I Am A Property Developer – Ask Me Anything!

Reply to the comment left by "Tony Atkins" at "08/12/2015 - 16:09":

Thanks for your response Tony.
I have been speaking to my accountant and he is getting stumped as well especially to ensure we don't get into 'tax evasion'.

I was planning to set up a lettings company for 'rent to rent' to reduce VAT. I guess I'll have to take some specialist VAT advise for tax planning and Companies' structure.

I have filled up an enquiry for tax advise elsewhere on this forum and await a contact.

Many thanks again.

I believe you will have to charge vat on the commercial premises rents, and they will reclaim if they are registered, if not suffer that as a loss, but there is no vat on residential sales or rentals. When buying commercial premises where an option to tax has been made (which can not be rescinded for some considerable period) both parties should be or become vat registered, then no vat has to be charged on the purchase. This reduces chance of fraud, and aids cash flow. This does not mean you have to charge vat on any other commercial premises you deal with. Look up regs for TOGC.

Hi Tony,

We have a town house in London Zone 2 area and we are thinking about splitting this into 2 flats (flat 1 – ground floor and first floor and flat 2 second floor and loft) to increase both rental income and valuation. The rear garden door is perfect for secondary entry.where

It sounds like a valid option, however we have no idea what is the first, second and third steps to validate and implement this. Potentially there are several people we have to make sure are happy, such as lender’s valuation before and after split, council (planning and building control), solicitors, utility companies, architect, etc. Could some one give us a steer on this topic?

Many thanks.

Regards,

Fei

Mobile: 07403 247 859

Hi Tony,

I am looking at buying an ex-local authority one bedroom flat (48 square metres) in London. Structurally it is fine and has new doubleglazing - but needs a complete renovation inside - new bathroom, kitchen, floors, electrics etc. How much roughly do you think this would cost about? I have zero skills myself (although I could paint if needed!) so will need to get it all done by someone else.

Thanks!

Hello Tony,

Any thoughts or advice would be much appreciated..

I have £200k to put towards my next property development project

I am looking to buy in the South East, for property up to £320K+

Either buying at auction, to renovate and sell on.
Or converting a commercial property B1s etc, to residential,and sell on.

I will have to get finance, either development or bridging loan. Bearing in mind my capital are there any other loans/options worth considering?

I understand I can borrow up to 75% LTV of the property, what in your opinion would be a sensible percentage of my money to use?

I have done my homework on Permitted Development, but I'm none the wiser whether I'll have to make a Full Planning Application and change of use, when converting a commercial to residential.

Look forward to hearing form you.

Nick

Reply to the comment left by "nick Cave" at "16/03/2016 - 19:22":

Hello Nick,

I'm not a finance specialist so please speak with some banks and a broker who specialises in development loans. But in brief your options are:

1) buy a run-down but rentable property with a BTL loan, renovate and sell. Some small lenders also offer "renovation" mortgages for owner-occupiers if you can make a case that you will eventually occupy the property (though really planning to sell, or considering it). The margins are lower but in a rising market you can make it work.

2) buy a non-rentable property (or a new-build site with planning permission) at auction or on the open market using a development loan from a bank. A provable track record and company accounts helps. In my experience you are being too optimistic with 75% LTV: a more likely figure is 50% for the site and 60% for the renovation costs. Typical interest rate 5-6%, plus fees.

3) as with 2), but using so-called mezzanine finance. You will get a higher LTV and a quicker decision but you will be paying credit card rates of interest: 1.5-2% a month, plus fees. This can wipe out much of your profits, so you need to check your numbers and have a fast-working builder, and even then you will be punished if you struggle to find a buyer or the buyer faffs around before completion.

4) you could try raising extra capital from crowdsourcing sites. Again, a track record helps. Or try and secure more capital from friends and family, or by advertising or networking to find a business partner.

As regards how much capital to use, it depends on your area of operations and the cost of local housing. Where are you based?£200K is just about enough to allow you to operate in the South-east: for example, you could build a new 2- or 3-bed house in many areas, if you can find a viable site (and that's a big if). I'd say you're going to need every penny of that £200K. Cash is king in development work: it is a very capital-intensive business.

As regards permitted development conversion of commercial property, this is a boom area at the moment and you may struggle to find a viable property at the right price. It has the huge advantage that you don't have to pay any CIL or S106 taxes, which are getting very expensive as they are a golden goose for cash-strapped councils, you don't get stung for social housing (again, hugely destructive for small developers, which is another reason why so many have gone out of business since 2008), and you don't have to provide all the amenities such as dedicated parking spaces and a garden or prepare all the ad-nauseum environmental reports that are required for new-build housing by highly-prescriptive council Design Guides, Local Plans, Supplementary Planning Documents, and the rest. If you can get the conversion through building regulations and are providing sufficient parking so that the finished flats are sellable, then you can start, without jumping through endless hoops to get new-build planning permission.

I'm not a planning consultant but believe you are required to seek planning permission, but the minimum requirements to be accepted are much, much lower than with new-build housing or even residential extensions. I would advise that you don't seek to be over-ambitious with extending the commercial premises, adding overlooking windows and the like - these remain grounds for refusal. The best conversions simply work with the existing built form and existing windows, add at most a staircase or the odd window (opaque if necessary) for new bathrooms, and show there is sufficient parking. After that it's between you and the Building Inspector to ensure the flats are safe, well-insulated and quiet and generally meet the regs.

However I repeat, £200K is on the low side for such conversions, and will limit the number of premises you can consider, plus you will be competing with all the other small developers and builders who are playing the same game. You may be better advised to try and join forces with another developer or a builder so you can move up the food chain and widen your options.

Reply to the comment left by "Fei Yu" at "08/03/2016 - 13:31":

Hello Fei Yu,

Apologies for this late reply: for some reason I didn't receive - or failed to spot - my normal email alert that someone has posted a new query on this board.

There's a lot involved in what you are asking and my advice would be to find a local architect who has taken a similar conversion successfully through planning and building control, and he or she will guide you. If you don't know anyone, look at previous planning permissions on your council's website and see who made the applications. But in brief:

1. You need planning permission and you need to satisfy building regulations as regards fire safety, insulation and noise in particular. Probably the key initial issue is access: how will people get independent access to the upstairs flat? You say the rear garden door is perfect for access, but how do people get to that door? If it's a typical terraced London town house, there will need to be a shared entrance or independent rear access to the site. And which flat will have the use of the garden? If the garden is to be shared, will this overlook the ground floor flat at the rear? The owners of the downstairs flat are not going to be impressed if the upstairs people are always using the garden and staring in their rear windows, and this could be grounds for refusal of planning permission.

Also, you need to check your local council's policies on issues like parking. Is there sufficient street parking, or does the council allow conversions without parking, provided there is enough public transport locally? There will then be a whole load of questions about amenity/garden space, bin storage locations, where to site utility services, bathrooms etc. This is why you need an architect or architectural technician.

2. Party Wall Agreements: if you are within 3 metres of a neighbour's property, you will need to notify them of the works and they will want to validate that you are doing these properly and not likely to damage their property. They can't stop you from doing what you want to do, without extreme steps like going to court, but you will need to pay for the cost of their surveys to check the "before" and "after" condition of their properties.

3. Mortgage: unless you have a very flexible current provider, you will need to remortgage, probably with a temporary development loan, which will only give you a LTV of 50-60%, so if you already have a high mortgage, you will need to find more cash. Lenders do not like borrowers doing major works to their properties without permission. All you can do is show them your plans and ask their position. After you've done the works, you will need to have separate mortgages on each flat, as they are separate legal entities.

4. Solicitors - a minor issue. Splitting a freehold house into two leasehold flats is easy.

5. For the actual building works, assuming the financial numbers work, you sound pretty inexperienced so I would recommend that you consider employing a project manager as well as a builder. You need someone with experience to represent you in discussions with the builder, the building control inspector and your lender's surveyor. This could be your architect, or someone who is also a quantity surveyor (useful for controlling costs), or a private building control inspector, who can manage the construction work and check it meets the building regulations at the same time.

6. Don't worry about utility companies. If the architect can see a viable route for elec, gas, fresh water and sewerage for the upstairs flat, the utility providers will do the necessary work.

Reply to the comment left by "N S" at "08/03/2016 - 13:57":

Hello "N S",

I suggest you look on the website of Homebuilding and Renovating magazine: they have numerous breakdowns of renovation costs. But roughly, assuming you don't want anything fancy and aren't changing the rooms by knocking-through or anything, I'd say £4K to rewire, £2,000 for a new bathroom, £4,000 for a small DIY kitchen, £3,000 to replaster after stripping back and doing the rewire, £4000 if you need to get a new boiler, hot water tank etc (£1500 more if you go for underfloor heating to get rid of the radiators), £2000 for a carpenter to replace all the doors, install the kitchen and perhaps add a built-in wardrobe and other storage spaces, and £3000 for flooring (tiles, wood floors, carpet). But this is such a moveable feast because it depends how nice you want to make it and the ultimate resale or rentable value that you're looking to achieve. And I expect London tradespeople don't come cheap either. Given your lack of experience I suggest you just get some quotes from a builder or a tradesperson who can recommend the rest of the team and is prepared to project-manage them. Your main role will be in specifying what to install and checking you are happy with the quality. Be patient but also be firm, make it very clear what you are looking for, and set some deadlines.

Reply to the comment left by "Tony Atkins" at "17/03/2016 - 11:25":

Hi Tony,

Thanks for the long answer. After submitting my question, I have got in touch with several professionals as you have mentioned in the answer, such as architect, mortgage adviser and solicitor, etc. Like what you have said, seeking planning permission approval is the first thing to crack on.

We have done home extension work before, so are comfortable with all things involved. The flat sub-division is slightly outside my comfort zone. But after the research and seeing your answer, I have clearer picture about the whole process. Appreciated!

Regards,

F

Mobile: 07403 247 859

Hello Tony,

I have a 1st floor maisonette which has it’s own front entrance. Also it has another flight of stairs at the rear of the property accessed via the kitchen, which we don’t use much and the space would be very useful storage. I’d like to remove the staircase but wondered if this would be allowed ? I wouldn’t be making any changes externally or structurally – just removing the staircase and putting a floor in.

Would appreciate any opinions

Many thanks in advance

Peter