working out the redevelopment costs
demolition
Whatever you do, don’t demolish the old property before you’ve secured permission for its replacement. The presence of the existing dwelling defines the principle of residential development and so it is critical that demolition doesn’t take place until permission for the replacement has been secured. Many people have fallen into the trap of trying to get ahead of the game by demolishing early, only to find the principle of residential development has been lost and therefore planning permission for a new home cannot be granted.
demolition of residential properties is generally straightforward and costs about £8,000-£12,000 for a single property. houses are usually low rise simple structures with lightweight foundations which are easy to demolish and remove with the right expertise and equipment. There are some complications such as disposal of asbestos and other hazardous materials, disconnection of
services which can prove lengthy, and demolitions which require access from third party land. There is no legal right to access someone’s land to carry out the demolition. You’re at the mercy of the landowner who may refuse access and therefore a license should be obtained to ensure demolition can be safely completed. don’t rely on your friendly neighbour (who may not stay friendly); do expect to pay a reasonable sum putting this in place.
personal choices
Self-builders not only build architecturally unique homes, but are also innovative and forwardthinking, adopting the latest technologies and energy-efficient building systems to improve the functionality and quality of their homes. This is all great, but when it comes to viability it’s advisable to make sure the chosen design and specification will add value, otherwise viability could be compromised and the project lost in its entirety.
retaining parts of the existing building retaining parts of the existing structure and incorporating them into the new build may seem to be a good idea. but by doing this, your project will cost significantly more to build. In order to qualify for 0% rated VaT, the entire existing building including the foundations must be replaced. So if you keep, say, the existing substructures, you won’t be able to reclaim the VaT, which adds a whopping 20% onto the construction cost.
rebuilding costs
how you intend to build will also affect the cost of construction. There aren’t many self-builders
who ‘self-build’ in the truest sense of the word. Many drive down construction costs by managing a team of subcontractors to do the work on their behalf. For those who are time poor or don’t have sufficient confidence to manage their own build, the preference may be to use a project manager or turnkey builder to complete the project entirely. This will probably be more convenient, but professional project management fees and builders’ overheads and profits will cost more and adversely affect the viability of the project.
When it comes to understanding construction costs, it’s always worth doing your research. Use the build cost calculator on page 214 or consider employing a quantity surveyor or estimating service to work out a reliable budget. once you have a clear design and specification, investigate alternative building routes and figure out which option offers best value for your needs. remember, the higher the cost, the poorer the profit and therefore less viable the project will be.
end value of the replacement home
end value is critically important to viability and the general rule is that higher value projects will be more profitable (that’s higher value not higher cost!). once a suitable design has been developed that theoretically passes the planning test, ask local estate agents for an indication of the value of the existing house. having an early indication of value before you’ve even applied for planning will allow you to tinker with the plans to influence how much it will be worth.
hopefully, increasing value and controlling build costs will unlock potential rebuild projects which would otherwise remain untouched. Property valuations can prove emotive with wildly differing opinions about what a house is worth. The truth is it’s only worth what someone is prepared to pay, so rather than rely on what could be an unreliable personal opinion, carry out thorough research to understand the local market and what’s selling and at what price. and always verify your valuation with a qualified surveyor.
what could affect my plans to replace? protected status
If the building is listed, you can’t replace it. even unlisted buildings in ‘designated’ areas will enjoy some protection. conservation areas, national parks and areas of outstanding beauty have much tighter planning policy control and will be subject to more scrutiny from the planners. So proposals that don’t enhance the area or compromise the local character may be refused permission.
restrictive covenants
existing properties, especially those that have potential for redevelopment, may have ‘restrictive covenants’; unknowingly breaching one can be an expensive mistake. Most restrictive covenants are fairly innocuous but some may restrict the extent of redevelopment or even claim a percentage of the uplift of value generated by their redevelopment.
Ideally, if the property is covered by a restrictive covenant, try to negotiate its removal before you buy the property or reveal your development plans, as you don’t want to weaken your negotiating position. It’s also advisable to take out indemnity insurance to cover any covenant breach. With covenants, there’s no need to panic as it’s up to your conveyancer to identify them and advise on their implications if not managed appropriately.
financing the project
Financing a rebuild project is likely to be more complicated than building, say, a new home on a virgin plot. The problem is that the financing process becomes illogical in the case of rebuild projects — you need a mortgage to buy the property which is secured against the value of the building you want to knock down! This sets alarm bells ringing for standard high street bank, who may quickly lose interest in approving your mortgage application. Financing rebuild projects needs specialist advice and a pragmatic approach, which is often offered by a friendly building society.
how to fInd a suItable project
Finding a suitable replacement plot isn’t as simple as scouring the internet looking for dilapidated properties. The trouble is, run-down houses are obvious targets and high demand potentially increases value above what they’re actually worth. To increase the chances of success, you must adopt a more intelligent approach and focus on properties where value can be added in not so obvious ways.
The key to improving viability is to increase the quality and scale of the existing property. Prospects aren’t limited to old dilapidated buildings; in fact any building that offers this potential is a target for redevelopment. Keeping this in mind, we can rule out tight sites with existing properties built close to boundaries offering little or no room for expansion, or architecturally desirable properties that demand a premium price. Ideally look for space to build into and for properties that have little or no architectural merit — not just those that are run-down and dilapidated.
When we talk about space, most people immediately think about the size of the plot and the position of the boundaries in relation to the existing house but this isn’t the only place to find extra room to build. Think about height — could you increase the size of the existing house by building upwards? remember, adding square metreage increases value and so additional floors are highly effective ways to increase floor area and house equity. It’s no wonder that bungalows are such popular knock-down and replacement projects. The trick is not just to look at individual plots but take a broader view and consider the wider street scene. Look for properties that seem stunted in stature compared to their neighbours and focus on the height of adjacent ridge lines which may offer potential for upward growth.
building a replacement house isn’t cheap and to make the numbers stack up, there must be sufficient value in the location being considered. rebuild costs can be anywhere from £1,300/m2 upwards, which means low value areas are unlikely to offer viable prospects. Sadly this means we have a north/south divide when it comes to making replacement plots work. This is fine if you’re looking in leafy Surrey but if you want to live somewhere where property is cheaper, knock down and rebuilds may not stack up and understanding viability is even more critical in these locations.
This brings me back to where I started. Successful plot hunting requires detailed research and there is no substitute for thoroughly understanding the local market. Figure out what sells well and for how much. If you have a good idea of what it will cost to rebuild an existing home and improve its end value, potential plots start to literally jump off the page!