Boiling the milk

27th November 2018

This week we are looking at a deal in Fulham, a stone throw away from Charing Cross Hospital.

The site comes with planning for three residential flats, along with commercial on the ground floor.

The deal is off market, or so I have been told, for a little while before it comes on.

Everyone knows the market is subdued, therefore, one cannot expect market price for sites.  The variables are higher for a development site than in purchasing a BTL property.  If the current market conditions are uncertain, you will be adding even more uncertainty in with a site, as you are trying to predict the market at the point you complete the deal.

There is an interesting angle to this deal, as far as the commercial element goes.  There is a possibility to convert this all to residential.  In very rough terms this means you double your resell value.  In this scenario, you will be adding roughly £400k to the resell value.

Due to the unpredictably of the market, this deal is best done on a develop and rent model.  With the aim of extracting most of your capital put in to the deal at the point of completion via a BTL remortagage.  If this is the route, it’s worth revisiting the planning again to see if the rental can be enhanced.

The rental market is not prone to fluctuations in the same way house prices are.  Therefore, it is fairly easy to predict the income this site will generate with accuracy.  There are a couple of ways to increase the normal rental.

One is to turn the flats into serviced apartments.  This means your tenants could be staying in the property for as little as a few days.  With the hospital nearby it would suit foreign patients who come here for treatment.

Another is to go back into planning and adjust it, so you can run the property as an HMO.  Note, you do not need planning to convert a property into an HMO, just a license.  It is, however, worth checking with the local authority to check the criteria, as there are two levels of legislation; a national and a local one.

There are councils who make the process very cumbersome to execute, and even some who actively have a ban on HMOs as a consequence of over enthusiastic developers doing too many.

You could have a combination of the above, meaning an HMO which you use as short lets.  We have arranged a couple of buildings like this already for our clients, which are being rented.  The current technology allows one to gain entry using their phone.  This avoids running around with keys all hours of the day.

It pays to know in advance what you will be doing with the asset, as when planned properly it can be turned into a very strong yielding property.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
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