This is in no way designed as a quick short cut to what is, in many ways, the hardest element of property development. It is certainly where a lot of mistakes are made and ones that are often then realised very slowly and tortuously.⠀
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Key considerations – hardly breaking ground but…⠀
➕GDV and ease of sale/ refinance (location consideration).⠀
➕Purchase Price⠀
➕Additional costs and taxes⠀
➕ALL In Refurbishment cost⠀
➕Finance Costs⠀
➕Profit⠀
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AND⠀
➕Look and feel of the project.⠀
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We have spreadsheets and checklists for all of the above. We are constantly amending them to represent latest costs and values / square footage.⠀
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The last bit is VITAL – does it feel like a project that fits within your broader strategy and plan. This isn’t just about size but also about what it will look like, will it improve your brand and increase your experience base. The ADD to the ADD.
– Andy Babbayan; Target Five Group Managing Partner & Acquisitions Director
We have always looked to avoid planning where possible. Why?…⠀
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Planning is slow, cumbersome and not always predictable – especially in Brighton and Hove, a council known nationwide for its restrictive approach to planning. So we have used Permitted Development (PD) opportunities. For many years this has taken the shape of C3-C4 out of A4 areas, box-dormers, 3m rear extensions etc. Adding square footage to create yield. With A4 for HMO moving city wide, and the over saturation of investors moving in to this market, we have looked to utilise other PD opportunities. ⠀
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It is likely that more PD will come in addition to what has been announced in the past few weeks. This will no doubt include conversion of the new E Class of properties in non protected areas to C3.⠀
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What are we looking at? Mostly Light Industrial to resi and 2 flats above commercial, in areas where we believe further PD will come. We were focussing on other things during the office to residential rush a few years ago, but this will come again with reduced reliance on office space – so we are looking at this too, where the conversion costs work and where it will make good quality and appropriate accommodation.⠀
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Years ago it was all about commercial for yield and that group of landlords are now selling up or in some cases dying off! There are opportunities to be had and this could be a great few years for PD – if we do it right. Relaxed planning laws is no excuse for exploitation and profiteering!⠀
In years passed the value has been turning residential into commercial property, especially in central locations. Now the tide has turned and it could be explosive. Retail has been under threat for years, but with the Covid-19 we will see all manner of commercial properties no longer become viable. This combined with a chronic under-supply of residential property we will see a huge switch.⠀
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Government led relaxation of planning laws and increased Permitted Development (PD) rights will act as the facilitator.⠀
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We have been moving this way for some time and plan to ride the wave but we are determined to ride it well and where possible consult with local planners even where it may not technically be needed. ⠀
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We are going to be careful to keep our own ambitions in check and manage expectations of clients. With deregulation comes increased responsibility. Will we be doing as many deals as we can – yes! Will we put quality over quantity and try to do it right as well? Yes, we must.⠀
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My take:⠀
For a long time the key to portfolio building has been the ability to recycle cash. This means adding value and achieving a refinance sufficiently high that once you⠀
refinance onto a new longer term product, as much of your initial deposit, refurb costs and other fees is pulled out for the next purchase. This is now referred to as BRR, BRRR, or even BRRR (depending on how many Rs you want to add). ⠀
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The key to making this happen therefore is capital uplift rather than yield created. Whilst the Yield – the income from the property, is important, it only needs to be sufficient to drive the loan. It is the capital uplift against the capital employed – the profitability of the project that drive the ability to recycle cash.⠀
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My recommendation? Create an arbitrary figure for Yield that works for you. For us it’s 10% Gross Yield – this means we know it will make good cashflow. Our main focus is⠀
on Capital uplift – creating value. This is what allows us to keep moving our money, creates sensible equity, de-risks the project and allows the wonders of leverage and⠀
compound interest to do their work.⠀
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The critical number – 25% profit on GDV. If all costs come to 75% of GDV then you can recycle your cash.⠀
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If you are interested in working with us then get in touch! on information@targetfive.co.uk⠀
My take on it:⠀
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Perhaps the hardest thing when evaluating a deal and the bit most likely to go wrong iis the unknown element, the cost of refurbishment. The price, within reason is fixed, costs, (Stamp Duty etc) are fixed, the rent and end value are not fixed but entirely predictable. ⠀
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Add to this the need to act swiftly and make quick decisions and you need to have a methodical approach that enable you to get this right. How often have you underestimated the costs? I have done it loads of times and our PMs biggest gripe with me is that I can sometimes do this. ⠀
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How am I doing it now? Put simply for £200k refurbs or less I use A 2 phase approach. Firstly look at £/sq ft spent on SIMILAR refurbs THAT YOU OR SOMEONE YOU KNOW AND TRUST HAS DONE, allowing for all costs, and apply that. Then Secondly add up the component parts, create a price list and add it up. I.e. ensuite – £4k. Dormer Loft – £30k etc. Then look at the two and take the higher plus 5% contingency. THEN sanity check it.⠀
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For £200k or more AND ALL LAND DEALS I employ a QS. For £250-£1000 you will get far more certainly and peace of mind.⠀
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If you are interested in working with us then get in touch on information@targetfive.co.uk
What stage are you currently at in your investing in property journey?
Seasoned Investor?
Accidental Landlord?
First Time Investor?
It is not a ‘one size fits all’ industry.
Most of our investors have these common goals:
To achieve appropriate returns on the investment made, in line with market competition.
To carefully consider the risks involved
To look for financial freedom
How can we help you?
Through our various investing opportunities:
Passive Investing with our associates LEOpropcrowd
Portfolio Review and Improvements
Strategic Investing Opportunities
Of course, there are no guarantees and that is a very important first lesson that we discuss in our initial meetings. There is an element of risk that must be considered when investing in property and although we aim to invest well and offer the potential returns that we are asked for, it can sometimes not work out as planned.
What do we do?
Assess your needs
Find The right strategy
Offer a few opportunities
Work with you throughout the process.
We are always looking for the best way for our clients to potentially achieve success through investing. Through our partnership with @Leopropcrowd we feel we have found an interesting and considered way to invest small and potentially build to bigger returns. We are excited to be working on our first project with them and although we are not quite ready to ‘lift the lid’ on that yet, we have some similar recent project case studies on their website now. Take a look and ask any questions you have through the forum or message us directly.
You can see an example here https://www.leopropcrowd.com/property/detail/case-study-hmo-preston-street-brighton-by-target-5
Risk Warning: Investment in property related assets puts your capital at risk and returns are not guaranteed. Past performance is not a reliable indicator of future success.
We are proud to say that our existing investor clients have all come from recommendation or referral from clients who have invested with us and had proven results on completed projects where the target returns were met or surpassed.
It is not however always a fairy-tale ending and we have had our fair share of less successful projects too, but we feel it is a testament to our tenacity, resilience and consideration of an exit strategy that our clients continue to return to us and recommend us to friends, family and colleagues. Our model for conversion of large residential properties to form higher density houses of multiple occupancy to potentially achieve our clients desired yield return figures, has proven to achieve great results more often than not. You can see an example here https://www.leopropcrowd.com/property/detail/case-study-western-road-littlehampton-by-target-5
Our client base has grown naturally since we founded in 2013. It is only recently that we have begun to promote our services and begin discussions with new and unrelated investors. We feel that our unrivalled knowledge and experience along with the unique service and opportunities on offer should be shared.
Capital is at risk and returns are not guaranteed. Past performance is not a reliable indicator of future results.
