This is a bit of a personal update as much as it is a review of progress. Keeping in mind that this is a property development adventure, an experiment, sometimes it’s not possible to provide clear advice for your own venture. Sometimes I’ll have to report honestly what is happening with me and let you take your own lessons from it.
Going Well
Let’s start by looking at what is going well and what has been achieved so far…
Identifying the Right Properties to Develop
I feel that we’ve become pretty deft at quickly finding properties with that can be bought at below-market value with potential to add value and sell at a profit. The purchase decision framework is working well in this respect.
Finding a Builder
We’ve found a builder who can help us assess properties and help us with quotes. He’s also capable (with the aid of his team) to do pretty much anything we would need, from building through to decoration and landscaping as well as overall project management. This does come at a price – which is something that we’ll have to look at more closely, see below!
Needing Work
Now let’s take a look at the things which haven’t gone so well and need more work…
Identifying Viable Properties with Sufficient Profit
Whilst we’re good at finding properties that can be bought below market value and have potential to make money, the profit margins in all of these have been too slim to make them worthwhile pursuing.
In the last couple of weeks we’ve put offers on two places. One went for £12k more than we offered (which would wipe out profit). The other would entertain offers 20% higher than we’d go (which is also still 20% below the asking price), but unfortunately this would also remove all profit too. The auction property we were interested in also went for about £12k more than it would be worth us paying – and that also happened to be the price we thought it would go for. Interesting, one we decided not to go for because we didn’t know the area well enough, was one that, at that price, we could have renovated for profit!
So where do we go from here? As I’ve mentioned before, the buying and selling costs are pretty much fixed. We’re also identifying properties below market value, so aside from the sale price (which is out of our control, but should be set conservatively) the only other area we can cut costs is on the renovation work. This will be our next focus – taking a very detailed look at what work is required to bring the property up to the right standard and how much we’re paying for that.
We’ve also expanded our horizons by looking at properties in the next stamp duty bracket. These are much harder to assess in terms of sale prices because they can vary so much to other houses on road. For example, there might be big differences in size, number of bedrooms, amount of land and standard of fixtures and decoration. So far, nothing has jumped out at us.
In Conclusion
Despite the fact that we haven’t actually found a property to start on, and that finding a property with sufficient profit is proving more difficult than expected, we’re not giving up. We’re going to look closely at how to carry out a quality renovation at a lower cost and take things from there.
My builder tells me he found a large property which can be picked up for about £300k, requires about £80k of work and would sell for around £130k profit. Even if this took a whole year, it shows that the ‘£100k in a year’ target is possible – but alas, not with our finances. We’re going to have to find places that are, initially at least, less profitable and more affordable.
Other News
I’ve decided to return to the working world as an employee, albeit this will probably be on a part-time basis. Having the regular income will be useful and it doesn’t affect the property development adventure as there is a limit to how much time you can spend looking at property – and I still have plenty.
The search continues and I’ll be keeping you up-to-date on progress. If you have any thoughts or suggestions, please post them in the comments.