Overview
We own 2 Stokes Cottages, a 2-bedroom house with an adjoining garage on a plot of land that has significant development potential. The property was purchased in October 2022 for £550,000, with a valuation of £630,000+ last summer. We are exploring two options: partnering with a joint venture partner to develop the land or selling the plot directly to a developer.
Joint Venture Development Proposal
Investment Opportunity:
- Buy-in Price: £600,000 (for both the 2-bedroom house and the land with the garage).
- Development Costs: £300,000 – £350,000.
- Estimated Finance Costs: £60,000.
Total Estimated Costs: £960,000 – £1,010,000
Scenarios for Return on Investment:
Scenario 1:
- Sale Price of 2-Bed House Post-Development: £400,000
- Sale Price of Newly Built 4-Bed House: £650,000
- Total Revenue: £1,050,000
- Total Estimated Profit: £40,000 – £90,000
- Return on Investment: Approximately 4.17% – 8.65%
Scenario 2:
- Sale Price of 2-Bed House Post-Development: £400,000
- Sale Price of Newly Built 4-Bed House: £700,000
- Total Revenue: £1,100,000
- Total Estimated Profit: £90,000 – £140,000
- Return on Investment: Approximately 9.38% – 14.58%
Scenario 3:
- Sale Price of 2-Bed House Post-Development: £420,000
- Sale Price of Newly Built 4-Bed House: £725,000
- Total Revenue: £1,145,000
- Total Estimated Profit: £135,000 – £185,000
- Return on Investment: Approximately 14.06% – 19.27%
Rental Income and HMO Potential
If the newly built house is retained for rental income, it is estimated to generate at least £2,000 per month.
Alternatively, developing the property into a 4 or 5-bedroom HMO (House in Multiple Occupation) could generate higher rental income:
- Estimated Rent per Room: £850 – £1,000 per month.
- Total Monthly Rental Income for 4-Bed HMO: £3,400 – £4,000.
- Total Monthly Rental Income for 5-Bed HMO: £4,250 – £5,000.
- Annual Rental Income for 4-Bed HMO: £40,800 – £48,000.
- Annual Rental Income for 5-Bed HMO: £51,000 – £60,000.
Valuation of the 4-Bed HMO: Based on a rental yield of 5-7%, the value of the house as a 4-bed HMO would likely range between £580,000 and £960,000.
Sale of Plot to a Developer
We are also open to selling the plot of land where the garage currently sits to a developer. The plot presents an excellent opportunity for development into a residential property, with potential for either a single-family home or an HMO.
Key Advantages for Developers:
- Prime Location: The plot is situated in a desirable area with strong demand for residential properties.
- Development Potential: The land is suitable for a 4-bedroom house or a 4-5 bedroom HMO, offering flexible development options.
- High Return on Investment: With the potential rental income and sale prices, the plot offers significant profitability.
Estimated Value: Given the development potential and market conditions, the plot of land is valued at approximately £300,000 – £350,000. This valuation takes into account the cost of construction and potential revenue from the completed development.
Next Steps
If you are interested in this joint venture opportunity or wish to discuss the purchase of the plot of land, please contact us at your earliest convenience. We can explore the details further and finalize the agreement that best suits our mutual interests.
Thank you for considering this proposal.