The landscape for first-time developers remains extremely high risk, with research showing that around 20-30% of small developers fail within their first year.
This is often due to underestimated costs, financial gaps, not understanding the market or planning mishaps.
The five mistakes to avoid as a first-time developer:
Mistake 1 - Not preparing a business plan with maximum detail
The more detail you jot down, the more likely it is you’ll be able to spot any flaws in the plan. Rushing in without a detailed plan is the fastest route to value destruction.
Not only do you need a fully costed schedule, but you’ll also need a realistic programme with float, planning milestones and timelines, lender drawdown timings and two credible exit routes.
A nice 10-15% contingency is non-negotiable, as you could’ve underestimated costs or prices could go up by the time the plan starts. If your plan doesn’t work in a worst-case situation, then it doesn’t work at all.
Mistake 2 - Failing to secure proper finance early, including staging costs and ensuring bridge-to-exit funding is lined up.
Finance isn’t something to do at the last minute; you should have your finance plans ready from the get-go.
Plan your acquisition, build, and exit from day one, including securing heads of terms, meeting lender covenants, and providing evidence of your exit finance
Know your valuation basis, track lender requirements, and model cash flow weekly. Secure QS sign-off and draw schedules early, and it’s important to remember that without a proven exit, your finance isn’t secure.
Mistake 3 - Underestimating costs and contingency- no buffer for unforeseen issues
First-timers chronically miss the hidden line items such as utilities upgrades, drainage, Party Wall, Section 106/CIL, temporary works, insurances, warranties, and professional fees.
Ground conditions alone can smash the budget, yet people think it’s going to cover a selection of things from the list.
Benchmark against recent, local build-cost data and not just generic data from the internet, and also pressure-test some supplier quotes.
Mistake 4 – Buying in the wrong location or without adequate planning permissions, ignoring local demand and infrastructure.
You should stress-test the scheme against realistic planning prospects and include things like pre-apps, policy constraints, accessibility, parking and heritage considerations. Validate the demand for the property with comparable evidence.
Factor in infrastructure such as transport, schools and shops that can drive easy resale and rents. If the planning risk is material, price it in hard or leave it - a cheap site in the wrong location can turn out to be expensive.
Mistake 5 – Starting development in personal name rather than proper vehicle
By doing this, you’ll be missing out on tax and lender advantages. Your structure will dictate your options. Lenders, tax and liability all favour a clean SPV with appropriate shareholders’ and funding agreements.
By getting early advice on VAT treatment, interest deductibility, profit extraction and Capital Gains Tax vs Corporation Tax, you’ll be able to see which option is the best for you long-term
Ensure you’ve got proper contracts in place, warranties and insurance under the SPV, as mixing personal assets and project risk is an error that can limit lending on future properties, inflate your tax and complicate your exit strategy.
