The Property Speculator » estate agents

Finding a Property Development Opportunity (Part 1)

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If you intend to construct a development property as a newbuild, one of the very first considerations you are likely to come up against is where to find suitable land upon which to begin your project. Unfortunately, it’s not simply a case of purchasing a handy field or plot and building a property on it. It’s no secret that there are planning laws that dictate where and what you can build. In fact, planning permission is probably THE most important aspect after location and budget.

Therefore, it is vital that the right opportunity for your needs is found, although a hefty amount of flexibility will be required. It is likely that the plans for a completed property will not be finalised until the actual ‘raw material’ is secured.

So, where should you be looking for opportunities? In order of popularity:

1. Estate Agents.

It’s not just newly-built and pristine properties that are advertised in estate agents windows and subsequently find their way onto Zoopla and Rightmove. Estate Agents also advertise rundown, derelict or just scruffy houses and flats too. Sometimes they also have plots of land for sale, although this will be heavily dependent upon the particular area you are looking in. As many self-builders will confirm, there are significantly less Greenfield plots for sale in the South-East of the UK.

It’s very important to build a relationship with the estate agent. It’s so easy to look for plots of land online that you might be surprised at the number of people who do it. Subsequently, if you meet estate agents face-to-face it will set you apart from all the dreamers who email and call the agents with little idea of what they are looking for and even less conviction to actually buy anything.

2. Property Auctions.

Auctions are still an excellent way of finding potential development projects. A quick look at any of the auctioneer’s websites will advise you of future property auctions and what will be on offer. This guide to buying property at auction is available, including a full list of auctioneers with individual links to their websites. Be aware that on auction day itself, it will be too late to browse the catalogue picking the properties that interest you. That MUST be done far in advance of the auction so that you can inspect the property (many auctioneers have viewing days to enable potential bidders to assess it and take a builder or building surveyor along too) and sort out finance (you will be required to place a 10% deposit down with a cheque or bankers draft if you are the successful bidder on a lot).

3. Observation.

This is a much underrated way of identifying plots that for some reason are not up for sale or being auctioned. If an obvious plot between 2 existing properties is found, it might be that the existing owner simply hasn’t thought of putting it on the market. If an old ‘for sale’ sign is around, it is worth trying the agent’s phone number to get some further information or contact details of the owner. If there is no obvious sign of the land or property have ever been up for sale, then the detective work begins.

The Land Registry is an excellent place to begin. It is fairly straightforward to pinpoint the property on their interactive map. You can then download a pdf copy of the Title Deeds for no more than around £4-£5. Unfortunately, not every single piece of land or property is registered with the Land Registry. The practice of collecting property ownership details is only done when the property changes hands. If this hasn’t been done in the last 30 years or so, then it’s unlikely to be listed.
The next option is to ask around in the local area. This could be the nearest house, shop or pub. This is likely to be more straight-forward in a rural or suburban area because areas of land are not divided up into such small parcels as that in urban areas. In these urban areas, boundaries are often moved and there is also a chance (believe it or not) that the actual property owner has lost track of what they actually own.

Mar 6th, 2011

Property Investment Market Research

I do not profess to be an expert on business, but one thing I certainly do know is that the vast majority of first-time business starters do not put their plans together the right way.

Many, many business start-ups have failed because the founders try to establish the business in this order:

Decide what they can produce.
Get the item/service to market.
Decide who they will sell it to.

The reason this approach fails so often is that they aren’t producing the item or service to any particular ‘market’. There is a good chance that whoever they attempt to sell to isn’t actually looking for the product anyway.

A far better approach to establishing a business is to:

Research a market or field to understand it and the people immersed within it.
Learn exactly what shortcomings are evident.
Source a solution to that ‘problem’.

A property venture that makes money for you (let’s face it, why else would you be considering it?) is a business in the conventional sense; and the second business model above is very appropriate as a base. It will prove to be an expensive mistake if you buy a development or investment property, get work carried out and then think about whom to sell it to. Countless TV property programmes quote the novice developer as wishing to appeal to ‘young professionals’. This is all very well if the property is the right type and in the right area, however it will not work for the centre of a university district (for example).

It is so important to be extremely fussy when looking for a potential property that fits your requirements. In the case of professional developers, many plots of land will be under careful scrutiny so that the precise one is eventually chosen that will produce his expected return. To apply the business model above is very appropriate because the property will be your ‘product’ taken to market.

All areas will have particular needs in respect of accommodation. They are also highly likely to have accommodation that just will not sell or let. The letting agent is the absolute best person you could speak to when considering the type of property that you are going to purchase as an investment. If you are intending to develop the property, then speak to an estate agent in a similar way. The agent will have access to potential clients that have pestered him for a property to rent or buy in a certain area (this could be narrowed down to a particular road). He will no doubt be on the phone to these people on a very regular basis to provide an update on availability. Therefore, if you do purchase the ‘perfect’ property that offers exactly what these purchasers or tenants want, you are almost guaranteed to sell or let and achieve a good price.

In contrast, the agent will also have an extremely good idea of the properties that just will not move. These are the ones that appear in the paper every week with gradually declining prices or rents. The agent will know exactly which property you should not buy.

The venture must be approached in exactly the right way if it is to succeed. Several geographical areas can be considered, with the intention of purchasing a property in one of them. However, the property type is very likely to differ considerably across the range of areas. Your considerations might look like these examples:

Area A could ‘carry’ more reasonably priced single-person’s accommodation. Therefore the purchase of a large house that stands a good chance of obtaining consent for conversion into flats would be a shrewd move.
Area B is more upmarket and fairly ‘suburban’. It would support more 2 bedroom, generously proportioned flats because the agent regularly receives serious enquiries after them. Therefore, it might be sensible to consider a newly-built block of three storeys with upmarket, well-sized flats.
Area C is completely suburban with quiet roads but close to 2 good schools. In this situation, a plot that could accommodate 2 or 3 new detached houses would be an excellent move.

This is to show that many property types can be considered. It really does depend on the area and what is vital, is a flexible approach. The venture is a business and the properties should not be regarded as a blank canvas to experiment with indulgent interior designs. The aim is to produce a finished property that will have people fighting to rent or buy; and yes, this is perfectly possible in the current market provided you have done your homework.

Sep 13th, 2010

Becoming a Property Developer or Investor

Many people dream about becoming a full-time property developer or investor but simply don’t know where to start.

The first step is to decide which approach suits you and your circumstances. Do you want to be a developer or an investor?

A Developer looks for a suitable property that is in need of work (to a lesser or greater degree). This can be purchased at auction, through an estate agent in the conventional way or quite often the owner is approached and a deal is struck. The work is carried out over a period of between 6-18 months and the property is put back on the market, hopefully to be sold at a healthy profit. Being a developer offers the shortest route to making money through property as you have the best opportunity to increase the value.
An Investor will sometimes buy a property with a tenant already in place. To be purely an investor in property (as opposed to an investor/developer) would mean that the property is purchased with no intention of carrying out any works, just getting an occupant in as quickly as possible so that an investment return in the form of rent is provided. This situation is unusual as most landlords understand that some work is likely to be needed before occupation. This approach is more passive than being a developer. Be aware though, it is unlikely that you will see much financial return in the form of profit for several years. Most landlords only make enough to cover the mortgage, management fees and tax. The benefit comes in the years ahead when the capital value of the property has increased considerably. Using this method is likely to take 10 years or more to see a significant increase in your investment.

The next step is to realistically look at your finances. Obviously buying property is never cheap, and it is probable that you will require a mortgage. At the time of writing, the majority of mortgage providers ask that you provide a deposit of around 20%-25% of the purchase price (or the total development price if your plans are more ambitious). You will also need to cover fees at the point of purchase (estate agent and solicitor with added VAT) and Stamp Duty. Once the property has been purchased, if it is a development project there will be a period where the work is being carried out and you have to meet mortgage repayments. This should be factored in. If it is an investment property, then rent voids must be allowed for (when no tenant is occupying it and subsequently no rent is being collected). Management costs must also be considered, such as garden maintenance, decoration and general property upkeep.

In common with a conventional mortgage, lenders will want to know what other borrowing you have, such as credit cards and loans. Mortgage providers are very keen to minimise risk and they will feel that if you are committed to other lenders, your ability to meet the mortgage repayments will be compromised. Also remember that mortgage interest rates can fluctuate a great deal, this will have a substantial influence on the monthly repayments.

Many property investors opt for an interest-only mortgage. This obviously means that the capital must be repaid at the end of the mortgage term and the only way to do this (realistically) is to sell the property. The difference between the selling price and the amount of the original mortgage is the profit. This is a bit of a gamble, as it’s impossible to accurately predict what the property will eventually sell for.

The deposit required to proceed with the purchase should be carefully considered. This might sound strange, as it’s clear that the higher the proportion of deposit compared to the amount to be borrowed will result in more profit and lower risk. While this is largely true, it’s not quite that simple. There is an optimum level of equity (money that is not borrowed) that will result in the best return and the most advantages:

The level of equity is high; if the venture is being run as a limited company, then tax will be payable on any profit gained. It’s also not good business sense to put so much equity into a single investment. For example if £100,000 of equity is available, it would be better to place £50,000 of equity into each of 2 properties rather than all of the equity into a single property. For more information on the tax aspects of running a property venture as a limited company, visit this link.

The level of equity is low; this situation leaves you very exposed to risk in the form of interest rate fluctuations (and subsequent high repayments) and rent voids. It could be argued that this aspect contributed to the credit crisis because borrowers left themselves far too narrow a financial margin.

The next step is to consider the market you wish to appeal to. On the property-related TV shows, the developers always seem to concentrate on the ‘young professionals’. This market in itself could be sub-divided into several smaller categories. However, do not overlook the other markets such as students, retired people and ‘downsizers’. It is important to consider the market before purchasing the property; it is always easier to provide a product for an established demand, rather than developing the product (the property) and then wondering who is likely to use it. Always do your homework, for example if there is a strong student population but a shortage of accommodation……it’s fairly obvious which type of property you should provide.

Get to know your target market intimately, do they own cars or use bicycles or public transport? This will affect where it is best to buy the property and if you need to provide a garage. Alternatively, you might be able to convert an attached garage to increase the floor area of a large house; thereby providing another student flat. If your target market is downsizers, will they need a large garden? Or a lot of storage space?

Information on an area’s demographics is available from the Office for National Statistics (www.statistics.gov.uk). Although it tends not to provide very detailed data, it is a good starting point. The other way to get to know what is in demand in your chosen area is to speak to letting and estate agents. They will have an excellent idea of what is always being enquired after but supply is scarce.

One last thing for now, it is highly recommended that you look for a property close to where you already live. You have a much better feel for values and know whether a property is priced too high. It is also far easier if you have to attend site regularly to deal with builders, Architects or Project Managers.

Aug 17th, 2010

What is the Best Time of Year to Sell a Property?

If you are planning to put a property on the market soon, you obviously want to give yourself a fighting chance of obtaining the best possible price. Timing is important when selling property, but is it quite as important as many would have you believe?

Traditionally, the best time to sell a house is between January and July. This is because buyers feel generally optimistic because of the approach of spring and summer. Houses can look very attractive when the gardens are in full bloom, and potential buyers tend to spend more time outdoors and so tend to ‘notice’ properties for sale. Make sure that your property is listed for sale by April to take advantage of this.

The summer holiday season then slows things down. This is because buyers are more concerned with holidays and looking after children who are off school. Sales that are already going through during this time will also be more likely to ‘drag’. Members of staff of Estate Agents, Solicitors and mortgage companies are likely to be off work at some point during this period. Your case is unlikely to be looked at during their absence.

September then typically displays a small surge as buyers start thinking about spending Christmas and New Year in a new home. This ‘blip’ will tail off around October as buyers know that the purchase is unlikely to be completed by Christmas.

Although this market behaviour is generally typical, will it really have an effect on the property’s value? Obviously more potential buyers will result in a more competitive situation; this has the effect of supporting a strong price. The fact of it is that there are certainly more buyers around at certain times of the year, but likewise there are always people who are looking to buy regardless of the time of year.

An associate of mine indulges in what is known in the U.S. as ‘flipping’ homes. This is simply buying a scruffy property at a discount and living in it while the property is lightly renovated in preparation for selling on again. He placed it on the market in November and received very little interest. He waited patiently through December with similarly scarce viewings. However, literally 4 days after New Year, the market went (his words) ‘ballistic’. The deal was done in a matter of weeks.

Housing is currently in short supply; subsequently many buyers are resigned to waiting many months or even a year or two for the ‘right’ property to come along. As long as you know the type of buyer you wish to appeal to, you might be able to market the property accordingly to good effect.

There is also a theory that suggests completely contradicting the conventional approach. When better (in theory) to sell a property than when there’s hardly any competition? Also, winter buyers are less likely to be flaky and pull out of the sale.

There are many who believe that the seasonal cycle of the residential property market is vital to maintain its health (which seems very logical to me). And that house prices will tend to fluctuate between about +3% and -1% of the average according to the season. On the website www.houseprices.uk.net, historical data is provided to strengthen this concept:

“House prices vary seasonally between -2% and +1% in a way that reflects seasonal changes in demand – it leads to a sharp dip at Christmas and the New Year with a broad peak during June-July.

This can make it difficult to interpret the monthly changes in house prices in terms of either trends or irregular volatility, so it is standard practice to report house prices seasonally adjusted, or SA. The correction shown is the % change added to the NSA prices to get the SA ones. The level of seasonal adjustment is an excellent indicator of the annual ‘breathing’ cycle of the housing market, and hence its health.”

Seasonal Adjustment
Ultimately, much depends on your property. If it is in a sought after location, you should have no problem selling at a reasonable asking price regardless of the time of year or market conditions. Then again, if there are strong reasons that may put buyers off the property, these are likely to be valid objections regardless of demand level. But it does no harm to maximise your chances of success.

There is much you can do to increase the likelihood of a prompt property sale. A well-kept garden, pathway and fence, plus a freshly painted front door are immediately appealing, whereas a scruffy outdoor space with a litter bin outside the front door may turn many prospective buyers away.

It is important to reduce ‘clutter’ in the house and present a clean property. Natural colours and lamps (rather than bright, stark overhead lights) are very effective at making the property feel ‘welcoming’. All minor maintenance jobs should be completed. The individual rooms should be ‘defined’ properly. This means that it should be obvious that the room has a specific purpose.

The rules to stick to when selling property are:

1. Put the property on sale at a realistic price
Most property owners have an idea of what their houses or flats would fetch on the open market. However, be aware that the asking price and the actual sale price are very often different sums.

2. Put the property on sale at the right price.
If the property is placed on sale at too high a price, many potential purchasers won’t even consider it because they assume that the price will not be reduced by a great deal. Also, many people simply feel uncomfortable negotiating a big reduction in price. If the property goes up for sale at too low a price, then financially you’ll lose out.

3. Try to avoid being in a chain.
The longer the chain of vendors and purchasers, the more likely something will go wrong. This might be a seller withdrawing a property higher up the chain or even something happening further down the chain. Either way, things will normally grind to a standstill.

4. Choose your estate agent carefully.
There is seldom a reason why you should have to pay more than 1% of the selling price for the estate agents fees. Try to avoid a period of exclusivity that seems too long, you should be able to give a week’s notice in writing to end the contractual period. Speak to the agent about the area your property is in. They should know it like the back of their hand. If they don’t, then it does not bode well.

5. Make sure the property is well presented.
A well-painted front door and a tidy garden go a long way to ensuring the property makes a good initial impression.

6. Adopt a pro-active approach to selling the property.
Make sure that you know exactly what type of purchaser the property should appeal to. If it is a family home, carry out some research into local schools and transport.
Make regular contact with your estate agent, remember they are working on your behalf and should always be acting in your best interest. Feedback from viewings can be a very valuable source of information. There might be something putting off buyers that are quite easily rectified.

Transactions can fall through at any time, so your property should be marketed right up until a fairly advanced stage of the deal. If it falls through and marketing has ended, you will have to start all over again.

7. Try to exchange contracts as soon as possible
This is the point where both parties are legally bound to adhere to the transaction. When the contracts are exchanged, both parties are committed.

Ultimately, no one really knows what the property market is going to do. If you hang on for what you think might be a good season to sell, the market could have dried up even more.

Jul 29th, 2010