When trying to find properties that might be suitable for development, there are a bewildering number of resources available to you. I found myself drowning in information and ending up either making no decisions, or taking far too long to settle on anything. Given the number of properties that you have to wade through, this was never going to work, so I came up with the ‘purchase decision framework’.
The purpose of the purchase decision framework was 3-fold:
- Firstly it would allow me to make decisions more quickly.
- Secondly, it would allow my business partner to use the same criteria meaning that we could share the workload and be confident that for any property, we would come to the same conclusion about its potential.
- Lastly, it means that at some point we could actually employ someone to do the research for us and know that we’d have reached the same decision.
The purchase decision framework has been kept very simple and is published below for you to use and amend as you wish.
Purchase Decision Framework
- Purchase price should realistically be less than £75k.
This leaves adequate funds for renovation. - The property should be in need of updating or modernisation.
This enables us to do work in order to add value and sell at a higher price.
Some basic approximate costs:
- Buying costs = £3k
- Selling costs = £3k
- Minimum renovation costs (decoration only) = £4k
- Total minimum spend = £10k
- Desired profit = £30k
- Minimum sale price (after decoration) = £115k
- Additional renovation costs including contingency (major work) = £10k
- Minimum sale price (after full renovation) = £125k
This means there has to be a judgement on the amount of work that would need doing (which would have to verified by an expert upon inspection). Then look for evidence of reaching the desired sale price by checking:
- Previous sale prices of similar properties
houseprices.co.uk (exclude anomalies)
mouseprice.com - Current sale prices of similar properties
rightmove.co.uk (use filters such as ‘terraced’ and exclude anomalies)
globrix.com - If the ‘similar’ properties found above are genuinely similar and area is OK
maps.google.co.uk (do they look the same, use Satellite and Street view) - Property should be in/around the chosen city.
Preference given to those in areas we know
When suitable properties are found, record them in a standard format with links/info on the Potential Properties spreadsheet. A good tool to ‘shrink’ links is is.gd.
Resources
If you wish, you can download both the Purchase Decision Framework and the Potential Properties spreadsheet to amend for your own use.
Coming soon…
Having identified some potential investments using the framework above, we went to inspect the properties. It was certainly interesting and was the true beginning of our learning where we came to realise some of the cold hard facts of property development. Be sure not to miss the next instalment by signing up for the free updates (top right).