George, what’s your criteria when sourcing new property to develop?
The holy grail is to do developments, remortgage all your money out, and do the next one. It used to be possible to do that, but it’s getting a lot harder. You could be looking all year to find the right property like that. That’s why people get frustrated and go in for ones with smaller profit margins.
When you do find a commercial building it will dictate to you what you can do with it, so you have to keep an open mind. Say we find a care home and want to do it as flats, retain it and get monthly cash flow. But the planners want houses, not apartments, because the area’s saturated with flats and we won’t be able to sell them.
“You have to do what the market wants, not what will make the most money.”George
Ultimately, we’re looking for a certain profit margin. People down South may tell you that 20% is a deal. But up North it isn’t. It’s all area-dependent. The challenge we’ve got is when you come to remortgage. If we’re retaining it, the banks will typically only lend 70% loan-to-value. We want 30% profit on gross development value (GDV), which is the end resale value.
I always start with the exit first, understand what the market wants, don’t get greedy, do what will achieve a successful exit; not what’s going to make you the most money on paper.
Always do a Feasibility Study to figure out the best and most viable way to make it work.
“Look at what the market wants and deliver the product to suit”
Hope that helps!