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What profit will a developer expect to make?

duga0319333
Posts: 1 Newbie
Hi,
I am looking to get on the property ladder in Brighton and have seen a flat that I love. It is currently in a very sorry state and need a lot of TLC so is also getting a lot of attention from developers. (it's had one owner since it was built in 1969 and very little updating)
The flat is being auctioned with a starting price of £200,000, however the flat next door sold for £315,000 last year.
The property required extensive work including double glazing through out, new bathroom, new kitchen, plastering of ceilings and some walls and replacement of heating and electrics throughout.
So, my question is if developers are looking to buy this and flip it what will they be looking to pay for it at auction? I would imagine that in the current market it would fetch £315,000-325,000 once all the work is done.
Any input would be greatly appreciated, I want to have as much information as possible before the auction and be clear what I am willing to pay.
Thanks for your help. Anna.
I am looking to get on the property ladder in Brighton and have seen a flat that I love. It is currently in a very sorry state and need a lot of TLC so is also getting a lot of attention from developers. (it's had one owner since it was built in 1969 and very little updating)
The flat is being auctioned with a starting price of £200,000, however the flat next door sold for £315,000 last year.
The property required extensive work including double glazing through out, new bathroom, new kitchen, plastering of ceilings and some walls and replacement of heating and electrics throughout.
So, my question is if developers are looking to buy this and flip it what will they be looking to pay for it at auction? I would imagine that in the current market it would fetch £315,000-325,000 once all the work is done.
Any input would be greatly appreciated, I want to have as much information as possible before the auction and be clear what I am willing to pay.
Thanks for your help. Anna.
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Comments
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Base any decision on your own plans for the property. Rather than second guess what others may do. Buying for and renovating using cash rather than using debt. Makes a huge difference to the potential profit on such a project.0
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When I was house hunting I saw plenty of places in a similar condition. The prices, even on a rising market, that they went for were amazing. It was not necessarily developers, lots were going to ordinary buyers who had probably watched too much Sarah Beeny. There was clearly a premium to be paid for getting a place that could be done exactly the way one wanted. And having seen some very poor, cheapo refurbishments, I could see why that would be attractive to someone with enough money to do it.0
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I have a vague idea (don't quote me on this though) that a developer looks to get around a third of what they pay back as "profit". That's just down to a very very rough indeed guesstimate.
I do think its worth "seeing things through a developers eyes". I took that attitude when selling my last house. I had a couple of buy-to-letters offering on my house, as well as home-owners. I worked out what a buy-to-letter would regard as reasonable income on my house on the one hand through to good income on the other hand.
From that...I was able to work out the maximum price a buy-to-letter would be prepared to pay for the house and still get (at least) a "reasonable level" income from it.
With that, I knew very well what the maximum price was that a buy-to-letter would be prepared to pay for that house and it was less than it was worth. With that, I had proved to myself that my estate agent was spot-on when they said that a buy-to-letter might offer me what the house was worth initially, but would be much more likely to try and gazunder me at the last minute (ie having planned to all along and subsequently out looking for excuses to do so).
The bidding war that ensued on my place between a home-owner and a buy-to-letter showed me quite clearly that the buy-to-letter had offered me more right at the first offer than it would really be worth their while to pay if they were to get even a "reasonable level" income from it - so I simply didn't believe they really meant their offer and decided they would be out deliberately looking for any excuse they could find in the survey to try and backtrack and gazunder me come Just Before Exchange Time.
I sold it to the (would-be) home-owner.0 -
Typically, a commercial property developer will be looking for a 20% or greater gross development margin.
However, achieved margins on any specific project can vary quite a lot. Because of property price movements, amongst other things.
Why 20%? Because given the typical timescales of a development project, that is the margin that delivers a sensible return on capital invested for the risk taken.
Furthermore, I will also note that at the small development level, there are plenty of participants who are not commercially rational about the margins they require.0 -
moneyistooshorttomention wrote: »I worked out what a buy-to-letter would regard as reasonable income on my house on the one hand through to good income on the other hand.
From that...I was able to work out the maximum price a buy-to-letter would be prepared to pay for the house and still get (at least) a "reasonable level" income from it.
Without knowing their overall income, and the size of their deposit you won't be able to determine the available mortgage options, and therefore it is impossible to know what their income on your house would be.
I looked at the maths of letting-to-buy our house, and the mortgage payments varied greatly depending on how much equity we left in the house, and therefore which mortgages were available. There were other mortgages with even better rates, but unfortunately we needs to be earning in excess of £75000 to qualify for them.0 -
In my experience of auctions, people who are bidding on a property because they actually want to live in it as their home tend to outbid developers.
This is obviously because a developer needs to get the property for such a price that will allow them not only to recoup their expenditure but also make a profit on top. Whereas a homeowner will only be looking at it as more of a long term venture. Their profit will come in the future when they eventually sell.
In this case, I think the guide price is deliberately low to generate interest but it's likely to go for around the £250k mark IMO.
Just my tuppence worth0 -
Offer £250000-£275000.
Or price up the estimated cost of all the work and deduct from the sold price of the 1 next door.
Depends a lot on your budget and how long you intend to live there, also how much you want it.I am a LandLord,(under review) so there!:p0
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