Advice appreciated for my biggest venture yet on build cost and time?

by Readers Question

11:14 AM, 3rd June 2016
About 2 years ago

Advice appreciated for my biggest venture yet on build cost and time?

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Advice appreciated for my biggest venture yet on build cost and time?

build costsAdvice appreciated for my biggest venture yet! – 8 flats and a terrace of 4 2bed houses!

I’ve redeveloped properties and done commercial to resi’ as well as conversions for buy 2 let but this is my BIG deep breath moment with mega funds needed to take this gamble(scratch Gamble – Substitute challenge!).

I have 2 motivated neighbours, just a few miles away, keen to sell their plots, thinking they can be redeveloped to 5 bungalows. I will be chatting with them about a purchase Option. But before that I need to know the end game and work backwards through the costs to decide what I can allow for the purchase price.

I’ve checked;-
• Planning acceptability with some very expert friends.
• Underground Waste and Water – Electric and Gas to be done next. –
• Individual deeds for land ownership and restrictions – few bits still to be cleared up.
• Community Infrastructure Levi – comes in at 12 units! So will split it into 2 development companies as soon as appropriate (Directors will be the same!)

Over the next few days I will work out the market value of the finished development. – Lots involved with this but it’s well inside my comfort level. I will be casting about for a project manager (allocating 40k) but not until I have the got a signed Option agreement. I know likely costs of new Gas and electrics but no experience of waste and water (yet!)

That leaves a big hole in my knowledge about the build cost/time/issues and hence my question to the skilled and helpful people of property118.
1) Cost from foundations to sale for 2 sets of small 3 bed houses.
2) Cost from foundations to sale for 2 floors of 4 x 2 bed flats each 55-60 sq meters.

I know this are massively wide questions but at the moment I am working on best guesses of £100 per sq foot for the houses and pure guesswork of £45,000 for each 2 bed flat!

To finish I also have to borrow funds, but that’s another issue entirely and doesn’t phase me too much, yet!

Many thanks

Allan



Comments

Neil Patterson

11:17 AM, 3rd June 2016
About 2 years ago

Hi Allan,

It has been a while since I have personally got involved with the nitty gritty of financing a new build, but the old rule of thumb allowing margin for error usually on the profit side was:

One Third Purchase Price
One Third Build Costs
One Third Profit

james pearce

14:37 PM, 3rd June 2016
About 2 years ago

Hi Allan,
Where you are in the country has a huge effect on your build costs, so whereabouts are you?/
130/ft2 might be closer to the mark in the Oxford area.
Small units are relatively more expensive to build per ft2
Sounds exciting......

John Curtis

14:42 PM, 3rd June 2016
About 2 years ago

I believe £125.00/ sq ft is the going rate.
Before you go to far find out about the foundations and the soil report, there could be a problem you don't know of.
My latest development has planning consent but the conditions attached to it has taken in excess of 12 months to sort out and I still haven't got the go ahead. The politicians say build and the Planning Dept. says not in our area.
Good luck.

matchmade

18:03 PM, 3rd June 2016
About 2 years ago

Alan - your project sounds good and you are fortunate to have access to these sites under option agreements. I only wish life were so easy in the Oxford area where I operate! Finding viable sites at a half-sensible price is the hardest part of being a small developer-builder, followed by finance, as gearing up to tackle larger sites is the only real way to escape from the mire of over-priced single-plot sites and being perpetually outbid by self-builders and small builders.

I agree with the others: build costs and, just as important, reliable tradespeople, depend on where you are located. if you are in London and the South-East you can save money by importing people from the Midlands and the North, but they will need to be accommodated and of course you need to have confidence about their abilities.

The one third for land, one third for build and one third for profit model is long broken. S106 and CIL have taxed that to death, for starters, and the lack of viable plots means land is a much higher proportion of the project. There are some people out there prepared to pay 50% Gross Development Value for the land, and 40-45% is commonplace now.

I agree £1300/m2 is about right for houses, but flats are significantly more expensive as the building regs are much fussier. However for a job this size I don't think you should be picking numbers out of the air, let alone Mark Brinkley's Housebuilders Bible. Pay for a proper Quantity Surveyor to run up a specification and cost estimate. This will pay huge dividends and may even save you money: firstly because you can talk over and identify the most cost-effective build system for your site; secondly because the QS's quantities and monthly cashflow projections will allow your builders and tradespeople to price more accurately and provide a common datum from which variations can be agreed during the construction phase; and thirdly because it will show you are professional and mean business when you seek development funding. Bankers like nothing better than a spreadsheet showing overall profit margins and monthly cashflow projects which you will hopefully stick to during the build.

With a job this size you have the scope to seek sales early on with some of the units, which may generate cash which will keep down the size of your development loan, as well as provide a show home for potential buyers. Again, cashflow projections will be very useful for prospective lenders, who will otherwise be nervous at your lack of experience with this size of project.

There's also the option that if you are successful with planning but don't have the capital to tackle the whole project, of selling a few planning-ready sites on to someone else. This will generate cash to kick-start the rest of the project. Or assuming you have the cash to buy both sites under the option agreements, you could choose to build half the project initially, then take on the rest when the first half has sold. This reduces your risk factors too and builds up your experience, so the second half should go smoother than the first one.

Allan Wadsworth

19:30 PM, 6th June 2016
About 2 years ago

Reply to the comment left by "Tony Atkins" at "03/06/2016 - 18:03":

Wow - Thank you all twice over. What a thoughtful and helpful lot of people you are. Instead of vague or insulting comments these have been both directly helpful with the price estimates and thought provoking as well. - I am indeed in the very South of the South of England! I do have a builder who would buy the plot from me BUT he would also steal (sorry engage directly with the sellers) so I have to be careful. Because of that I have decided to work with someone who has done several Option purchases already. (yes a cost but that's business)
Oxford is not so far away and I am open to working as a team as my funds will have to be via a business loan at 65% of each stages value. so land for 700k empties my pot straight away!
I'll do some figures now but am pleased you said 30/30/30/10 is out the window as it looks like I will pay £700k for the land and market value when finished is £1.8m, Hence being so concerned about the build cost guestimates. - I expect I will have to push down the option to purchase price limit having reads your comments. But to me its better to lose a deal than win one and lose at the end! You mentioned sellig with planning and that's what i did with my last deal (my £100k) would have returned 12k to 15k per year but by selling it with planning I made 40k immediately(well after 15 months actually!) so I'm not anti doing that again!.
- I have a good group of friends so can get more funds which will be 35% of each further stage (hope that makes sense!) although they do like to talk around 15% for loaned funds

- Your comments about a good QS (Quantity Surveyor) are noted and I will have to allow for the 20k+ that will cost. The team I know also do project managing but I feel that's wrong for them to both QS and PM.
Once I have some figures in place I will put them up for all to critique! (if that's allowed) Cheers.

Alex Brambleside

11:44 AM, 13th December 2016
About 2 years ago

How did you get on Allan?


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