#SQFT 2: How much will I sell it for?

“Not been on the market for nearly 50 years”.

Such a phrase seems to add an artificially absurd, supposed value to a property. It’s state of dilapidation somehow seems to stimulate the saliva glands of the masses like a dog on heat.

Bad condition is not of interest to a developer. Value is.

Bad condition is not of interest to a developer. Value is.

The next time you are given the inside line by an agent about this amazing house that is currently going through probate as the poor old dear’s family are surrupticiously rubbing their hands with the zeros that can be added to the asset – take a step back as you smile at the 15 other people walking around the property. Somehow, the collective in this house is overdosing on excitement about what they can transform this house into.

Once you recognise this all too common occurence, perhaps you actually are a developer as you thank the agent and leave, hiding the laughter at what some idiot is going to pay for this dump. Idiot is a strong word – hobbiest is more accurate.

Unless our interest in a property is entirely financially based, we are not developers but instead, looking to satisfy an urge to create something beautiful, like an artist might. Property development is about making money, not spending it to create a legacy to be admired and proud of.

So, what can you sell it for?

Once this figure is established, we can fag-packet the rest to see if what we are looking at presents true value. Take off at least 20% from that figure as you need a cushion that may hopefully turn into a propfit (or envelope an overspend / under sale). Now take off disposal costs (agents fees, solicitors fees) of about 3%. Now think about debt costs – for small developments of around a year in duration, allow 7%. Now a development cost – allow around 20% off the sum. Finally, take off some fees associated with acquisition (SDLT, plans, planning, professional costs, due diligewnce) – of around 10% – and you should be left with a very approximate number of what you would like to be paying for this site. And do not be suprised when this number commonly equates to half of your expected sales value – it seems to be a recurring truth.

Given this swift Benson and Hedges spredsheet – why would you compete with others to pay such a high sum when you will clearly lose money?

So, how much will (not can) you sell it for?

This story is listed in: London Property market, Property development, Property Investment, Property Market

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£20,308,750

GDV to date

£970,308

Average acquisition

£1,562,212

Average GDV

£351,115

Average Equity raise per deal

£343,558

Average profit per deal

97.75%

Average ROI on equity

11

Deals completed

8

Currently units in progress