Making Property Digestible

Suresh Vagjiani Sow & Reap A Property Investment Company Tuesday 24th February 2015 10:06 EST

However we have plans to integrate this into the rest of the house and there exists a precedent further up on the same street hence we are confident of the permission.  By doing this we will increase the sq. ft. by about 150. This will involve digging down into the ground to increase the height of the vaults this could then be used as a study, or a bathroom.

This property has been purchased for £1,073 per sq. ft., which is cheap. Ex council properties in this location are now going for £1,000 per sq. ft., the going rate is circa £1,600.
We wish to extend the property further from the rear to add another 200 sq. ft. The likelihood of getting a mansard on top of the property is slim according to our planning consultants, as it consists of a row of four similar properties. Either side of this block of four the floors have been extended. There is one way, which is if we get all four owners to apply for the permissions simultaneously as one unit, then the chances of it begin granted are stronger. This will add a further 400 sq. ft. onto the property which should add around £650,000 to the value of the house, so it’s with pursuing.
There is also the option to convert this unit into two flats, there is a strong likelihood of this being granted. This is because the lower ground property already has a kitchen in it and it has been paying council tax since 1999. Once it has been chopped into two flats it becomes easier to rent and to resell. Smaller properties are more digestible to the market, very little square footage will be lost in the conversion, we anticipate only 40 sq. ft. will be lost to communal space. Normally the loss of net sellable area can be as much as 20% of the total square footage. At an end value of £1,600 per sq. ft. preserving each square foot is very important.

This is especially true in the current environment where the threat of mansion tax is hanging over property. Splitting this into two properties means it will come under the expected threshold of £2m. The other factor is this will be share of freehold, therefore even if there will be an annual fee payable at some point in the future it is not likely to kill the investment.
Planning takes time, inevitably however much time you allow for it, it always seems to take even longer. So it would be unwise to leave the property vacant, the property is currently in good condition as it has been lived in. So to rent it with some minor works done at least would bring some money in to cover the mortgage payments till all the ducks have been lined up on the planning side.
There are a number of work streams which are going to be pursued and this may take some time to come to fruition. Planning is generally better done in bite sizes, meaning preparing separate applications and then submitting them one by one, once the preceding one has been granted, this then doesn't overwhelm the planning officer in the council. It needs to be packaged so it’s easy for them to approve.

Fair play to the investor who surprisingly decided to fund the whole investment single handedly. He has already tasted blood from the first deal he did with us in Kilburn, where we have had a distribution of funds. The cash used in this transaction is in the region of £1.4m which will cover all the costs including the developing cost once the planning has been approved.

I mentioned it would be worth refinancing the family home for this in order to bring the cost of borrowing lower, the amount of borrowing is fixed, we need this set lump of money, the question is where is the cheapest place to get it from? The answer most often is from the residential property as this is a cheaper source than BTL rates. You can also get several overdraft mortgages on this basis which means you can pay back and borrow whenever you wish, only paying interest over the duration you borrow.

There exists a common illusion that by remortgaging the family home you all of a sudden put it under threat – which of course you do - but the point is your family home comes under threat whenever you take a BTL mortgage too. When you take a BTL mortgage you give a personal guarantee that if the lender does not recover their loan from the sale of the property in the event of default they will pursue you for the remainder, this could mean your family home as well.

You as a person are liable for the loan regardless of which property the charge is registered under, so it makes sense to get the funds from the cheapest source possible. The difference between a personal loan and a mortgage is a mortgage is a personal loan which also has a charge on your property, you are still liable for it.

The aim of this investment is never to sell, this is a long term buy and hold. Once the flats are done we will refinance each property with the aim of trying to extract as much money as possible so it can be used to buy further properties and replicate this again and again.

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