In this property development article we are looking at the potential rewards of undertaking a project where planning permission is required.
When developers are looking for a property to invest in, the maximum profit that can possibly be achieved is the driving factor.
This often means buying a property which requires significant renovation.
Bringing a property up to date will add instant value, especially in kitchens and bathrooms, which are rooms that buyers tend to focus on when looking round a property.
Another way of maximising profit is to look for a house/plot which is big enough to fit an additional property on.
This is the route our director, Clare Viner, has chosen for her latest investment project.
Obviously in this situation planning permission is key.
Real World Case Study
This investment is an interesting one and it highlights the importance of in depth research before committing to a property:
Clare and her husband have just gone through the process of obtaining planning permission on a plot that was originally marketed with a restrictive covenant attached, whereby no additional building could take place on the plot.
This put other buyers off, however they managed to get it for a reduced price.
In the meantime, they had done their research and realised this covenant could be 'lifted' thus freeing up the land.
They had no objections to their plans and have just been granted planning permission.
In addition to gaining planning permission to build an additional property they have renovated the existing property which they bought with the land.
Reducing Renovation Costs
This property was in a poor state of repair, so much so that the mortgage company down-valued it, and they had to put in more of a deposit.
They knew however that after some modernisation they could increase the value substantially.
Clare’s husband and his friend did the majority of the work, learning plumbing and carpentry skills along the way, thus saving thousands in professional costs.
The mortgage company re-valued the property at an additional £40,000 (having spent £10,000 on the work).
Due to the high spec finish, they now rent the property for the ceiling price in the area, and it was in so much demand that they had a long list of potential tenants to choose from!
The rental yield is 7%, which is very good for the area (the property prices in the south east are higher than the national average), and they have already seen capital appreciation from it because of the renovation work.
The combination of gaining planning permission for an additional property and renovating the existing property has made what would have been a 'marginal' profit on a property into a very lucrative one.
This is a great example of reaping the rewards of ‘thinking outside the box’.
Risk vs Reward
Projects of this nature carry a significant risk as planning permission is never guaranteed and it can be an expensive process/outlay with no return.
Careful planning and budgeting are key, the time expected to obtain planning permission and the risk of problems occurring, must be built into the project programme.
Having said all of that, despite the in depth and time consuming process, getting planning permission for the right project can significantly increase the profit that can be achieved.
If you would to discuss your mortgage options, please click here to get in touch.
Liked this article? Try reading: Property Developer: Sale at Auction
Disclaimer: Please note this article is not intended as advice in any way, and should not be construed as such. Your House may be repossessed if you do not keep up with your mortgage repayments