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The Essential Guide » Finding & Buying Land / Property » How Much Should We Pay For Our Building Plot | Land For Sale?
How much should we pay for a Building plot?
Here are three ways to buy land:
1) Without Planning permission
2) With Outline Planning Permission
3) With Full / Reserved Matters Planning Permission.
The difference in price between land "with" or "without" planning Permission, is, to say the least "dramatic"!.
For example: Some years ago I attended a property auction which included a number of building plots, and other land. - One plot of around 100ft x 150ft with Outline Planning already granted sold for £95,000.
Right next door to it was another piece of land, - being sold at the same auction.
This second piece of land was the same size, but without any form of Planning Permission. - It was bought for £5,000!
The value of that “little piece of paper” from the Planning Department which says “Planning Permission granted” is phenomenal!
There is so much difference in value between land with and land without planning Permission, that there are many people around the country who make a very good living by learning to “play the system”.
That may sound vaguely illegal, but in fact there is nothing wrong with it!
These people simply use to their advantage, the fact that land increases in value to a huge extent when it has planning Permission of one form or another.
These people spend their time finding land without Planning, getting “control” of the land, either by buying it or getting some form of “purchase agreement” in place on it, and then set about working to obtain Planning Permission on it.
They will then either sell the land on and realise their profit quickly, or go on to develop it to make further profits.
They can afford to “fail” at a number of projects and still manage to make a good profit at the end of the day.
There are risks attached to trying to emulate this technique, and it is not recommended for most people. But, if you at least know that this is “how the system can work”, you will be better equipped when you make your own choices on “searching for”, and “buying” land for your own projects.
Buying Building Plots without Planning Permission
With the knowledge that you could potentially make a lot more profit from your project if you manage to get a piece of land which does not presently have Planning, and subsequently get it granted, you may decide to “go for it”! If you do, you will probably need to use the services of a specialist such as a Planning Consultant, or possibly an Architect.
As I have already mentioned down this route can be risky and you can spend thousands of pounds, on a process which can take many months, only to have the application turned down. These people who do this sort of thing for a living can afford to take a couple of “hits” and have applications fail. – They will either then accept the loss and move on, or go to a “Appeals process” which can months or even years to complete. – Can YOU afford the time or the financial input to take that risk?
Bear in mind also that if you find land which doesn’t have Planning Permission already, there may be a reason why it hasn’t.
If you are “taking a chance” and decide to just buy some land in the hope that you will be able to gain Planning Permission, ask yourself: “Why hasn’t the present owner done so in order to make the profit for themselves?
Also ask: “Why hasn’t anyone (for example one of the people who do this for a living) come along before you and bought it? - If it is going to stand a chance of the application succeeding and subsequently making someone a lot of money, wouldn’t you think that the professionals would have been “sniffing around it”?
However, there ARE ways where this process can work for the “amateur”. - For example:
1) If you have a large garden on your existing property you may be able to gain planning approval on it yourselves.
2) If you see 2 or more properties which have land which could be joined together to form an ideal plot, you could approach both the owners and see if they would be willing to let you buy a bit from each of them on the basis that you do all the Planning Applications. These “joined up” plots are more complicated for the professional companies to go after ( because they have to get 2 lots of people’s agreement and this can be a complex task).
3) If you know someone who trusts you and who would be happy to “join with you” to have a go at getting the Permissions granted and then splitting the benefits between you.
I am not saying that you definitely should not go for ANY plot that you come across which does not have Planning, but you just need to be aware of the pitfalls, AND also ask yourself why, if it is such a potentially good plot for YOUR project, why is it sitting there without Planning Permission NOW?
For ME to buy land without Planning permission I would not pay more than 10% - 15% of its potential value “with Planning Permission”, and I would work the “end value” out by doing some research on local land which is or has been for sale recently..
If land has not presently got Planning Permission, but the owners were willing to let me apply for it, - and then agree a sale price, dependant on me being successful with the application, I may think about offering up to 75% - 85% of its market value “With Planning”. – I would expect at least that sort of return as I would be taking all the risk, and putting all the effort in to getting permission granted.
Land with Outline Planning Permission:
It is a much less complicated process to work out how much to pay for land which already has Outline Planning.
First, however, make sure that the permission is suitable for what you want to build.
You may find that the development is strictly limited to a certain “square footage” or a maximum number of bedrooms.
It may have a building line behind which you have to build, which does not give you enough room for the house you want plus a back garden.
Also consider: Are there services nearby (gas / water / electricity / telephone)? - Are there access restrictions?
Before you consider making an offer, do you homework on the plot. - If you can speak to the Planning Officer who originally dealt with the application, ask him anything you think you might need to know, and which could affect the price you offer.
Land with Full / Reserved Matters Planning Permission:
Before deciding how much you should offer for land with “Full Planning Permission, or “Reserved Matters” you should take a good look at what the Permissions are allowing you to do.
There will be full drawings for the site which have been approved:
Is this design what you would want?
Is it large enough?
Are the materials what you would choose?
Is it positioned on the plot where you would position it?
Are there any restrictions imposed which you are not happy with?
Is there anything else you find off putting or that would cost you money to change?
If you are looking at land which has Full Planning, or Reserved Matters, but you don’t want to build what has been granted, then you might just as well be buying something with just Outline Planning. – Why? Because the chances are that you will want to submit a new application, which will basically take you “back to step one”.
Bear in mind when you think about making an offer that there could be costs in time and money to make changes that you would want making, which would not necessarily increase the value of the finished project above what it would be estimated at presently. – This could reduce your potential profit margins.
Also bear in mind that:
If the applicants are not building for themselves, having put all the effort into doing all the design work, and getting the Permission granted in the first place, - why are they now putting the plot on the market?
You need to find out. – There may be a problem with the land, or with access, - or anything which may have practical and / or financial implications.
If you ARE happy with the detailed plans as they stand, then your offer could be roughly based on the equation shown below.
As long as you are happy with the designs already done, and you are really keen on the plot, then occasionally, you may decide to offer “a few percent” more than the basic price you would expect to pay for land with just “Outline Planning”. As well as making your offer more likely to be accepted, this could simply be a “nod” to take account of the fact that site surveys have been done already, the Designer and the Planning fees have been paid, many of the potential problems will have been dealt with, and you will be able to save months of time, because with “Full Planning” you can basically start work once you have the “Building Regs Approval”, your “Structural Warranty” and your funding sorted out.
When making an offer on land, I used to work on a simple equation:
a) = c) – d) – b)
a) = the amount you would hope to be able to buy the land for. - This may or may not be the asking price, b) How much will it cost to build the house I want?
c) How much will it be worth when it is finished?
d) How much profit do you want to make?
I would be looking for the value on paper, when it was finished ( c ), to be at least 30% higher than its total cost ( a) + b) ) .
Then, if the project goes over budget, there is still a “buffer” which will still enable you to make a profit.
As the housing market boomed, I started to find that land I made offers on, I was not getting! – I realised that the formula had to change.
With house prices increasing at a rate of double figure percentages, year on year, people were starting to take risks on the price they would pay for land, in the fairly sure knowledge that before the project would be complete, the value would have increased significantly.
It can easily take a year to 18 months to go through the planning process and build the property. In that time house prices could have increased between 15% and 25% in some areas.
The equation for how much to pay for land then became:
c) = a) – b).
Where: a) = what would the value be of the house I want to build be, - on this plot, at THIS moment in time? / b) How much will the house cost to build? / c) How much does that leave available for the land?
That, in theory left me NO PROFIT. – I would have to rely on the increase in value over 18 months – 2 years, to make my profit
If you were keen on getting hold of the land, you would often need to make an offer of AT LEAST the value of “c” in this equation, - and possibly MORE.
However, at times, even if you were using this equation, your offer would still sometimes be rejected as others in the region were being even more cut throat.
Things have changed again now, but where land is concerned, not so dramatically. - Good land will still sell, and will still get a reasonable price.
At this time, maybe a bit of a mix of the 2 equations would be a suitable way to go:
d) = c) - b) - a) – “x)” where “x” is the money you are prepared to reduce your profit by to make sure you get the land you want.
Where: a) How much is the asking price for the land? / b) How much will the property cost to build? /c) What is its likely value when completed? / d) How much will I be happy with as a minimum profit to get THIS piece of land?
In some areas you may not need to think about the “x” factor! You might just be able to go with the first equation I mentioned. – It will be a while before the market becomes as cut throat as it was a couple of years ago.
The same advice goes out with this page as with every other: Do you homework before making any offer. Find out the “Plusses and minuses”, and make any offer based on them. If you don’t think there is any competition to worry about, you may be prepared to take the chance of making a low offer, - you , you will find it hard to then reduce it. – Its a bit of a risk “starting low” but it’s up to you to gauge whether or not it’s a good idea. – If it works, you could save yourselves many £1,000’s.
Whatever you do – Don’t risk not having the money to complete the project by pushing yourselves too far financially with the cost of the land. – There could be many problems waiting for you “down the line” which will all have their own “financial implications”, and which you will need to have enough funds available to be able to solve.
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