The Perils of Projects

Something I come across a lot when agreeing a search brief is people who say “but of course we’d also love a project”. Sure as night follows day they add “…especially if there was a chance to add value”. 

In most cases this is code for “is there any way you could find us a picturesque wreck going cheap that we could make over? It’s not that we’d be going to sell it, but we’d love the feeling of a paper profit”. 

Much as I enjoy a challenge, I find myself explaining a few harsh realities as diplomatically as possible. Firstly such green field opportunities are few and far between nowadays. Secondly they are very hard to come by – competition is intense, and developers will often snaffle them up long before anyone else has even heard of them. This imbalance of supply and demand naturally means that such sites command handsome prices. So sadly you’re unlikely to come across undervalued gems however obscure or rural their location.

Even when you do find something suitable, expect the economics to be challenging. It’s not unusual to find an unliveable property on a promising site priced at pretty much the market value of a liveable property. This is because the development value of a site with built-in planning permission will be way higher than you imagined. 

I was recently looking for a 3 bed cottage in rural Dorset (sensible budget around £300K). I came across a semi-derelict wooden chalet in a lovely rural setting with a generous plot asking £250K. The particulars said nothing about the property, which was clearly bound for the bulldozer. What was being sold was the development potential of the plot. Let’s be optimistic and say the plot went for about £230K. Building a 3 bed property from scratch would be in the order of £130K, giving a total cost of £360K. In such a situation the hefty asking price targets two very different types of buyer. One is a developer who will need to put 2 3-beds on the plot to see a decent return. The other is a wealthy private buyer who will use the site for an architect designed dream home of much larger dimensions. 

If you’re quick and committed enough to beat either of these competitors to the punch, you’ll need to pay the premium involved. That’s if you can work out what the premium is. Development properties/ sites are hard to price. So estate agents will often put them to tender at ‘guide prices/ offers in excess of …’ Since the small print may reserve the right to accept none of the deadline offers, this can be  a fishing expedition to test the level of market interest. Properties which are plain ugly, or in shocking condition, command high prices based on the right setting or a sufficient sized parcel of land. The growing popularity of self-build only fuels competition further. 

If you’re set on the project approach, far be it from me to put you off. But you’ll need deeper pockets than you thought and a lot of commitment. You can get to put your mark on somewhere in a way that’s more satisfying than money could ever be. However you need to go in with your eyes open. And if you’re looking for a quiet character rural 3-bed property in Dorset, there are easier ways of finding one.

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