How Developers Think

Developer's Brief

We met up with a developer that we have been asked to look for sites for today and also got an insight into how developers think, which we believe may be of interest to you.

Our brief is to find a site of £1,000,000 or less, either with planning permission or with a rental income.

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Two potential plots

We have found two potential plots with planning permission already. One is a development of nine units with planning permission and eleven acres of paddocks at just under £1,000,000; we will class this plot one. The other is a part converted farmhouse, providing five apartments, a further two part converted barns and two barns for renovation with planning permission, at just under £900,000; we will call this plot two. Both are opportunities where a developer has gone into administration and both are currently off market, i.e. they are not being advertised to the whole market, therefore giving the developer the first refusal.

In relation to plot one it was interesting that he noted that the paddocks that surround the property are just agricultural fields and really not as much use with regard to adding value to the properties. The nine units he felt had been crammed into a relatively small space. However, on the plus side he did say that the planners may be open to negotiation as they wouldn't want to have a derelict site and also the numbers of housing go towards their government requirement of targets for new housing in the area.

On the negative side, he advised that he would much prefer to go for a new build as cost control was much easier, which he divided into about 40% of the cost in the ground, being foundations, etc, and about 10% to 20% for finishes, as this is what the customer sees, the remainder being for the standard traditional build costs.

Interestingly, he often quoted a thirds calculation for development, where a third is in the land value (in this case just under £1,000,000), a third is in the cost of building and a third is in the profit. Although he did comment as we all know that this is in good time and it would mean that your nine units would have to be selling at £310,000 when it would be limited by the Stamp Duty level that is currently £250,000.

He then went on to have a look at plot two which is a part converted farmhouse and two part converted barns and his emphasis was very much on the part converted bit, saying that it may be very difficult to just carry on with the work that has been carried out and you may have to talk to Building Control to make sure approvals are in place and also there may be difficulties with ownership of materials, etc, and payment for trades may or may not have been made for the work they have carried out.

On the plus side he said that you are near to getting a return on your cash, i.e. as some of the properties are part built it should mean that you finish them quicker than building from scratch. Having said that, he again spoke about his preference for building from new with regard to cost control and said that he would have to have the buildings very carefully surveyed to establish just how much costs were.

It was very much this emphasis on cost control and he gave some interesting examples on projects that he had been involved in where costs had overrun and the third profit had been very much reduced. He said it was very difficult to sell with confidence when your back is against the wall to get money in to pay back finance. He also commented that it really is the lack of finance that can kill a project such as this and any adjustments in interest rates can mean the difference between large losses and large profits.

Instant rental income

We also showed him some options we had with regard to some pubs that are coming to auction and spoke of different ways of getting good rental incomes from these. As no doubt many of you have seen if you travel round many pubs are shutting down and whether there still is a pub market for pubs is debatable. There may be a market for pubs becoming restaurants or pubs becoming something else. He advised that he certainly was interested in this as you are close to being able to get a rental income from it.

The alternative building scenario

We also spoke about some methods we had seen recently where buildings have the traditional finishes but because of the way they were constructed times savings and money savings are available. The example that we gave was an oak framed property that had then been clad with a SIPs, which is a structural insulation panel that had been rendered over in a traditional style, meaning that no-one would know. However, it did meet current thermal efficiency requirements a lot better than traditional construction and also due to the large size of the panels; 8 x 4ft sorry to still be talking in Imperial measurements (old money), rather than putting individuals blocks together or even bricks.

He was interested in the use of different materials to cut the build time and therefore again return the capital outlay quicker.

Independent surveyors

Commercial property surveyors

If you have a commercial property, be it leasehold or freehold, then you may wish to look at our Dilapidations Website at www.DilapsHelp.com and for Disputes go to our Disputes Help site www.DisputesHelp.com .

We hope you found the article of use and if you have any experiences that you feel should be added to this article that would benefit others, or you feel that some of the information that we have put is wrong then please do not hesitate to contact us (we are only human).

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