Property Development

[XJ75]

Bit of background; I've always been interested in property, I have a couple of BTLs, my father is a retired builder and my uncle is also a bit of a property investor. I'd love the opportunity to get more involved in property and something has come up that has piqued my interest.

A family member is considering going into a home so her property could well be on the market some time next year. It's a small semi-detached bungalow on about 0.3 acres. Assuming I was to buy it and then also had the opportunity to purchase the adjoining semi, I would have a plot of about 0.6 acres in a highly sought after village in a good location. Note that for simplicity's sake, I have assumed I will be able to acquire the adjoining property, this may or may not happen. I'd imagine the cost of acquiring both would come in at around £900k (£450k each).

I'm far from an expert on building houses, but I would imagine that by today's standards, I could probably squeeze 4/5 new build properties on the plot. Again for simplicity's sake, I'm assuming that planning permission isn't an issue.

My question is; is this just a fantasy that should be left to experienced developers, or is a project of this size a possibility for someone like me? One of the biggest hurdles will be finance. I'm not sure what my options are likely to be for this kind of project, I'm guessing most lenders will only be interested in talking to experienced developers? I have access to a reasonable amount of cash, but I'm not sure if it will be enough for a "deposit" for this kind of project.

I did some man maths; assuming I build 5 x 3-bed houses, I would hope that the purchase + build costs come in at around £1.75m. I would hope to sell each property for £500k, so giving me a total of £2.5m. Leaving me a gross profit of £750k? Obviously I'd have to spend a bit more time on the feasibility analysis.

I'm just thinking out loud with this post, I'll happily be told that I'm mad and I should steer clear!

Edited by XJ75 on Tuesday 19th December 09:26

[AyBee]

You're mad, steer clear

Your assumptions in this scenario are pretty fundamental to your business plan. What happens if you buy 1 and can't get the second? What happens if you buy 1 or 2 and then can't get planning permission? If you can afford to buy both and stick in a planning application (plus architects fees etc), then go for it, but I don't think anyone would lend you the money until you had both houses purchased and planning permission granted.

[Classy6]

Just to add, (and I'm by no means an expert but looked into something similar last year to build one house on a plot for investment gain)..
If you could secure all the hypothetical variables above, you will more than likely be looking at a bridging loan to provide the cash to afford the build. This will require assets to secure against the value of the build, which in your situation is fairly substantial.

I also would not under estimate trying to get planning permission in a sought after location to develop an existing build into multiples. The cost, time and hassle was eventually why we dismissed the opportunity.

Good Luck though!

[KevinCamaroSS]

Plot in a highly sought-after village? Planning permission may well be far harder than you think!

[JQ]

If you can afford to buy both houses cash, then should be ok subject to everything else falling into line!! A friend is doing something similar currently, purchase price was £1.3m and has just secured funding for the build, however, the bank would only fund the build, he had to provide the funds for the purchase.

If you don't have £1m lying about, then can I suggest starting a bit smaller and cutting your teeth on something more realistic. Or how about just refurbishing / extending the existing house and turning for a profit. Or if you really wanted to be cheeky, you could just offer to refurb / extend the house for free with the relative retaining ownership subject to you taking a 75% share uplift of the value of the house post works, or whatever % works. Would then give you some capital for the next opportunity.

[dogz]

If I was you, I would have a chat to the local planning inspector to see what they would view favourably and what they wouldn't

Converting a single plot to 5 houses will be tough and I would guess objected to by pretty much all in the village. Local objection won't be enough to get it rejected but it won't help your case and it could mean problems once you start the development. People who feel they have been slighted can be a real pain the arse

You should be able to obtain a commercial loan but I'd expect to be putting down 40% or 50% of land and build costs

Every property developer has to start somewhere and if everyone looked pessimistically on a project, none would ever get started.

Just be objective, realistic and budget accordingly - there are always unforeseen issues and these always cost more to rectify that the slush fund you have set aside

Best of luck!!

[Muncher]

Without going into too much detail I have done similar on a slightly bigger scale, so it is possible. Not easy, but possible.

Planning is the key, expect to have to cough up roughly half the purchase price in cash with the remainder funded by the bank on a BTL, plus a significant wedge on fees and SDLT at the enhanced rate.

You will need pretty solid knowledge of the planning process, plus access to trustworthy professional advisors.

[Equus]

XJ75 said:

I'm far from an expert on building houses, but I would imagine that by today's standards, I could probably squeeze 4/5 new build properties on the plot.

This will very much depend on the context of the plot. As others have suggested, unless you have a pair of oversized plots, conveniently surrounded by much denser development, it is unlikely to be as straightforward as you think.

If you're serious though, PM me... this sort of stuff (development planning and technical feasibility) is very much what I do for a living.

[iphonedyou]

XJ75 said:

my uncle is also a bit of a property investor.

A bit off topic, and no harm meant, but it always amuses me when people use that phrase. You never hear people say 'I'm a bit of a restaurateur'.

XJ75 said:

A family member is considering going into a home so her property could well be on the market some time next year. It's a small semi-detached bungalow on about 0.3 acres. Assuming I was to buy it and then also had the opportunity to purchase the adjoining semi, I would have a plot of about 0.6 acres in a highly sought after village in a good location. Note that for simplicity's sake, I have assumed I will be able to acquire the adjoining property, this may or may not happen. I'd imagine the cost of acquiring both would come in at around £900k (£450k each).

Something to be aware of; buying from a family member selling under certain circumstances with the intention to profit off any future development - even where the purchase is made at market rates - can potentially give rise to issues.

I think the assumption about being able to procure the second house (particularly at same value to first, following which purchase your intentions will be fairly transparent) is risky. Particularly where the profitability of any end scheme is predicated to such a degree on that assumption.

XJ75 said:

I'm far from an expert on building houses, but I would imagine that by today's standards, I could probably squeeze 4/5 new build properties on the plot. Again for simplicity's sake, I'm assuming that planning permission isn't an issue.

I've tried assuming that on all of my schemes. It hasn't worked to date!

XJ75 said:

My question is; is this just a fantasy that should be left to experienced developers, or is a project of this size a possibility for someone like me? One of the biggest hurdles will be finance. I'm not sure what my options are likely to be for this kind of project, I'm guessing most lenders will only be interested in talking to experienced developers? I have access to a reasonable amount of cash, but I'm not sure if it will be enough for a "deposit" for this kind of project.

You'll need a bridging loan, backed with significant assets, and a ton of cash upfront. The rate will make your eyes go squinty when you see it.

XJ75 said:

I did some man maths; assuming I build 5 x 3-bed houses, I would hope that the purchase + build costs come in at around £1.75m. I would hope to sell each property for £500k, so giving me a total of £2.5m. Leaving me a gross profit of £750k? Obviously I'd have to spend a bit more time on the feasibility analysis.

Possible - ish. Assuming - risky! - £900k land, that leaves £850k for the 5 houses. Say, 1400sq ft @ £110 / sq ft x 5 gives £770k, or £1.67m leaving 14% for professional fees and stats (planning, building control etc.) which is comfortable.

Not convinced £110/sqft buys you something saleable domestically @ £500k, much more per sq ft and you're losing the size that market needs.

The above dependent on a million factors, including where you're at!

Bottom line - get some serious, honest feasibility calcs done; get Equus to draw up some outlines and have him represent you at a pre-application meeting. He seems a good sort!