Real-world Development with propertyCEO

Small-scale property development projects that use permitted development rights can be done in your spare time, boast six-figure returns, and have a lower cost of entry than buy-to-lets. It all sounds great on paper, but what’s it REALLY like to convert a property?

In this new series, Ritchie Clapson CEngMStructE, veteran developer, author, commentator, and co-founder of development training company propertyCEO, will guide us through a real-life commercial conversion project from start to finish. Witness the highs and the lows, and learn the critical takeaways in this eye-opening, warts-and-all look at what REALLY happens where property development theory stops and the practice begins…

I can safely say that, in my forty years in the property industry, small-scale property development is the easiest way I’ve found of creating a fortune, property-related or otherwise. Unfortunately, that’s not the same as saying it’s easy. This is probably a good thing otherwise everyone would be a property developer (albeit we’d have solved the housing crisis ages ago). That said, many people give development a go, mainly because it’s highly leveraged and doesn’t require much personal capital. Yes, you’ll need money, but most of the cash will come from other people. In fact, your own investment will usually be a lot less than the deposit on a buy-to-let. Even a small development of between 4 and 20 flats will typically net you profits of £100,000 to £500,000 over 18-24 months, working in your spare time. It’s no surprise, then, that development creates a lot of interest.

But it’s not easy money; those who dive in more frequently sink rather than swim. Development is complex, and while architects, project managers, and contractors do most of the heavy lifting, it doesn’t mean the developer’s role is passive or without risk. Also, theory is one thing, but there’s nothing quite like doing your first development for real. When we launched propertyCEO, we recognised that teaching property development theory was essential, but could we go one better and give our students an insight into what doing a development project was REALLY like, warts and all? Where we could show students the stuff that other people didn’t teach. We decided the answer was to source a project ourselves and then film it from start to finish, turning the entire journey into a four-day, fly-on-the-wall training experience. Over the next twelve months, I’m going to take you on that same journey as we follow a small commercial conversion project from its humble beginnings through to its ultimately profitable conclusion. You can also watch some exclusive video content by clicking on the link which should help bring the project to life.

Click HERE for exclusive video content.

So, what were the requirements for our project? Firstly, it needed to be small. I’ve worked on some chunky projects over the years, but it had to be relatively low risk, something someone could tackle without having any previous development experience. Secondly, it needed to involve converting an existing building using permitted development rights (PDRs). This would mean we wouldn’t need full planning permission, saving us time and further reducing risk. Thirdly, it needed to produce a comfortable six-figure return. These schemes require less developer input than flips or refurbs, yet they make more profit. So, we wanted to ensure our profits comfortably targeted £100-200k.

And finally, we wanted a project that required us to put in none of our own money. This wasn’t strictly necessary, but we wanted to demonstrate that it was possible to do a development with no personal capital investment.

Finding deals takes time and effort. And after many weeks spent scouring the property portals and leveraging our agent relationships, a potential project surprisingly turned up on our doorstep through word of mouth. A friend of a friend was looking to sell an old vacant commercial building – a printing works on the South Coast – and had heard that I might be able to give them some much-needed advice.

* Top Tip: As a developer, you should always tell people what you do. You’ll be amazed at the private investment and deals that come through people you know and connect with, even though every new developer swears that they don’t know anyone with money or deals! So, don’t be shy, even if it’s your first development.

A meeting on-site was convened that evening, giving me just enough time to do some Google research to get my first glimpse of the building. It also gave me a steer on the questions I needed to ask and the main challenges of the site.

* Top Tip: In the internet age, you can do much of your initial research as a developer sitting at home in your pyjamas, 24/7. It makes development incredibly accessible for first-timers and those with day jobs or businesses to run.

I’ve included some pictures of the building and a floor plan, but I’ll try to explain the layout (don’t forget you can also watch a video by scanning the QR code). The first thing to say is that the building was every inch the ugly duckling, with no immediate prospect of becoming a swan. The site was effectively two detached buildings joined by a link and sandwiched

I love ugly buildings because people can’t see past their looks, so they avoid them. This means lower prices and fewer competitors. Ironically, it’s easy to beautify these buildings and turn them into something special and unique.

between two roads in a nondescript part of Gosport on the south coast, with street access to the front and rear. The front building ran to 90m2 over two floors and was an old two-up-two-down house that had been converted into the printer’s office. There was a reception area, an office, a WC and a kitchenette on the ground floor, with two further offices and a toilet upstairs. A picture window fronted onto a small access road off a busy (and noisy) dual carriageway. There were no parking spaces, albeit limited on-street parking was available. The back door of the front building opened onto an open courtyard with a covered link on one side that led to the rear building. The link was almost makeshift: a garden wall on one side, an uninsulated single skin wall on the other, and the two joined by a flat corrugated plastic roof. The rear building was different, comprising two single-storey, pitched-roof factory units joined together to form one big 100m2 workshop built on a thick concrete base. There was also a small flat-roofed area. This rear factory building was where the printing press had once resided, and at the back there was a small driveway that opened onto a residential street. There was no pavement at the rear; the factory building abutted the road directly.

* Top Tip: Commercial buildings with a thick concrete base are good news since you can often build walls directly off the base without any additional foundations being laid.

We met the owner on-site and walked around the empty building. I opened every cupboard and discovered several electrical supplies – potentially good news since we’d ultimately need one supply for each new flat. I’ve found it always pays to be nosy on a viewing.

* Top Tip: Always open cupboards and notice pipework and ducting when viewing. Be curious about where pipes lead. Also, check for dampness and damage and notice where WCs, water, electricity, and gas supplies are located. Pop ceiling tiles to see what’s above.

On my walk around, I also noted the following:

– Although detached, there wasn’t much space between the neighbouring properties, making for a tight site with limited storage for a contractor’s building materials

– There were a few damp spots on walls and some unvented chimney breasts, but nothing serious

– The factory roof was felted and would need replacing with tiles

– The staircase to the first floor was too steep for residential use

– There was scope to convert to residential, albeit we didn’t know the current use class of the building and, therefore, what PDRs existed

– One neighbour was a hostel; the other was an end-of-terrace

– There was evidence of some asbestos, but no major contamination worries

Just before we left, the owner told us they’d paid an architect £10k to have plans drawn up to demolish the existing structure and replace it with a new building featuring a car parking turntable (since a new build planning application would require parking spaces to be provided). When the architect demanded another £10k to take things to the planning stage, the owner became concerned and had reached out for my advice.

I privately thought the architect’s plans were fatally flawed and asked the owner to hold fire with their planning application and give me two weeks to do some further research.

A plan was starting to form in my mind, but I’d need to do more homework before I’d know whether it would fly. But, as I drove back that evening, I couldn’t help feeling that, with a little luck, this could be the project we’d been looking for.

Next month, Ritchie tries multiple ways to make the project profitable and to persuade the vendor to do a deal that would mean no money would be needed from the developer.