Looking at first development project, two potential opportunities

[Spainy86]

Hi all, 

 

This is likely a bit of a cross over really. It has always been a dream of mine to do a self build for myself and/or to get into some sort of property development alongside my current full time job.

 

I have been on the look out for properties and land that tick the boxes for me in terms of taking the first step on the ladder and also done plenty of reading and research into self builds, etc.

 

At the moment, I have my eye on two potential opportunities but both are very different - details of both are attached.

 

The first one is a development plot that is on the market for £165k. It is effectively a tractor shed and accompanying land with planning permission to change the current tractor to shed into a pair of architect designed semi detached properties. Under the current plans, one dwelling would be a three bedroom property and the other a one bedroom property and both properties will have an additional mezzanine level that could be used as additional storage space. The property comes with considerable land and is adjacent to open countryside to the side and rear.

 

This is the more interesting of the two. My initial thoughts would be to convert the shed into semi-detached properties (potentially live in one short term) and once completed, separate the two properties from the remaining land, sell them both and put any profit towards doing a self build one larger detached dwelling within the section outlined in blue (subject to planning, obviously). If not, then potentially to just sell the properties and make a profit to put into another project.

 

I fear that I am making that sound more straight forward that it perhaps might be, however.

 

The second one is completely different, it is a rurally based stone built 4 bed farm cottage with existing outbuildings set on a private lane with detached garage, oversized drive and large garden. It is on the market for £395k. The cottage itself is more than habital but is desperate need of modernisation (however I fear this would be something of a money pit). The bigger appeal with this one is actually the potential for building an additional property at the bottom of the garden (the red outlined section) and again, potentially sectioning the respective properties off and selling the property on once the build is complete. Planning permission may or may not be an issue with that but that is an area where I am a complete novice.

 

My gut feeling is that option one would be more straight forward, also with less of an initial outlay and already has planning permission. I am in full time employment so whilst I am willing to get my hands dirty when it comes to labour, my DIY skills are almost non-existent so I would be relying on contractors and tradesman for the majority of any work undertaken.

 

That said, feel free to tell me to 100% steer clear of both if you think both would be a terrible idea as a first venture in property development!

 

Thanks in advance all.

Tractor Shed.pdf 4 bed farm cottage.pdf

[Mr Punter]

Hi @Spainy86 and welcome

 

I do this sort of thing for a living.

 

The most important factors are (1) the achievable sale price (GDV) and (2) the costs (land, stamp, build, fees, finance).  It is also important that there is a ready market for the finished units at your GDV, otherwise you will be sitting on them while all the time unable to move to the next project (as many on here have experienced).

 

Work out the profit you need and hey presto you are a developer.

[Spainy86]

Thanks for the prompt response. All things that obviously need to be taken into account, what would be the best way to try and establish an approximate GDV? Particularly on the shed conversion, for example. Presumably that is quite difficult?

[Russell griffiths]

That second one says under offer, 

[Mr Punter]

1 hour ago, Spainy86 said:

Thanks for the prompt response. All things that obviously need to be taken into account, what would be the best way to try and establish an approximate GDV? Particularly on the shed conversion, for example. Presumably that is quite difficult?

 

Look at compatible sold values.  Ask a couple of estate agents.  Look at values per square metre in the area.  2 easiest ways to mess up are overestimate the GDV and underestimate full costs.

[Ferdinand]

I do not do this for a living (yet), but I have had my eye on it for a number of years, and I have my likely strategy fairly well developed. I have done a significant size PP and sell with Outline.

Q: Why do you think that restoring a cottage will be a potential money pit, but that does not apply to converting a tractor shed?

 

My comments:

 

1 - You need a hell of a lot more potential margin / spare capital than you think you do. Everyone will want their pound of flesh. 

2 - The mindset of develop vs self-build is entirely opposite. The former is about risk reduction, cost control, what other people want and profit. That latter is about what you want.

3 - To my eye both of those projects have a diverse portfolio of risks. I think for a first project you want something simpler. I think the first one should be small enough that you can take the hit and do another one if it goes completely tits-up. 

4 - God only knows where the market is going. How will you manage that risk? eg London could be full of empty offices, as the corporates all discover that all their paperworkers can do half/half weeks with not a lot of loss.

5 - I honestly don't know how to call PP or not PP. Personally I think I can select my plots such that there will be nearly a certainty of getting PP, and can find them that have not been noticed. But I could be wrong.

6 - You need to build a team of financier, architect, builder, lecky, solicitor and all the others.

 

Ferdinand

Edited April 30, 2020 by Ferdinand

[Spainy86]

23 minutes ago, Russell griffiths said:

That second one says under offer, 

I believe it has been rejected ?

[Ferdinand]

1 hour ago, Spainy86 said:

Thanks for the prompt response. All things that obviously need to be taken into account, what would be the best way to try and establish an approximate GDV? Particularly on the shed conversion, for example. Presumably that is quite difficult?

 

What I do is take properties with a similar role in the market or similar as properties, work out the selling price per sqm (not the asking price), make what I judge to be appropriate adjustments for slightly different areas, finish, facilities - and that gives me a relatively conservative benchmark number to apply to my own project.

 

Then the new or refurb premium should work in my favour.

 

[Spainy86]

5 minutes ago, Ferdinand said:

Q: Why do you think that restoring a cottage will be a potential money pit, but that does not apply to converting a tractor shed?

Thanks for input Ferdinand, really helpful

 

In respect of the ‘money pit’ comment, my research leads me to believe the cottage is very much at the upper end of its true market value, but it needs complete modernisation, it is very dated and not the layout we want if we chose to develop the cottage rather than build an additional property at the bottom of the garden.

 

As such, the relatively expensive renovation would not necessarily realise any additional value in the property (certainly not the amount that needs spending anyway).

[Ferdinand]

Oh, and 

 

7: You should look to make a great hunk of your margin on the way in not the way out.

[Spainy86]

5 minutes ago, Ferdinand said:

Oh, and 

 

7: You should look to make a great hunk of your margin on the way in not the way out.

Can you elaborate on that?

[Ferdinand]

9 minutes ago, Spainy86 said:

Can you elaborate on that?

 

It means you reduce your total costs by buying well.

 

You need to find potential extra value, hidden or otherwise, that you can generate that others cannot, or do deals at competitive prices. The former of those is really just one way of making it competitive.

 

An example for a house might be buying in Oct/Nov when the owner is facing another 6 months Council Tax on it, and may reduce the price by 5% for that and other reasons, or being a cash buyer such that you can take advantage of circumstances.

 

I think it is @PeterW who has the aphorism that "if a plot has reached the open market, it is overpriced". 

 

F

Edited April 30, 2020 by Ferdinand