OS for small property developers

[Marginly]

Hi all — long time lurker, first time poster. I've spent the last couple of years building a tool for small developers (more on that at the bottom if anyone's curious), and the single biggest pattern I've seen from the deals people send me is that they fall down on the same three numbers every time. Sharing in case it saves anyone a wasted Saturday:


1. SDLT on the actual structure you'll buy in. Most people calc residential rates on the headline price, but if you're buying as a Ltd co, or it's mixed-use, or you've got the 5%+ surcharge, the SDLT can swing your profit by £15–25k on a sub-£500k deal. I now refuse to look at a deal until I've run the SDLT properly.


2. Finance cost over the actual hold period, not 12 months. Everyone defaults to 12. Real refurb-and-sell deals are 14–18 months by the time you've added the planning faff, build slippage and a slow sale. Two extra months of bridging interest on £300k of debt is roughly £5k you weren't planning for.


3. Sales costs at 2.5–3%, not 1%. Estate agent + legals + a small contingency for a chain collapse. I see people put 1% in and wonder where their margin went.


Anyone got a fourth they'd add? Curious what number people here always get burned by.


— Belinda

 

[numbersrule]

Hi Marginly
Welcome now that you are no longer on the margins!

Regarding the other type of margin, I do indeed know of a fourth factor to consider.
You have mentioned the structure to be purchased, so I infer from your reference to small developers that you are talking about refurbishments from the ground up. However, do keep in mind, in case you ever find yourself drawn in, that many small developers buy vacant land requiring ground investigations, remediation of brownfield land and additional measures for foundations.

The costs associated with managing Ground Risk can and regularly do dwarf many other marginal adjustments, particularly on contaminated land, which is sometimes referred to as marginal land.

My advice would be stay above ground and stick with your three predictable and known unknowns.

I can tell you dealing with unknown unknowns carries a much higher risk.