A tricky question of looking beyond the obvious
I was speaking at my local property network meeting recently when a member of the audience asked me a very simple question. It’s a question that, surprisingly, nobody has ever asked me before. A question I should have been able to answer without hesitation. However, for some reason as I stood there in front of a room full of people eager to hear my response, my mind went blank.
I feel I must apologise to everyone who attended the event. I can’t imagine my long-winded and garbled response to such a straight forward question helped or enlightened anyone that evening.
Over the last few days I’ve replayed those few, long, embarrassing minutes of my life over and over again in my head. How should I have responded to that question? Why didn’t I have an answer on the tip of my tongue? I lay in bed for several hours last night, unable to sleep, unable to figure out how I should reply if someone asked me that same question again.
Eventually, I realised I wasn’t going to get any sleep until I’d figured out the solution. I wandered into my study, pulled out a pad and pen and wrote down the question which had thrown me so much the other evening:
“What piece of advice would you give to someone starting out in the property industry?”
I then started to list all the property projects I’d been involved in over the years. My scrawled notes filled several sides of paper. When I’d finished, I sat back and scanned through what I’d written.
It’s the first time I’ve ever compiled a comprehensive list of my property ventures and documenting them in black-and-white brought back some good, and some not-so-good, memories. I went through the list and highlighted those projects which I considered to be the most successful, those which produced the most profit, those which resulted in a fantastic return on my investment of time and money.
Suddenly it hit me. The solution had been staring me in the face. Why didn’t I think of it before?
The answer I should have given my expectant audience was…
“Always look beyond the obvious.”
Is that it? I hear you shout. Allow me to explain.
Like most people, my first foray into the property industry involved the refurbishment of a small house which I then rented out. Within a few years I’d built a portfolio of around 80 buy-to-lot houses. At that point I could have carried on increasing my portfolio or sat back, satisfied with the regular monthly income it generated.
But I looked beyond the obvious. I realised there were other, much more lucrative, ways to make money from property.
I moved into developing – in a small way at first – by buying a small piece of land and overseeing the construction of eight houses. I started trading in land, generating massive profits by buying cheaply, obtaining planning permission and selling at a profit. I discovered the hugely lucrative commercial property market and devised ways to earn life changing sums simply by introducing those in need of development sites, to those people who own suitable land.
I looked beyond the obvious ways to make a living out of property – refurbishments and buy-to-let – and uncovered new, even more profitable ways to generate money. So whilst most property investors have been hit hard by the recent downturn, I’ve been shielded from the worst effects of the crash due to my many different and varied sources of income.
But looking beyond the obvious involves much more than just devising new ways to generate revenue.
When I’m introduced to, or identify, a potential new project I carefully evaluate its potential. Quite often, at first glance, the numbers simply don’t stack up. At that point most people would walk away. But my experience has shown that a little extra effort and some out-of-the-box thinking can sometimes uncover massive hidden potential.
The construction of my dream home a few years back is a good example of how this approach can pay huge dividends.
Self Build
After several years of marriage, my wife and I decided we wanted to build a family home to our exact requirements. I knew the most economical method of finding a suitable plot would be to source it ‘off market’. I’ve always preferred approaching landowners directly, allowing me to negotiate a good price with healthy profit margins once planning permission has been granted. Using this approach allowed me to concentrate on the locations in which we wanted to live, rather than being restricted to whatever land was available and on the market at the time.
Using my tried and tested techniques it didn’t take me long to find the perfect plot… or so I thought!
It was situated in my ideal location. It was in an affluent area, around an acre in size and overlooked greenbelt with a stream running around the edge. However, after a quick appraisal it quickly became clear why this idyllic plot hadn’t been snapped up already:
- It wasn’t on the market so few people knew of its existence;
- It was a greenfield site which, in planning speak, means that it is previously undeveloped land used for agriculture or that it’s simply been left to nature. Whilst a greenfield site is not as restrictive as a greenbelt site, obtaining planning would be a lot more difficult than if the area had been developed previously;
- Previous planning applications for nearby developments had been rejected – even after appeal – due to a single track, narrow blind bend on the only access road.
Faced with these hurdles most sensible people would quickly walk away. But my wife and I had set my heart on the site so I decided to approach the owners to see if they were willing to sell. Fortunately, the couple who owned the land were fully aware of the problems I’d identified and had even employed a local planning consultant to appraise the land on their behalf. In his professional opinion, the consultant had advised them that the site wouldn’t get planning permission to be developed. With his advice still ringing in their ears, they agreed to sell the land to me for just £20,000.
I took the view that if all else failed I could lease the land to a nearby farmer, rent it / sell it to one of the neighbours or just sit on it and wait for a policy change. There was some risk involved but in the end I decided to go for it and dusted off my cheque book.
Once I owned the land I had to attempt to change its greenfield status. I knew this would be tricky. It’s generally accepted that a greenfield site can only be reclassified as a brownfield site after it’s been used as such for at least twelve years. However, I had a plan!
Under planning legislation, a garden is classed as a brownfield site, even if it’s never had anything whatsoever built on it. In theory, you could have two plots of land side-by-side: the first plot, a beautiful manicured garden, full of flowers and shrubs and boarded by a topiary hedgerow; the second plot, completely overgrown with brambles and weeds. In this example, believe it or not, the planners would be far more likely to allow a development on the beautiful garden but not the overgrown scrubland weeds!
So, my solution was to create a neat garden on my land. I cleared the weeds, mowed the grass, created a pathway and even erected an old poly tunnel green house. Crucially, I kept the hedgerows and tress around the plot very high so it wasn’t visible from the road. I deliberately made the ‘garden’ appear to be part of the neighbour’s property. A few months after my transformation, the land appeared as though it had been used as a garden for many years.
It was eight months after I’d bought the land that I got the opportunity to hatch the final part of my plan.
My initial evaluation had revealed that on two separate occasions previous developers had applied to build a house on an adjacent brownfield garden but both were refused as a result of the single track access road. For obvious reasons, planners didn’t want to increase traffic use of the road any further. Both applications went to appeal. Both were still rejected. So the president against further development on the road was well established and wouldn’t be overturned… or would it?
Just down the road from my new ‘garden’, there was a small, dilapidated, one bedroom bungalow.
I approached my local planning officer and asked whether he’d support a development if I was to demolish the bungalow and replace it with a new property on the same road.
Although he agreed in principle, he tried to argue that the new dwelling could be no larger than the bungalow it was to replace. Not much point in that!
Fortunately I was able to argue that the size of the new house shouldn’t be a consideration. After all, I could just as easily apply to extend the existing bungalow adding four further bedrooms. The planners would have great difficulty refusing such an application as planning had already been granted for similar extensions to several houses on the street. In the end, he relented and agreed that he would support my application.
I immediately approached the owner of the bungalow and agreed to purchase it for £90,000.
So although it took around 15 months, I managed to turn an undevelopable greenfield site into a brownfield plot with detailed planning permission to build a 7,500 sq ft family home (ten times the size of the building it replaced). I could have sold the plot there and then for a tidy profit of around £140,000. Believe me, a quick £140k profit was tempting but it was never a serious consideration, we wanted to live there so set about building our dream home.
Covenant Issues
Another example of looking beyond the obvious involved the site of a petrol station/MOT garage which I’d had my eye on for some time.
The site wasn’t for sale but I approached the elderly owner to see if he was interested in selling. Although he was ready to retire, he was quick to advise me that there was a restrictive covenant on the site preventing any redevelopment. The covenant was in favour of the adjacent landowner, a major UK property PLC. They had previously scared off other developers interested in the site by demanding a huge fee to waive the covenant.
That sort of news would normally be enough to kill the deal. But I knew the land had huge potential if it were redeveloped as an apartment complex. So I contacted the PLC to see if I could succeed where other developers had failed.
The company was of the opinion that the site would be worth £500,000 with planning consent and were demanding half of that figure. I argued that site was worth nothing like that amount for three reasons:
- The nature of the site meant that a lot of expensive ground work would be required before any construction could begin;
- The contamination issues associated with its use as a petrol station would increase construction costs yet further;
- The fact that the nearest public sewer was 50 metres down the main road would result in an expensive bill for connection.
I explained that due to these issues I intended to submit a planning application for just three detached houses on the site and showed them my scheme.
Faced with such a powerful argument the company agreed to surrender the covenant for a fee of just £40,000. I also managed to secure an agreement that the fee would only be payable once I’d gained planning permission. However, I didn’t specify what sort of permission I intended to obtain… so was able to proceed with my application for apartments.
The rest was easy!
I submitted my planning application which was approved without problems and bought the site from the owner for the £460k agreed. I also paid the PLC their agreed fee of £40,000. The land was subsequently valued at £700,000!
So in conclusion…
I hope these two deals highlight the fact that if you’re willing think outside the box and show a little patience, it’s possible to succeed where others fail. You just need to look beyond the obvious.
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[...] you’ve read my recent post A Tricky Question of Looking Beyond the Obvious you’ll know that, on that occasion, I decided not to sell the land and instead embarked on my [...]