For some time now, I’ve been getting itchy feet. I keep contemplating taking the plunge back into new build residential projects, but like many others out there I’ve been reluctant to jump too soon.

Whilst development funding is available – I’ve managed to find a source of 100% funding deals – it isn’t as cheap as it was a couple of years ago and I certainly don’t want to be left holding a load of unsold houses at a silly rate of interest.

However, we recently agreed to purchase a site for just two houses not far from my home in Bolton. I’m confident it will be turn out to be a nice little earner. If all goes well we should walk away with around £70,000 - £80,000.

I’ve secured funding at 100% but need to sell the houses as soon as they’re complete to avoid suffering expensive interest costs. My intention therefore is to price the houses very keenly and complete them in time for spring next year.

I wasn’t happy with the existing planning consent as the internal layout of the houses didn’t really work (Sarah Beeny eat your heart out!). I’ve just applied to amend the planning which should improve the saleability no end. Unfortunately, because I want to add an extra dormer window into the roof, the planners will insist on a resubmission rather than a working amendment but I’m confident it’s worth the extra cost and hassle.

My method of new build development involves very little work by me – no more than 2 or 3 hours per month from start to finish. So the return on my time from a small project like this is significant.

I intend to run a diary of the deal as soon as it’s under contract and funding terms have been agreed.

Watch this space!

Popularity: 57% [?]

As a consultant for LandLounge.com a large part of my role is to help land managers source and secure prime development sites. However, since the downturn, land managers have become a rare breed. 

Many found themselves as early victims of the property crash, their roles made redundant almost overnight. It’s been heartbreaking to call development company after development company only to find that the people I’ve dealt with for years were suddenly no longer there to answer the phone.

During the good times, competition for good land finders was fierce. You only had to leaf through the recruitment pages of Estates Gazette to see that it was possible to earn a staggering remuneration package. But times have changed and it’s been many, many months since I last saw a job ad for a land manager. That was until the other day, when the latest edition of EG boasted not one, but two companies advertising for land managers.

I can only see this as a good sign – albeit small one – of further improvement in the development land market. More and more of the developers we speak to are optimistic of their prospects for 2010 and beyond so fingers crossed we’re starting to see the first green shoots of recovery.

I’m looking forward to working with land manager contacts old and new. Remember, if you need any help finding that next killer development site – large or small – you know where to turn!

Popularity: 47% [?]

I’ve just been reading an article in the Telegraph. They’re predicting a wave of failures within the commercial property market as a result of the deepening recession.

Fresh on the heals of the collapse of Modus Ventures, a Manchester-based retail property company, they claim that property failures to date are just “the tip of the iceberg”. They quote Richard Fleming, UK head of restructuring at accountant KPMG, “We predict a wave of fallouts in the commercial property market as the true value of losses becomes apparent.”

Anyone reading the article would be forgiven for thinking that investors should steer well clear of commercial property for the foreseeable future. However, I couldn’t disagree more. You see, a year or so ago I realised that the residential market was on the brink of collapse. I searched long and hard for an alternative source of investment income and eventually realised that commercial property was the way forward.

Now that may sound crazy in the current climate but bear with me here. The main driver behind the difficulties in the commercial investment market is the increasing number of failures within the retail sector. In other words, if the tenant renting your commercial property goes bust, you’re saddled with a vacant premises. Without a steady rental income, it becomes impossible to cover mortgage repayments and eventually the inevitable occurs… you go under. I recently received a stark reminder of how volatile the market has become when I met up with an old acquaintance of mine. He’d owned a commercial portfolio worth over £10m but this consisted of just five properties. The recession claimed three of his tenants in quick succession and it didn’t take long before the financial burden of three vacant properties took its toll. He lost his entire £10m portfolio almost overnight.

The sad truth of the matter is that this increasingly common scenario can be avoided if you choose your investments carefully. Supermarket chains such as Tesco and Sainsburys are doing extremely well despite the downturn. The takings at low cost outlets such as Lidl and Aldi are actually increasing as a direct result of the downturn. McDonald’s, KFC and other fast food chains are also benefiting from these leaner times. So if, as a small investor, you can a attract companies like these as tenants you’re on to a winner. Firstly, the covenant is extremely strong… let’s face it, Tesco are fairly unlikely to go bust anytime soon. And secondly, the investments are an ideal size, normally around £1m and perfect for your SIPP. So investment values are robust and fairly easy to fund, even in these challenging times.

As a consultant to Forshaw Land, I spend my days searching for development sites suitable for tenants such as Tesco. I obtain a 15 year agreement from the retailer, gain planning consent and develop the site. I’d say that an average site may cost around £700,000 to develop. Once it’s complete it’s usually worth at least £1m. So at that point we have a difficult decision… sell the investment at a substantial profit or hold on to the property safe in the knowledge that the rent will be paid, in full and on time for the next fifteen years.

So, the big boys may be struggling. But for us smaller investors, the commercial market can still prove to be a goldmine.

Popularity: 74% [?]

It’s easy to get disheartened in these times of apparent doom and gloom. But there are rich pickings to be had if you look hard enough.

I thought I’d share with you a little deal I put together last week which, depending on how we decide progress, will earn Forshaw Land and Development either £9,000 (for next to no work) or £30,000 (for a bit of work).

The story is a quick demonstration of how easy it is to spot a deal in your own back yard and make a very substantial profit in return for a couple of hours work.

Just another normal day at the office

I was sat at my desk last Wednesday when I received an email from a local estate agent advertising an upcoming auction.

Lot number 5 immediately stood out: 518 Leigh Rd, Westhoughton. A rather run-down 3 bed terrace property in an area I know well. With a guide price of just £50,000 – £55,000 it seemed a very good deal… even for a property in need of some serious TLC. A quick look at Rightmove confirmed that a 2 bedroom house in this location sold fairly recently for £100,000 and similar 3 bed properties had achieved £110,000.

It was obvious from the photos on the agent’s website that the house was in dire need of modernisation and judging by the furniture and decor, it was probably a probate sale. For those unfamiliar with the term, a probate sale is where the executors of a will are required to sell off the assets of someone who has passed away. Probate sales usually present ideal investment opportunities because, unlike owner occupiers, executors are less motivated to achieve maximum sale prices. Their main concern is to achieve a quick sale. A perfect scenario for us investors!

Next step was to call the agent and arrange a viewing. By chance there was a block viewing the next day at 1pm. My brother and I went along and it was clear from the number of people crawling all over it that there was a lot of interest in the house. My assumptions were confirmed. It was indeed a probate sale and the house required a full refurbishment job…

• New central heating
• Full electrical rewire
• Damp course
• New PVC windows and doors
• Re plaster throughout
• New joinery throughout e.g. new skirting boards, architraves, doors and sills
• New fireplaces to lounge and dining room
• New render to extension
• New kitchen and tiles
• New bathroom and tiles
• Move the bathroom from extension to main part of property to create 3 double bedrooms and large bathroom
• Redecorate throughout
• Tidy front and rear garden / yards
• Overhaul roof

Luckily, I’m an old hand at refurbishing houses having completed over 100 projects to date. So after a quick look round I was fairly confident the work would take my team around 5 weeks to complete. The cost? Around £25,000 should cover the refurbishment work and finance costs (we’ll use a local bridging firm who charges between 1% and 2% per month depending on the deal).

As soon as I’d finished looking round the house, I called the agent and asked whether the vendor would consider pulling out of the auction if they received an immediate offer. She confirmed they would… but due to the high level of interest shown so far, £56,000 would be the lowest offer they would accept. Even at this price we still stand to make around £30,000 profit… and we won’t run the risk of losing out to a higher bidder at the auction. We immediately emailed our offer, less than 24 hours after receiving the details from the agent.

Our offer was accepted on Friday morning. We paid the 10% deposit and signed the contract Friday afternoon. The whole process took less than 48 hours!

So, what next?

We now have two options…

We either sell the house today for a quick profit of £9,000 by passing the contract to an investor who’s willing to pay £65,000. In this instance, the investor will pay back our deposit of £5,600 plus our £9,000 ‘fee’ and then complete the purchase directly with the vendor. That’s £9,000 pure profit for a couple of hours work. Not bad eh?

Or, we complete the purchase, refurbish the property and earn ourselves a profit of around £30,000. A bit more hassle… but we stand to earn a lot more.

Decisions, decisions! Whichever route we decide to take, I’ll let you know how we get on.

Popularity: 100% [?]

After watching Bank of England Governor Mervin King on last night’s news, it’s still clear that no one really knows how long or deep this recession will prove to be. His comments are completely at odds with that of our clueless Chancellor Alistair Darling. King’s opinion that “there are pretty solid reasons for supposing that there will be recovery next year, but also pretty solid reasons for questioning if that will be sustained” is far gloomier than the predictions made by Darling in his recent budget.

Personally, I consider King’s more conservative view as the most likely outcome. Having said that, here at LandLounge Towers we’ve definitely seen a significant increase in activity from both land buyers and landowners in recent weeks. Perhaps a small sign of increased confidence in the market?

Many of the developers I speak with say they’re now looking for sites once again, although they admit they’re being far more “choosy” than in the past. The lack of sensible development funding is still their main gripe which, combined with a severely restricted mortgage market, is severely hampering recovery. Most agree that there is a small but steady increase in demand from home buyers.

How long will this situation continue? Who knows? Only last week, one particularly successful developer told me that his bank had previously funded seven successful and highly profitable developments over an eight year period. Their response to his latest request for funding… no problem, as long as he was prepared to profit share!

Opportunities in face of adversity: Joint Ventures

As a result of the on-going funding crisis, developers and landowners have been forced to find new ways to do business. One solution which is growing in popularity is Joint Venturing.

For those land owners fortunate enough to have little or no borrowings against their land, a joint venture with a suitable developer provides a real opportunity to achieve returns significantly higher than the current land value.

But it’s not just landowners who benefit. With a joint venture, the developer no longer has to find funds to cover the land purchase and in a market where sales are likely to be slow, this can result in significant finance cost savings. Lenders tend to be far more receptive to JVs because the loan to value ratio is far lower… as is the risk.

There are various ways to structure a JV deal but by way of a fairly typical example, LandLounge recently brokered a JV deal involving a residential site in North West England. The landowner had originally been offered £900,000 at the peak of the market but for reasons beyond his control wasn’t able to sell at the time. Current offers were around the £600,000 mark which understandably the owner was reluctant to accept.

LandLounge were able to negotiate a Joint Venture deal with a local developer whereby the parties established a 50/50 split agreement. The landowner put his land into the deal at an agreed price of £700,000. The developer undertook to build out the development on a fixed price contract. All other costs were fixed. So the only significant variable is the length of time it will take to sell the houses and the impact this will have on the amount of interest payable on the loan.

On completion, the landowner will earn £1m and the developer £300,000. The bank will be repaid first, then the landowner will receive his £700,000. Thereafter the profits will be shared 50/50.

It’s not hard to see why this sort of deal is becoming far more commonplace. The landowner will achieve a figure far in excess of what his land was worth even at the peak of the market. Meanwhile the developer gets to develop a site in a difficult market with significantly less risk. It’s a win-win situation.

There are countless other ways to structure a JV deal depending upon the characteristics of the site in question. Another recent deal involved a site with consent for detached houses. We brokered a similar deal to the one above but in this instance, rather than putting the entire site into the deal from the outset, the landowner released plots individually as they were developed and sold.

Landowners take note… LandLounge have a long list of developers actively searching for JV deals. If you can establish a JV agreement, you may have to wait a little longer for your money but in this market I’m sure you will agree it’s a small price to pay. If you have a site which may be of interest to our developer contacts, let us know.

Likewise, if you’re a developer looking for JV opportunities, please get in touch so we can add you to our contact list.

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