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Known and Unknown Variables

2nd April 2019

We’re currently looking at a site in West London, which I have been told is off market by a reliable source.

The property is an office building which is currently occupied, and bringing in a healthy income.

The angle is very simply to get planning and sell.

The aim is simple, and it sounds simple.  However, the implementation at times is anything but.

In dealing with other sites, we have had to deal with everything from the council dragging their feet regarding S106 as a strategy to wear the developer down, to squatters who decided to build on the land and occupy it.

This requires a variety of skills.  It’s not simply a case of appointing the professionals and letting them get on with it.

They need to be managed and kept on top of, including the lawyers.  One needs to be prepared to get into the detail of the issue in order to solve it.

Some councils are more conducive to developments than others, especially if they have allocated certain zones for regeneration.

Time lines for planning need to be kept flexible, as with the best will in the world there are unknown variables which can crop up.

That being said, the most lucrative way to make money from property in the shortest possible time is through planning gain.  This stands to reason as the time lines and variables are not fully known.

Whether it’s simply adding another floor on a building, or gaining planning on land; the reward is exceptionally lucrative proportionally to the time put in.

Given the variables, this site is unlikely to be eligible for bank funding.  Once planning is gained the door for bank funding opens.

Therefore, there are only two choices, one is cash funding, the other is a bridge.  It’s best to avoid the latter, for the reasons described above.  You don’t want to add financial pressure to a planning project.

The project we are looking at requires a £3.5m investment.  The upside could be double or more.  The good thing with this deal is there is a healthy rental income.  It’s useful to have a stream of income to cover planning costs, just long enough to get planning over the line, and then you want the tenants gone.  This deal has exactly that, and therefore it’s almost a tailor-made deal for a planning gain.

This investment will also escape the two rounds of stamp duty rises the government has enforced on the industry.  This makes investing in residential property above £1M very difficult, adding as much as 10% to the purchase price.

As offices this would attract commercial stamp duty which is bearable.  Buying this investment in a company, with a view of selling the company rather than the asset would qualify it for Entrepreneurs’ Relief, subject to a few un-onerous conditions.  If this applies, it means one only pays 10% on the profits.  This is an exceptional tax break, which doesn’t require a clever scheme for it to work.  It is not one of those schemes which has the risk of coming to haunt you in later years.

This is a very lucrative deal which we are looking to close with an investor in the coming month.  If you are interested, please do get in touch!

Suresh Vagjiani

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