Profit margin on new house building?
Discussion
Lets say I had half a million or so cash burning a hole in my back pocket, and the same again in assets that could be mortgaged.
If I - with no building experience - were to buy some land in a good area in the SE, hire an architect, build a house (say a 5 bed detached) - sell the house and repay the bank lending, what sort of profit should I expect to make?
Bearing in mind I would need to employ all builders and a project manager too.
If I - with no building experience - were to buy some land in a good area in the SE, hire an architect, build a house (say a 5 bed detached) - sell the house and repay the bank lending, what sort of profit should I expect to make?
Bearing in mind I would need to employ all builders and a project manager too.
There are so many variables here.
Buy cheap land and take risk on time/costs to get PP.
Land with consent is expensive.
You have to say that for the variables and risk a return has to be over 20% to be viable.
How you sell is also important. Need to consider CGT or move into it for 6 months to avoid this.
You need to put together a development appraisal to work it all out. People think it's easy money, it's not and if you think it is you will get stung.
Buy cheap land and take risk on time/costs to get PP.
Land with consent is expensive.
You have to say that for the variables and risk a return has to be over 20% to be viable.
How you sell is also important. Need to consider CGT or move into it for 6 months to avoid this.
You need to put together a development appraisal to work it all out. People think it's easy money, it's not and if you think it is you will get stung.
Location, location, location.
The guy who owns the land in the right location makes the biggest return, with very little risk.
Having said that, if you have cash burning a hole and can make some sound judgement, you will definitely make more than putting that sum on deposit.
Get it dead right, and you could do somewhat better than every collective investment in the stock market.
But CGT, could dent your return and then you have the same dilemma to repeat that success ever 2-3 years.
I think the key is to decide what risk / reward / effort profile you are really prepared to accept.
The guy who owns the land in the right location makes the biggest return, with very little risk.
Having said that, if you have cash burning a hole and can make some sound judgement, you will definitely make more than putting that sum on deposit.
Get it dead right, and you could do somewhat better than every collective investment in the stock market.
But CGT, could dent your return and then you have the same dilemma to repeat that success ever 2-3 years.
I think the key is to decide what risk / reward / effort profile you are really prepared to accept.
I'm sure people used to say that make-up of a new-build house price was one third land, one third build cost and one third margin. But on a one-off you've got the cost or services to the site which, which you can't spread over multiple units. And the one third land cost will be with planning; the cost of planning itself could be high? And if there's any chance of getting getting planning I imagine it'll be built into the price you pay for the land. Play the long game and buy agricultural land that has development potential in the future and you could make money there maybe...?
Land with planning for a single house or pair of semi's will effectively be priced retail by the land owner assuming the buyer is not a developer chasing profit. So the margin you'll be left with will be desperately small or even negative depending on how well you manage the build.
Land without planning should be far more realistically priced but you'll need to stand all the professional fees needed to secure planning, which may be a lot if the location is not earmarked for housing..
There is profit to be made for an astute investor that researches the area, professional fees, build costs and likely sale prices.
Unfortunately £1m in south east doesn't get you much these days.
Land without planning should be far more realistically priced but you'll need to stand all the professional fees needed to secure planning, which may be a lot if the location is not earmarked for housing..
There is profit to be made for an astute investor that researches the area, professional fees, build costs and likely sale prices.
Unfortunately £1m in south east doesn't get you much these days.
It used to be that it was a third for land, a third for buiding and a third for profit.
Nowadays I believe that it's half for the land and the other half split.
So your house should be worth double the cost of its plot, when finished.
How much can you squeeze out of your half in order to give HMRC (your partner) some CGT.
What about buying half a street oop North for buy to let instead.
Three bedroom semi's with no stamp duty to pay
Nowadays I believe that it's half for the land and the other half split.
So your house should be worth double the cost of its plot, when finished.
How much can you squeeze out of your half in order to give HMRC (your partner) some CGT.
What about buying half a street oop North for buy to let instead.
Three bedroom semi's with no stamp duty to pay
"With no building experience"... I assume that means you won't actually be building it yourself then?
1. You'll almost certainly go over your cost estimates.
2. Any builder worth paying for will absorb most of your profits - before the cost overrun
3. What are you bringing to the game that the professionals you are employing do not? Consider why they aren't all retired and living in the Caymen Isles.
Self building is possible because you can avoid the VAT and CGT. Once you get out of the comfortable niche, you have to find a way to bring down the costs as far as possible to make a profit. That usually means doing as much as possible in house, and/or getting economies of scale (build five houses of similar design, not one).
The only exception would be if you happen to be a marketing genius with a client list to die for, and can sell a premium 'bespoke' product to a wealthy rock star. If that's not the case, it's just a house.
1. You'll almost certainly go over your cost estimates.
2. Any builder worth paying for will absorb most of your profits - before the cost overrun
3. What are you bringing to the game that the professionals you are employing do not? Consider why they aren't all retired and living in the Caymen Isles.
Self building is possible because you can avoid the VAT and CGT. Once you get out of the comfortable niche, you have to find a way to bring down the costs as far as possible to make a profit. That usually means doing as much as possible in house, and/or getting economies of scale (build five houses of similar design, not one).
The only exception would be if you happen to be a marketing genius with a client list to die for, and can sell a premium 'bespoke' product to a wealthy rock star. If that's not the case, it's just a house.
one of my plumber/electrician's biggest clients is a property developer in the Bedfordshire area - he's had a few projects going on in MK and Bedford - I asked the plumber if building a house is a viable alternative to buying these days. He said this guy always builds a minimum of 4 (sometimes even 10-20) next to each other, as it helps spread a lot of the fixed costs involved, plus bulk buying reduces prices too.
Having said that, it looks like the business model for you will be to build something bespoke and really high end - this is where traditional logic doesn't apply, since there's always someone with enough money to buy top end stuff - to make sure this kind of property really ticks the right boxes, top of the list would be getting a home automation system installed. It's relatively cheap and adds a lot of "perceived value" to a house - which will make it attract the top end of the market - remember, standard rules don't apply at the top end!
p.s. interesting username - have you been out to the jungle?
Having said that, it looks like the business model for you will be to build something bespoke and really high end - this is where traditional logic doesn't apply, since there's always someone with enough money to buy top end stuff - to make sure this kind of property really ticks the right boxes, top of the list would be getting a home automation system installed. It's relatively cheap and adds a lot of "perceived value" to a house - which will make it attract the top end of the market - remember, standard rules don't apply at the top end!
p.s. interesting username - have you been out to the jungle?
home said:
Having said that, it looks like the business model for you will be to build something bespoke and really high end - this is where traditional logic doesn't apply, since there's always someone with enough money to buy top end stuff - to make sure this kind of property really ticks the right boxes, top of the list would be getting a home automation system installed. It's relatively cheap and adds a lot of "perceived value" to a house - which will make it attract the top end of the market - remember, standard rules don't apply at the top end!
The trouble with bespoke is you need to find the exact match client - if you used Italian marble and they expect Russian, it's a no sale. You only need to find yourself sitting on a property for an extra six months and your profit margin means nothing.I know of a house that was bought by some lottery winners, gutted and completely restyled. High end everything - it's been on the market for a year now. Home automation is perhaps the biggest risk - it goes out of date in a blink. Think of all the places built only last year that don't properly work with Alexa or Google Home.
Tuna said:
home said:
Having said that, it looks like the business model for you will be to build something bespoke and really high end - this is where traditional logic doesn't apply, since there's always someone with enough money to buy top end stuff - to make sure this kind of property really ticks the right boxes, top of the list would be getting a home automation system installed. It's relatively cheap and adds a lot of "perceived value" to a house - which will make it attract the top end of the market - remember, standard rules don't apply at the top end!
The trouble with bespoke is you need to find the exact match client - if you used Italian marble and they expect Russian, it's a no sale. You only need to find yourself sitting on a property for an extra six months and your profit margin means nothing.I know of a house that was bought by some lottery winners, gutted and completely restyled. High end everything - it's been on the market for a year now. Home automation is perhaps the biggest risk - it goes out of date in a blink. Think of all the places built only last year that don't properly work with Alexa or Google Home.
Home Automation is a very wide spectrum of kit. From experience, it needs to be narrowed down to which sub sector has the largest desirability. Currently Security and Lighting on bigger projects. After that it tends to be a pretty even split between music and video. Get it wrong and it gets viewed as a milestone that isnt understood. Get it right and it adds value and generates a premium.
V.
VEX said:
To be honest, not much new stuff works with Alexa or Goggle Home.
Home Automation is a very wide spectrum of kit. From experience, it needs to be narrowed down to which sub sector has the largest desirability. Currently Security and Lighting on bigger projects. After that it tends to be a pretty even split between music and video. Get it wrong and it gets viewed as a milestone that isnt understood. Get it right and it adds value and generates a premium.
V.
Assuming we are talking an expensive installation in a high end house then it should come with a maintenance contract. Any home automation installer at that level should be able to put in an OpenHab or similar middleware to act as a bridge between the existing system (even an older one) and Alexa. It might be possible to do this with Google Home but I haven't tried it unlike Alexa.Home Automation is a very wide spectrum of kit. From experience, it needs to be narrowed down to which sub sector has the largest desirability. Currently Security and Lighting on bigger projects. After that it tends to be a pretty even split between music and video. Get it wrong and it gets viewed as a milestone that isnt understood. Get it right and it adds value and generates a premium.
V.
The point is, it's a minefield and there are plenty of 'experts' who all have different opinions. If you don't know what you're doing it really won't add value, and likely will cost over the odds anyway.
The OP was asking about profit margin on building a new house. If all they are doing is providing equity, the answer is - potentially very little.
The OP was asking about profit margin on building a new house. If all they are doing is providing equity, the answer is - potentially very little.
Don’t listen to any of the people above, what I tend to find is that the majority of people who doubt you are either potential rivals who don’t want you to enter the market or they’re people who are jealous. The profits you can make from house building, especially if you get it right, can be enormous. For example, if you manage to buy a plot of land for £100,000 in the southeast and gain planning permission on that plot of land for let’s say two 3-bed houses, not only will the value of that land increase to over £250,000 but you can also build two 3-beds on that land for less than £130,000 each if you manage materials correctly and get good rates. Plus legal costs, architect fees, planning consultation and a loan consultation (if you need one), your total costs for the project will be around £400,000. You can then sell both of those houses for £350,000 each, making £700,000 revenue and £300,000 profit. You will obviously get taxed on that aswell and there may be other legal fees you have to pay. I’m a quantity surveyor for a building firm in the south east and I have a construction management degree and these kind of profits are not uncommon which is why so many people do it. Don’t listen to anyone else, property development is the way to go especially with new builds. My advice would be to build houses that are affordable with low costs, this is because there’s a larger market for these houses due to more potential buyer. Building luxury houses isn’t the right choice.
Lewistbrown said:
Don’t listen to any of the people above, what I tend to find is that the majority of people who doubt you are either potential rivals who don’t want you to enter the market or they’re people who are jealous. The profits you can make from house building, especially if you get it right, can be enormous. For example, if you manage to buy a plot of land for £100,000 in the southeast and gain planning permission on that plot of land for let’s say two 3-bed houses, not only will the value of that land increase to over £250,000 but you can also build two 3-beds on that land for less than £130,000 each if you manage materials correctly and get good rates. Plus legal costs, architect fees, planning consultation and a loan consultation (if you need one), your total costs for the project will be around £400,000. You can then sell both of those houses for £350,000 each, making £700,000 revenue and £300,000 profit. You will obviously get taxed on that aswell and there may be other legal fees you have to pay. I’m a quantity surveyor for a building firm in the south east and I have a construction management degree and these kind of profits are not uncommon which is why so many people do it. Don’t listen to anyone else, property development is the way to go especially with new builds. My advice would be to build houses that are affordable with low costs, this is because there’s a larger market for these houses due to more potential buyer. Building luxury houses isn’t the right choice.
I'm actually genuinely interested and certainly not looking to argue. I also have no experience of house building but in South Bucks/West Herts, sites with planning (based on Rightmove) seem to be marketed at such a price that putting up a garden shed is prohibitive. I often think that the ones that don't come to market must be where the money is. I think there are a lot of clever people, in 2012, a guy who took his kids to the same school was doing housing but got caught out (if we take at face value). He had a good sub contract crew and according to him to keep them working and available, he took more and more projects just waiting for the banker!. In the end he took himself out of the game.
I'd like to do it and have money but I do think that there is more to it and ultimately owing some Peer to Peer lender 800K and trying to sell a few houses could spell disaster.
Most of the profit is made gaining planning.
Very little of it is made during the build.
Therefore you could wither...
-Buy land without planning, gain planning and then sell (for a reasonable profit v time/hassle/risk)
-Buy land without planning, fail to gain planning and lose a lot of money
-Buy land without planning, gain planning and build for a potential (but not guaranteed) profit
-Buy land without planning and build to potentially make a very small profit (with lots of time/hassle/risk)
It's honestly not as easy as people think.
To make any decent money you have to take big risk, which means you could potentially lose the lot.
Very little of it is made during the build.
Therefore you could wither...
-Buy land without planning, gain planning and then sell (for a reasonable profit v time/hassle/risk)
-Buy land without planning, fail to gain planning and lose a lot of money
-Buy land without planning, gain planning and build for a potential (but not guaranteed) profit
-Buy land without planning and build to potentially make a very small profit (with lots of time/hassle/risk)
It's honestly not as easy as people think.
To make any decent money you have to take big risk, which means you could potentially lose the lot.
Lewistbrown said:
Don’t listen to any of the people above, what I tend to find is that the majority of people who doubt you are either potential rivals who don’t want you to enter the market or they’re people who are jealous. The profits you can make from house building, especially if you get it right, can be enormous.
You've rather missed the point there. No-one is arguing there aren't profits to be made. The point is largely that if you have no experience in the industry and will be relying on professionals to do all the work for you, you're possibly going to have a hard time of it.The same applies to my job in IT. Yes, companies make millions out of apps. If someone comes to me saying "I've got a great idea for an app, can you build it?", I can pretty much guarantee they're not going to succeed.
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