20 Jul Three Ways to Find Profitable Deals in a Rising Market
July 01 2022
Three Ways to Find Profitable Deals in a Rising Market
Finding a profitable deal is like finding a needle in a haystack. Many investors and developers set their sights on Rightmove or Zoopla and expect to find one within weeks of searching. Although this is possible, it is rare.
We have created this article to demonstrate just a few of the creative ways that we use to find our deals, regardless of how high the market is rising. We hope that sharing this information will help you to scale your development business. But, if you want to work smart rather than hard, we have a solution for you at the end.
The Real Value
Most plots of land or abandoned commercial units on the market would not make profitable deals if you purchased them at asking price. In some instances, you might see plots that would need to be tens or even hundreds of thousands of pounds cheaper if they are ever going to work as deals. Our advice when you see these listings is to offer on them anyway.
Many people take a chance when they put land or buildings onto the market. A lot of vendors are unsure what their land is worth, so they unintentionally overvalue it. You are not likely to be the first person to tell them this, so offer what you can afford. Rejection costs nothing, but it can land you a great deal if you take the chance.
Showing your workings helps with this. We have done a separate article on that that can be viewed here. Essentially, showing your build costs, interest payments and profit margin to a vendor/estate agent shows them that the site simply does not stack as a development.
Get Creative
The key to a good deal is to make it a win-win for everyone, and this doesn’t always mean buying a site at asking price. There are many purchasing options available, Lease Options being one of the most widely known.
However, there is one technique that many developers don’t know about: overages. An overage is an agreement made with a landowner. Let’s say you think the gross development value (GDV) of a development site is going to be £700K, but the landowner is adamant that it will be £800K, and therefore they want a higher price.
You can do an overage with the owner. Essentially, you ask them to put their money where their mouth is. They accept your offer based on the GDV being £700K, but, if the GDV is higher than you anticipate, then you split the difference and give them half. For example, let’s say you sell the properties for a total of £750K, the landowner would get your original offer plus an extra £25K (half of the extra profit made).
Off-market letters
Some of the best deals can be found off-market. The trick is speaking with the vendors who are looking to sell. Now, unless you run an advertising campaign, this will be close to impossible to do. However, there is an easier way, the good old-fashioned letter.
Use Google Maps to identify sites in built-up areas. Ideally, you want to look for brownfield land or empty spaces in the middle of housing estates. These areas are most likely to get planning permission. There are other techniques you can use, like identifying sites found on the Local Housing Plan, but we will keep it simple for now.
When you have found a site that looks ideal for development, find it on Land Registry here. You can then find the name and address of the landowner and send them a letter. Even if they haven’t thought about selling, your correspondence might give them the shove they need.
Skip The Queue
You don’t need to fight for land or commercial units when you invest with us. Rather than making countless offers or writing hundreds of letters, you can invest in one of our ongoing developments. We have the teams and experience in place, so all you need to do is sit back and receive your return on investment.