Sadomasochistic purchase (but at a good price)

Happy to announce that a new project has been on-boarded! (At the border of a pretty good corner of south West London)

2126 sq ft residential and 717 sq ft commercial as well as a large yard with an amazing amount of upside. We believe we can add create up to 3500 sq ft of residential space.

Now I have to explain why the title of this post makes sense.
Well, the project is in Lambeth, which is the same council as the one we dealt with last time, and with all due respect.... It was a real hard battle we had to on our hands to get the plans through pre-planning stage successfully. To have gone in for more feels slightly masochistic frankly.

But on the other hand, based on the numbers we had crunched, it is the first time we bought what we believe to be a real good deal.

Obviously times are different and the climate not as bullish as pre-brexit but as Warren Buffet says "sell when everybody buys and buy when everybody sells" 

20 days to exchange, but for tonight a good celebratory drink should do it.

... A whole new adventure is starting.

New bet - overview.

Ok. So as posted last week, we have purchased a new property at auction and I said I would elaborate properly once the adrenalin rush would subside....
And the mountain to climb comes back into focus!

Not sure where to start, but I think basically to reuse an analogy; My co-investor and myself have taken all the chips that had been invested in the last project (as well as the gains) and have put the whole lot back onto black.

Last week, the roulette has started to spin again.

Of course the analogy is not correct. Roulette is purely related to luck - whereby this will be challenging on many levels: budgeting, timeline, builders, planning, negotiations, architecture... Etc.

So not sure if reassuring or scary.. But at least a good amount of things are in my hands... Others less so:  market forces, economy, etc.

Anyway, the project remains a bet and can be broken down into 3 separate bets: (Your investment may go up as well as down and past performance is no indication of future returns) :

1)Maximise area (obvious I guess) 

We have now a warehouse of approx 5000 sq ft ( say about 460sq meters) which is 2mn walk from the zone 2 Brixton station. (Info for non Londoners: Brixton has been gentrifying for years and although it has not yet reached the heights of Shoreditch... It's not too far behind.)

We do not have planning permission to convert the commercial space into residential, but the sellers had got a mostly positive answer from the Council/local authorities  to turn it into 7 flats as well as retention of a shop on the ground floor.

Now, literally taken at the price we purchased, this would be approx a zero sum game after the estimated cost of the building work.

The plan is to therefore add an entire storey by raising the roof by 0.5m-1m and lower the 1st floor level. Ideally adding mansards, and possibly even add more sq ft on ground floor flats by digging down by 1m in some areas and therefore allowing to have some mezzanine levels within the high ceilings.

(Realising this is going to be a long post! )

So the hope is that we increase the proposed sq ft area by about 20- 25% and only then will we make a decent profit.

2) Commercial vs residential valuation

The other challenge is going to be to convince the council to keep only a small shop on the ground floor.
The Councils wants to retain employment areas and want to keep the town centres with different size shops... And we are looking at reducing the existing shop space by 75%... Which is something they pointed out as a problem in the pre planning discussions of the previous owner.... So we hope that a good town planning consultant will help us put a convincing argument forward. 

That is a key bet because the sq ft area value drops by more then 50% for commercial space! (250 GBP sq ft instead of expected residential 800 GBP sq ft)

Finally,

3) Design bet:

Currently the plans put forward by the previous owner are ok and workable, but not inspirational.

The bet is that by increasing the "sex appeal" of the spaces will increase desiribility and resale prices.
Basically creating well planned spaces with a wow factor and character. (Would like to think of a boutique development.)

The maximisation of natural light comes first, through the use of double height spaces, glass floors, roof lights and light wells piercing through to ground floor level. (Starting to get my head around that)

Then the retention of the character of the spaces... The beautifull old metal trusses, the warehouse floorboards, original brick walls etc.

And finally, simply the unusual, unexpected, curious... Same bet as Lavender grove... That there are people out there that will be ready to pay over the odds for exceptional spaces!

Will see in about a year and a half if the bet was right!

But of course will keep you updated!

Hunting

Let's go a little more in depth.

Getting the current property took approximately a year of research and hunting.

That involves trawling though auction catalogues (or dealing with "dodgy" agents -but that is another post- ) and focusing on some highlights to "do the homework"

- transport links ( I will never look at anything further then 10mn walk to an underground/overground station)

- looking into the legal pack to make sure no surprises there of course.  (There may be building restrictions )

-sq ft price of the sold comparable properties nearby (zoopla and right move ) check averages of all comparables  (at least 10)

- checking planning history on the council website and estimating potential extensions /conversion potential in terms of planning approval. (That estimation is one of the hardest bits... Very hard to second guess these people - and the possibility to add some 200 sq ft area into the garden can make or break a project when the sq ft resale value is at the 1000gbp (that's 200k straight off your resale value)

- viewings (sometimes you will arrive to join a crowd gathering in front of a property. Prams. Dodgy drug lords looking types. And of course builders etc.... Am not exaggerating I should dig out a photo really!  )

- checking structure issues and estimating repair bills

- do "maths";  estimate the refurbishment cost and include other costs like stamp duty etc. Take the estimated resale value based on the sq ft price of comparables, do a best case and worst case scenario. And determine a top price. Basically what you should be ready to pay on the day.

-finally walking around the area day time and night time .... How does it feel like ? Have you got a couple of trendy coffee shops already on the high street or is it all fish and chips and betting shops? (Basically are there early signs of gentrification. That's the bottom line of any " upcoming area" ) .... Check the walk to the station. The walk there may be through some seriously unwelcoming council estate. Would a potential buyer like that? Does it fit the target purchaser you have in mind?

Overall over the year I would say in depth research was done on approx 25 properties ... Clapham, Crystal palace, Peckham, Forest Gate, Forest Hill, Brockley, Camberwell (will tell you about the Camberwell garage in another post... We made news there!) Walthamstow, Bow Stratford..... I could go on. But really mostly around the "new" east London line.

... That's 25 properties where as an architect, you can't help but imagine and " dream" about what the potential is.
What can be done and some special ways of extending and gaining extra sq ft.

And of course sometimes the bidding will just fly by the "top price" which took all that research.....

And you do wonder how have they done their maths? 

Other times, you will battle it out with the last opponent and you may push your top price by another 10k .... 20k 30k ... but reason prevails and you let go...  that instant the hammer falls and the other bidder has it. 

One of the key rules is "don't fall in love" ....but sometimes i have to admit. I am a bit of a softy and it still hurts to see a beauty run away with a another stranger.

Below... Some research notes on a property I still regret!