How much profit would a property developer expect?

purple321

We want to buy a house that a property developer has recently purchased, we don't know how much he paid for it as it wasn't on the open market. Not more than 150k. He bought it to redecorate and rent out but would consider selling it but he's not giving us any indication of how much he would accept. There isn't a mortgage involved so the value of the house doesn't limit what we would pay as there is a reason why it would be worth more to us which I don't want to go into. We wouldn't pay a ridiculous amount over though. So if he's just bought it for 150k and not spent money on it yet how much do you think he would want to be tempted to sell it to us? He might only have paid 140k for it, the land registry won't update for a while. 140k-150k is probably about the right value in current state, decorated with new small kitchen worth around 160k. We would probably go up to 170-175k. Is that amount of profit worth it to a developer? He is new at it this was his first one. To us £20-£25k profit on a house not spent anything on and not owned long is worth it but to someone driving a flash car I don't know!

moneysavinghero

Offer 175k. As you say the house has something about it that is worth a lot to you. Offer the maximum and you can have no regrets about missing out on it.

AdrianC

purple321 said:

We want to buy a house that a property developer has recently purchased, we don't know how much he paid for it as it wasn't on the open market. Not more than 150k. (Unless he's really daft - he did tell us he hadn't looked at it or got any valuations or searches done as he saw the old ones.) He bought it to redecorate and rent out but would consider selling it but he's not giving us any indication of how much he would accept. There isn't a mortgage involved so the value of the house doesn't limit what we would pay as there is a reason why it would be worth more to us which I don't want to go into. We wouldn't pay a ridiculous amount over though. So if he's just bought it for 150k and not spent money on it yet how much do you think he would want to be tempted to sell it to us? He might only have paid 140k for it, the land registry won't update for a while. 140k-150k is probably about the right value in current state, decorated with new small kitchen worth around 160k. We would probably go up to 170-175k. Is that amount of profit worth it to a developer? He is new at it this was his first one. To us £20-£25k profit on a house not spent anything on and not owned long is worth it but to someone driving a flash car I don't know!

What he may or may not have paid is irrelevant.

The question is what he will accept now... and whether you think it's worth that, relative to other properties you could buy instead.

Only he can tell you how much he will accept now.
Only you can say whether you think it's worth that to you.

princeofpounds

He's not really a developer, he's a BTL investor as far as I can tell. 

The profit margin that developers expect is very much dependent on how much capital they have to sink into a project and for how long. If you develop houses in a green field with no utilities over 3 years you would expect a higher margin than if you stick a large extension on an existing house in 6 months. But ~20% is rule of thumb over a cycle (in practice it varies a lot due to land appreciation/depreciation whilst projects are ongoing).

But for BTL investors, they tend to think much more in terms of yield - what's the ongoing income for a building compared to the capital investment, and how much greater that number is that their financing costs (mortgage rates, basically).

I would think there is a reasonable chance he would sell if you essentially offered the value of the property after being redecorated, or slightly below it. He can then go and buy what he wanted (a redecorated property) without having to put in the investment.

Bear in mind though it will cost him two sets of fees (sale and new purchase) plus stamp duty on a new property.

Scotbot

Are you saying you think it is worth 150 in current state but you would pay 170 to  175? That's madness! You are overpaying by at least 20k, around 15%. If it is worth 150 the most I would pay would be 5% over which is 158

He will have paid 4.5k in stamp duty unless it is his 1st property,around 2.5 in legal fees buying and selling and let's say 2k in renovation costs. So if he paid 145 it has cost him 149.5 if it is his first property or 154 if it is his second.  Whilst he may will want more I doubt he is going to make much profit on this one

eddddy

Are you saying...
The property isn't actually on the market, but you want to speculatively approach the owner and try to persuade him to sell it to you - presumably by making him an offer he can't refuse?

In that case, as above, I guess you'd need to pay the owner enough to...

• buy another similar property that he can rent out 
• cover the owners selling/buying expenses (SDLT, legal fees, survey fees, etc), plus a few months lost rent etc
• plus a bonus on top to make it worth the owner's while - maybe an extra £10k or £15k??? Who knows?

If you speculatively approach somebody and ask them to sell their house to you, typically they will assume that their house is important to you and so you're willing to pay well over the odds. So you might find it to be a tough negotiation.

GDB2222

I think you're wasting your time speculating. Make him an offer. He'll probably reject it. 

What he paid is not irrelevant, but not very important. If it's worth £200k, he won't accept anything less. 

purple321

It's not worth 200k. We know he wouldn't sell it below the value, I've said we would pay over the value.

GDB2222

purple321 said:

It's not worth 200k. We know he wouldn't sell it below the value, I've said we would pay over the value.

I wasn't meaning to suggest that £200k is the value, as I have no idea what is. It was just a figure that I plucked out of the air for illustration. Sorry I didn't phrase it better.

Good luck with making an offer. 

kingstreet

How long since it was purchased? If more than three months ago, check here for the sale price;-
https://www.rightmove.co.uk/house-prices.html
Unless it was an executor sale or similar, it should be listed even if it wasn't "on the market."

Irishpearce26

I've just bought a property that was a part exchange with a developer. You wont find what they paid for it however i managed to ask the seller who said he sold it for £329K, the developer marketed it at £360K with no changes to the house in between (1 week gap). I managed to get an offer accepted at £350K with a further £4k reduction on things that needed to be sorted. The mortgage valued it at £350k so i was happy and the developer made a £17K profit minus expenses in marketing the house. I got a house i love and at a price it was worth.