This weeks question of the week comes for Gurdev, who came across a plot with a block of 6 garages on it. Gurdev then goes on to tell Glenn the numbers on the deal.
It’s been on for 6 months, asking price is £150,000 and already has planning for a block of 6 flats. GDV (Gross Development Value) is going to be in the region of £450,000 – £540,000.
Glenn asks what the price per square foot will be once the flats have been completed, to which the answer is £140 – £150. However, as it costs between £100 – £110 per square foot to build there doesn’t seem to be enough margin in the deal. Glenn went on to say he wouldn’t get involved in building anything in areas less than £300 pr sq ft, as I’d probably sell it off as planning gain.
Glenn went on to mention that for areas that are under £300 per sq ft, you’ll find that the value of the plot will be around 20-25% of the overall GDV. So Gurdev’s plot should be valued around £70,000 – £80,000 to be viable, to which Gurdev calculated it to be around £100,000.
As the property has been on the market for 6 months, Glenn states that it will stick around because mathematically it doesn’t work at £140 per sq ft, it doesn’t justify building it.
Glenn then went on to say that Gurdev can go back to the agent and offer them a set figure and just go through what the associated costs of building it would be, so it gets them to face reality. In addition you can then tell them you are willing to put an over-ridge clause in the contract to give them more in the back end if you sell the flats for a certain price and your profit is more than “x”.
To listen to the question that was asked live on the webinar, click the play button below.
I’m sure this isn’t over yet and Gurdev will update us on one of our next webinars.
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