Advice of property development financr

[Spainy86]

Hi, I am looking at purchasing some land to develop. It is currently a tractor shed with surrounding land, approximately 0.5 acres in total. I do not own the land yet but the owning has planning permission to convert the shed into one 3 bed dwelling and one 1 bed dwelling. My plan is to demolish the tractor shed and build two detached dwellings (subject to planning). The land is listed for £165k and an architect expects each build to cost £150k, making a total build cost of £465k including the land purchase. Early estimates are that each property would be able to be sold for between £300k-£350k meaning a total future value of between £600k-£700k for resale. I then plan to retain some of the land to undertake a self build.

 

What options are available for funding? Most of the equity that we have is tied up in our house, circa £50k that we could potentially free up?

[nod]

You are better buying the land separately 

and get your permissions through 

A lender may well loan you the money on a conversion but not on something that hasn’t been passed yet 

 

Developing and self building a two totally different things 

Dont forget to include a cil levy on each property If it apples in your area 

 

[SteamyTea]

Is now really the time to be looking to purchase?

Already about 20,000 less home users about, may be 50,000 or about 7% of home owners no longer needing them by the end of the year.

 

(I just made those numbers up and I have no real idea what is going to happen)

Edited May 6, 2020 by SteamyTea

[Mr Punter]

I am with @SteamyTea I know you have posted a few similar questions but I think if you are a first time developer now seems the perfect time to lose your shirt on this project.

 

You would need about £165k cash and a track record to get anyone to fund this.

[Spainy86]

Thanks for the responses. I appreciate the input and equally appreciate that the threads I have started make me look uncertain. The plot is definitely one that I intend to proceed with, just trying to weigh up the pros and cons of the different methods that could be used to develop it. I was initially set on developing the two properties to fund the future self build but was aware that by developing them with an intention to sell required a different type of ‘mortgage’ than that required for a self build.

15 minutes ago, Mr Punter said:

I am with @SteamyTea I know you have posted a few similar questions but I think if you are a first time developer now seems the perfect time to lose your shirt on this project.

 

You would need about £165k cash and a track record to get anyone to fund this.

Ive been speaking to a broker today and he said something similar, I think his figure was actually about £150k. He did however say that the way to lower that figure would be to purchase the land outright (and try and negotiate to get it as cheap as possible, perhaps £125k, which I may just about be able to pull together from my own property and some other funds) which would then enable me to get funding for 100% of the build costs.
 

That may be the best option. 

[SteamyTea]

I just looked at the Land Registry to see how many detached newbuilds have sold in Cornwall and Buckinhamshire this year.

Bucks has 15, Cornwall 20

The mean price

Bucks £573,989 Range Max £995,000 Min £375,000
Cornwall £322,614 Range Max £639,950 Min £200000

 

Looking at the last 3 months of 2019

Bucks sales 147, Cornwall 93

Mean Prices

Bucks £564,237 Max £1,165,000 Min £310,000
Cornwall £326,050 Max £689,950 Min £156,000
 

But I have no idea where you are and what the market is like.

 

Edited May 6, 2020 by SteamyTea

[scottishjohn]

2 hours ago, Spainy86 said:

I was initially set on developing the two properties to fund the future self build but was aware that by developing them with an intention to sell required a different type of ‘mortgage’ than that required for a self build.

It don,t work like that --you will be paying CGT on the 2 houses 

you can,t just build 2 houses and keep all the profit  and use it to build the 3rd one  -you will have tax to pay on them 

only way round that is to build one --live in it for some time --as your only home --sell it ,then no tax -

then build another do same again -then build your final one  my accountant tells me you need to have it as your residence for a year to be sure HMRC will not query it

amd |i expect you would need to split the title into 3 units --take legal tax planning  advice on this 

and of course you will need 3 seperate water + electric supplies and sewerage systems 

 

[Mr Punter]

And you need to register for CIS and VAT and unless you let the whole project to a main contractor (which may mean no profit for you) you will need to know CDM Health and Safety regulations as you will have a formal role as Client, Principal Contractor or more.  You will need contractors all risk insurance.  Unless you are experienced in the construction industry this could be a real ball ache.

[Jilly]

I would agree with the others, I'm only at the stage of conscious incompetence after about 5 years of wrangling. You need substantial cash on the table (not borrowed equity) to be a professional developer, and the current situation is creating a whole lot of uncertainty. The most constructive (excuse the pun) low risk, thing I can think of for your situation is to pair up with another self builder to buy the plot and pool your resources to share costs/labour and pain, live on site in statics, then live in the houses to avoid CGT (I thought it was 2 years), and then consider if you want to do it again on a bigger scale.