to have a very strong case to get the green light.

In order to present a proposal that local authorities will side with, you need to prove BTR is needed in the city and will attract buyers. One of the biggest property development risks for everyone involved is that units won’t sell and the building will stand empty.

Make sure to conduct your due diligence in the area. Find out if the population is growing above the average rate. See if there’s a shortfall in properties. Carry out surveys and ask the locals if they’d be interested in build to rent.

Knowledge is power. If you can show how your solution is viable for the local population, you’re more likely to run a successful development.

Set a Budget, Stick to it & Have a Contingency

Overspending can be a disaster. Multiple contractors will give you various quotes for the same job, material costs quickly add up and going for a high spec over a standard spec means you have to pay extra for the quality finish.

Paying for quality isn’t a bad thing. After all, you’ve got to spend money to make money, and a higher spec will result in premium rental rates. But, you’ll have a hard time convincing investors to continue giving you capital if you’ve told them it will cost ‘X’ amount but you start asking for ‘Y’.

One of the biggest property development risks is letting your budget run away. To ensure that doesn’t happen, set a feasible budget and stick to it. You’ll have to thoroughly research prices first and compare costs, but you mitigate the risk of losing money if you stay within your means.

It’s rare for everything to go to plan in BTR developments, so have a contingency in place as well. That way, if you need to add to your workforce, rent specialist equipment to solve an unexpected problem, or if there’s any other issue, you’re prepared for it.

Check External Partner Track Records

When you pay for a service — no matter what it is and no matter how long for — the person you hire has to work well with you.

At times, you need external partners to be flexible in their approach to help manage property development risks. If they can’t or won’t adapt to the situation, it can seriously affect your time and budget. This can also sour a working relationship very quickly.

Take some time to review companies before hiring their services. Testimonials on their website, Google reviews, and the comments section on social media pages can tell you a lot about how a company operates.

And of course, you can always just ask the business itself for details. Any reputable company would be happy to show you examples of their previous work and explain how their services helped overall.

Check Supplier Credit Ratings

How do you define whether a company is good to work with? Naturally, they have to be accommodating to your needs, but do you ask businesses for proof they’re stable and will still be around after you’ve paid the deposit?

Buying enough build to rent furniture so you can furnish an entire development is costly. You need more than just a handshake and contract as insurance that your capital is safe. Shareholders will expect you to mitigate these property development risks by checking a company’s credit rating first.

Suppliers and service providers who are experienced in BTR will be sympathetic to your approach. If you give a company a small fortune as a deposit to start proceedings, you’re entitled to reassurance.

Ask questions about their manufacturing and transport & logistics, too. A lot of capital goes into stock, and if it doesn’t arrive for whatever reason, your scheme could be in trouble.

A supplier who has excellent relationships with manufacturers and transport teams is less likely to run afoul of bad work practices. And even if an issue does crop up, that strong working relationship between the supplier and their contacts will be the driving force in getting things running again as quickly as possible.

Keeping Property Development Risks at Bay

BTR development is anything but predictable. You take a risk with every decision you make. But that level of risk drops significantly with preparation and finding the right partners to rely on.

Your team will ultimately be the deciding factor in how well a development goes. Whoever you hire or instruct to help out will need to understand what the property development risks are, how to mitigate them and how to work with you effectively.

If furnishing your BTR development has posed issues in the past, we can help make the process much simpler and less risky. To learn more on how we can help, get in touch with our team today.