Free Plots…Continued
Continuing on from last week’s newsletter, where we discussed free plots, many said that’s great, but I live in London, where we don’t get these little pockets of land.
So today, we have two great examples of little deals done in London.
Both these deals had the downside capped, as they were purchased at prices which offered a margin of safety, whilst the upside of both deals was the development potential.
First up, Ilford:
This property was listed on the open market, with everyone overlooking its potential.
To note this is a historic deal, so the prices are reflective of the time, not todays values.
The property consisted of a 3-bed house with a garage to the side. The garage was demolished and made way for an extension that doubled the size of the property, as can be seen in the photo.
With planning secured for the extension, another planning application was made to convert both units into two flats, giving a total of 4 flats.
The site was purchased for £250,000, with development costs of £175,000.
GDV £675,000, with a profit of £250,000, 37% of GDV.
A great little deal, showing a generous profit.
Next up, Penge:
One property becomes two.
A property often has a given value based largely on the comparable prices within the surrounding area. But not all properties are the same, some are overly large and some particularly small, so there prices can be distorted when viewed on a £/sq ft basis.
Just like office to residential conversions, small units have a very high £/sq ft figure due to the properties being valued off unit costs and not £/sq ft figures. Despite often being 40% smaller, the apartment prices on office to residential conversions were not 40% less.
This is also true of townhouses, which do not achieve a high £/sq ft figure, as much of a townhouse is lost to stairs and landings, which is generally reflected in a low £/sq ft figure.
When you identify overly large properties, you should evaluate them based on what potential they offer. These large properties can often be found to be selling for a very low £/sq ft figure.
An example of this, let’s say a typical 1200 sq ft 3 bed house is £400/sq ft = £480,000. Now, if we take another 3-bed house on the same street, which has been extended to, say, 1600sq ft but is still only a 3-bed house, the £/sq ft value will generally reduce. With this being the case, the property value might be judged to be £550,000, which puts the £/sq ft at £343 as opposed to £400/sq ft. This is arrived at due to the limitations on the property, where all things being equal, you reach a ceiling on the property price.
This also works when flipped around, and the house is, say, only 800sq ft but it is a 3-bed house. The value in this case might be £425,000, making the £/sq ft £531. In this case, there is a floor to the property price.
With this being the case, the Penge example shown above offered an overly large house, driving down its £/sq ft. The property was purchased and split into two units, creating one small property that achieved a very high £/sq ft figure and a second property that was optimally sized to achieve a strong £/sq ft figure.
The above deal created a lot of value by simply identifying that value could be created by splitting the unit into two properties.
These two deals are great examples of small deals that can be undertaken in London, with neither deal being particularly complicated.
Seek out such deals and extract the value for yourselves.
Good luck searching.