#SQFT 3: How to find a deal – look for angles that others miss

The house on the nice street that hasn’t been touched for years and is going through probabte is not what we are looking for.

This is an outdated and lazy attempt at property development. Outdated because this used to work, in a rising market. Now however, very little value is available on the open market because so many eyes are on it. Back in the early 2000’s, many people made a lot of money, very easily but buying a flat, painting it – maybe a bathroom and a kitchen and selling it. This does not exist any more. If you want to make real money, you need to work for it – here’s how.

When tired property comes to market – the common misconception is that there is money to be made by creating a masterpiece from a turd. The simple reality is that when crowd mentality works this way, the price is driven up by competition to win and any value (realised at sale) evaporates like a brides nighty.

If property development and making money is a serious desire – distance yourself from the crowd and don’t look for the lazy option – go for the angles that they miss. Look where you can add value and you will become a very small percentage of serious developers. Distance yourself from the scatter cushion brigade and focus on the profit that could be available after the costs spent.

A simple rule to live by is looking for properties that don’t attract the crowds as they do not show well. These properties are the “one’s in the middle” – people dont get excited because they are a wreck, nor do they get snapped up because they are immaculate. Typically ex-rental property is a good starting point as it will commonly be tired in appearance. When these don’t show well, viewings dry up, asking prices drop and value starts to appear. What’s better, the crowds creating the competition also disappear so your offer can be on your terms, not in a competitively driven environment. Given current rises in landlord taxes, expect a glut of rental properties to come to the market when landlords begin to realise they cannot offset their mortgage costs from profits.

Given the above – it is not only advisable but essential to have time on your hands. Things that come to the market are very rarely deals. Why? We all want top try for the most money possible don’t we. So, when a property has been around for 6 months, dropped its price and not having any viewings because the estate agent has got bored of it / the vendor will not drop the price – put an offer in that suits you. Remember, the main angle is price. No-one can tell you the value of a property as the value is derived on what someone else is willing to pay (and proceed, not just offer!). So, if no-one is putting in an offer, you can dictate the value of the property to you – the vendor is not forced to take it but if they have received no others, there is a possibility of them considering it.

One thing that commonly surprises estate agents – a good developer will happily buy an immaculately, finished property. Why? If they can buy it 20% below market value (perhaps the developer needs to sell) – they can buy, resell (at no cost except legals and taxes) and not lift a finger. This business is about making money, not work for ourselves. If a simple profit opportunity exists, take it and move on.

After price, planning gain is the next most important angle. It is vital that a developer knows intrinsically the local rules and principles of a planning authority to know what extra space (value) can be added. If some form of extension has been granted on a street in the last 5 years – it is likely that it will be again. So copy it. Remember however, planning is never guaranteed until it is approved and planners can come up with the weakest reasons to block a scheme which can cost you a lot of money. As such, ALWAYS get pre-application advice and make a call off the back of that.

Finally, to dramatically increase your chances of finding a deal – you must know your area inside and out. Every. Single. Street. This is about pavement-pounding – it’s suprising how many properties there are in an area that could benefit massively from extensions – so why not contact the owners direcly instead of waiting for them to come to market?

This story is listed in: Investment, 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