Consistency And Persistency Pays Off Eventually (with Help From The Chancellor)

byAlanJE

2.4K followers

Updated 5 days ago

Hi Everyone,

I hope you have had a successful week, and are enjoying the start of your weekend.

This week has been quite momentous for me, starting off with an acceptance of an offer that I made on a property that I fist started negotiating for 2 years ago.

I remember the day I first visited the building which was an empty closed down care home. The sun was shining brightly and it was a hot day, yet the heating system was on and pumping out heat relentlessly.

The problem with the building was that the price had been set too high at offers around £1.8m (approximately $2m). Possibly the sales agent had suggested such a high value to the owners, who then thought that was what the building was worth.

I worked out that in order to justify paying anywhere near that figure, there would have to be a development of houses in the garden which would increase the value of the land and therefore the plot significantly. I duly put in a conditional offer for £1.75m subject to planning approval being granted for conversion of the main building to 11 flats and to build 6 houses in the large garden. This offer was declined, and the owner chose to go with another identical offer from another party, who had put his bid in earlier. I thought that would be the end of it.

Then in Spring 2023 I was notified by the agent who notified me about the property originally that it was back on the market. The person whose offer had been accepted could not get funding for it to proceed to whatever their development plan was.

I worked for a couple of months and made several offers to the owner with different permutations that would give her what she was looking for and still be a viable development, meaning that the property must generate sufficient value to justify the purchase, refurbsihment and conversions and finance costs. All my offers were declined as they were conditional upon getting planning approval to increase the value of the site. In frustration I asked the owner, what offer she would accept and she told me: "£1.7m unconditional!" I told her i could not do that since the property was not worth it without planning permission for a change of use (to residential) which would increase the value of the property. Again I thought that was the last I would hear about or see of this building.

Then I received notification a couple of months ago that the property was back on the market again for a reduced price of offers in the region of £1.5m, so £300k less than the asking price in 2022.

I revisited my figures and made an offer which I though might clinch the deal at £1.55m, and an overage of £200k in the event we could increase the Gross Development Value to £5.5m by building 6 houses in the garden. The thing that changed in this year's offer is that we are considering converting the building into 12 x1 bed flats for Specialized Supported Housing, meaning that we do not need planning permission for a change of use so there is no risk of rejection by the planning authority. Additionally when using the right Registered Care Providers, a 10 to 20 year lease can be arranged and the repairs and maintenance are all carried out by the leaseholder.

This gives a good business case because the rental income is certain for the period of the lease with no voids to cause lack of cashflow. Also the lease contains a clause that increases the rental income by the Retail Price Index of Inflation of usually 3% of the rental amount.

This is a good use of resources for the community as it enables vulnerable people to be housed in the community with visiting carers which is more cost effective than constructing dedicated medical or care facilities for that purpose.

The factor that clinched the deal this time though was that we offered to exchange contracts quickly and complete the purchase before the next UK Chancellors budget is announced on 1st Novermber 2024. Why is that important you may ask? Well rumour has it that the UK Chancellor of The Exchequer is likely to announce some big tax increases in the forthcoming budget to plug some big holes in the budget, ie to balance the books of income and expenditure.

Rumour has it that Capital Gains Tax would be an easy hit on property owners and so anyone who purchase a property 20+ years ago and is selling for a much higher figure than they purchased it will be hit quite hard (we dont know yet exactly how hard).

So our offer to complete quickly struck a chord with the owner of the building, and finally at the third round of negotiation we ,managed to secure the building. The owner would then avoid the capital gains tax increase.

This will create much needed social housing and make a small contribution to reducing the massive housing shortage in the UK. It will also create employment for all the trades carrying out the conversion refurbishment and construction works, and of course the designers as well as the building control officers and a miriad of suppliers and subcontractors.

So we now have the challenge of finding the funding to complete the purchase and carry out the works in a short timescale. 2025 looks like being a busy year already.

I wish you all a peaceful weekend wherever you are in the world.

Cheers

Alan