Best way of Developing?

by Readers Question

14:18 PM, 6th July 2020
About a month ago

Best way of Developing?

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Best way of Developing?

I have a few buy to let properties and with the help of Property 118, I have taken advice from them and will be getting them to help me incorporate my property business – Thanks very much. Will be doing this soon. However, a question to the experienced bods out there.

We are planning to purchase more properties, e.g 2 up 2 down properties close to me, but this time with a side plot, with a view to putting another 2 bedroom property next to it. Several have already been agreed, so I’m guessing should go through planning.

What is the best way of doing this with respect to the plot of land?

Someone who has done this suggested I separate the side plot by deed of title and then apply for planning that way as a separate plot.

I have figured that it would cost about £150k all in to build the property – builder/architect etc. They let for £1200/month. Value would be between £350k to £375k.

The exit strategy would be to mortgage out on the new property on a BTL basis, for around 75% LTV, on say the £350k, release £262k. Pay off the development cost and go and do it again.

I have been recommended an architect (although he’s based in Australia) and builder – obviously based here. I would be grateful for tips and pitfalls especially with respect to structuring this deal.

By way of finance, we can remortgage some funds from BTL properties we already own to potentially release the deposit for the new one.

Would also need to release around 30% of the development cost and apply for a development loan to finish off the work. We would aim to put the properties into a Limited Company for long term hold with no plans to sell.

Has anyone got any gems of advice? Pitfalls etc. I would be immensely grateful for any tips.

Thanks

Ivan



Comments

RODNEY CRABB

9:41 AM, 7th July 2020
About a month ago

200k profit is very good for a 150k build. Are you sure you'll get planning. Surprised othef small developers haven't noticed these. I'm always looking as nd deals are hard to find

Christopher Marsden

9:57 AM, 8th July 2020
About a month ago

Hi and good luck with your project. I spent 25 yrs in construction and in the last 14 yrs of retirement have purchased and refurbished /extended 6 properties in 9 separate projects sometimes influenced by finance and markets.
I would not use an architect in or from Australia. Stay local and consider architectural technicians who tend to be cheaper and more switched on in my opinion. You're not looking to win an award but create a low maintenance low running reg compliant building. Don't leave legacy issues you might want to trade on. The planning issue may need specialist advice and the right legal advice is key here. Spend a lot of time referencing the people you are going to work with and talk to as many of their clients as possible. If in doubt don't employ them listen to your gut. Whatever your cost contingency is and it should be high min 20% plus some more for covid 19. materials are going through the roof £46 for a bag of plaster and 50% of building costs approx are materials. Depending where you are some areas are mad busy. Good builders wanting 18 months to 3 years notice!!! There are opportunities out there but understand the risks.

matchmade

9:38 AM, 11th July 2020
About a month ago

1. One word: Planning. Be very cautious over choice of sites as officers can get funny over 'sensitive' corner plots and 'walling' when you start infilling side land, especially if your "2 up 2 down" comment means it's in an historic Victorian-era part of town. Crappy post-war suburbs will be less of a problem. Read the Officer reports on the sites you say already have planning - where are the sticking points? Ask local building-cost aware architects or arch technicians for their views. Use the ones who did your model sites, if they seem good.

2. Find out via Building Control who built the existing developments you've spotted. Ask the builders how it went + real-world building costs. If they're good, offer them work (experience pays). £150K per unit sounds v. optimistic but you haven't said how big they are.

3. Do your figures include stamp duty + 3% and CIL? CIL is £350 per M2 in my area, so hefty.

4. Splitting title - why? Is this to create a new mortgage-able entity? Won't your mortgage provider on the original house want to know and object? Or are you buying existing for cash?

5. Any estate agent I know will seek premium prices on plots with side land, especially when they see you or others building a rash of them. Word gets out. If you get the land for near-free you are doing very well and it won't necessarily last. Perhaps spread out your area of operations so what you're doing isn't so obvious.

6. Capital financing sounds sensible, but income? £350K X 75% BTL loan X 6% interest rate means you are making nothing on £1200 a month Why bother holding? I reckon house prices, what with low wage growth, Brexit and Covid-19 Depression, aren't going to go anywhere for at least 10 years, guaranteeing low ROCE. Better to sell most units and move on?

Or are you expecting big increases in inflation because of central bank QE? This will sweal away your 75% debts nicely, so there's an argument there in favour of holding high debts despite very low net income. I'm not sure it's something to bet your whole portfolio on though. Better to keep your capital moving until you can finance everything with cash, and perhaps consider larger or alternative new-build projects

e.g. small supported-living houses and flats for adults receiving state-funded care services. Councils are desperate for new units, and they are no more complex to build than normal houses. Third-party care providers and property management and maintenance costs are funded separately by the Councils' care commissioners and you get guaranteed rental income at normal market rates. No tenants to find or deal with, no repairs, few voids.

matchmade

10:17 AM, 11th July 2020
About a month ago

Reply to the comment left by Christopher Marsden at 08/07/2020 - 09:57
Yeah Graham, a few people are trying it on. We were quoted £280 + £50 delivery for a shower tray in late May, normal cost £130. We told them where to go and will wait for things to settle down on certain items. Buy in bulk and the big firms are coming in OK plus a bit. Trade labour is more expensive but demand is very high and Covid-19 procedures can slow then down, which is not their fault. We are working like mad to catch up and have four new planning permissions to work through. We are very optimistic!

And we're finally not getting the "I'm not sick, I don't know anyone who is, but the missus says I should stay home" line any more. Hopefully the nation's extended 2020 'sickie" is over. And I don't mean to sound flippant: of course it's been horrible and still is for a good number of people.


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