Self build your
way to a property fortune
Here’s how to make some spectacular gains in the housing market
A garage round the corner from me was sold for £170,000 the other day.
It is not a big garage, in fact it is barely 29ft deep by 15ft wide, though
it can hold two cars.
The inside is tatty: the concrete floor is badly rutted, the brick walls
are bare and crumbling and the roof leaks in several places.
What makes this garage so valuable is not its location – we live in
an area in Camden, north London, known locally as “Murder Mile”
– but the fact that it was sold with planning permission for a two-floor
work/live residential property on the site.
The price paid is a reflection of a small but important sidebar to the housing
boom of the past two or three years, namely a sharp rise in the number of
self-build properties throughout the UK.
Last year, for example, more than 50,000 self-build projects were completed,
more than the total number of new properties actually erected by commercial
housebuilders.
Why self-build?
The attraction of self-build is simple: it offers the chance to create the
house of one’s dreams cheaper, or to a much higher specification than
if bought from a developer.
Alternatively, for the more commercially-minded, it can deliver
‘instant’ gains after construction, of 20% or more above the normal
price increases enjoyed by the property market in recent times.
Taking the example of the garage above, local architects I have spoken suggest
the build cost will come to £75,000-£100,000, as long as the
‘spec’ is not too outrageous.
An estate agent in the area suggests the property might eventually reach
£350,000, a tidy profit of £80,000 or so on the combined purchase
price and build cost.
No wonder more and more people are deciding to join in the market. If you
want to take part, here are some points to consider.
What kind of person are you?
If you have a vast range of DIY skills, all the better. You can do loads
of the work and save money.
But actually, you don’t need them: it is possible to sub-contract every
aspect of the build process to others, though that means sacrificing some
of the potential gains.
The human qualities you will need most of all are:
Incredible patience – these projects always take much longer to complete
than first imagined
The planning skills of a three-dimensional chess player – if you
“self-manage”, juggling between suppliers and builders will be
supremely challenging.
Let’s assume you have both these qualities in abundance. What next?
Read a lot
You will need to get a feel for what is involved. The only way to do it is
to read books and magazines covering the subject, as well as going to a number
of self-build fairs where you can talk to the professionals and even attend
seminars.
There are three monthly magazines widely considered as essential reading
for any self-builders.
SelfBuild & Design
Build It
Homebuilding & Renovating
All three magazines are fascinating reads – if you’re into this
kind of thing - and their websites carry a mass of useful information.
They also have – and this is vital – lots of heart-warming stories
of people who managed to build their dream homes against all the odds, saving
tens of thousands into the bargain.
Find a plot
This is the difficult bit. You should go to surveyors, estate agents and
auction houses in the area you are interested in. Also worth talking to are
local authorities, church bodies, even utility companies.
There are a number of online services that may be of use:
BuildStore, a building supplies site, has PlotSearch
Property Spy, which specialises in land in England
PlotFinder, which is part-owned by one of the three magazines above
SelfBuild Plot Browser, also part of one of the magazines above
All three also have articles on what to look for and on some of the pitfalls
to avoid. You will have to register and pay a fee, or subscription to use
them.
Here are two tips worth bearing in mind:
1) When making an offer on a plot, always work out how much you will have
to pay for the actual build process – and then add another 10 or 20
per cent. If the price of the completed property is still at least 20 per
cent less than a comparable one from a builder, you have a bargain.
2) You don’t have to find an empty plot. Many houses are on land that
would be worth much more with a modern – perhaps larger and more attractive
– property.
Estimating build costs
Here are several ways of doing this:
Rule of thumb: base it roughly on an estimated £50 per square foot,
or £450 per square metre. This includes walls. For high specification
houses (swanky bathrooms and kitchens, lots of hardwood, stone and glass)
go up to £650 per square metre. Beware of problems on the site, which
can add thousands to the final cost.
Be cheeky: ask a builder to quote for the work and then deduct 15% for doing
it yourself. Or split the work into each trade job and ask for quotes for
each item of work (harder, but more accurate).
The hard way: go through a builder’s price guide (Spon’s
Builder’s & Architect’s Price Book, £69.50), available
in all central libraries.
You can also try Mark Brinkley’s The Housebuilder’s Bible. Having
read this book a few years ago, I think it’s superb.
TIP: most builders won’t be doing as much shopping around for their
supplies as you might think: for them TIME is money, not materials.
By sourcing supplies more cheaply yourself, you could shave up to 5% per
cent off total build costs.
Sort out the finances
There are a number of different areas to consider:
The mortgage: the biggest problem is often that of finding a lender that
will agree to a mortgage in “stage payments”, allowing you to pay
as each part of the house is built. If you have money towards the land and
some of the build costs, that will be a big help.
That said, here is a list of lenders that can help, with details of their
mortgages available to self-builders.
Most existing online mortgage finders won’t be able to help find a mortgage.
But Charcol, which combines a mixture of online and telephone-based advice,
will.
The short-term loan: there will be times when you are paying literally several
thousand pounds of week to tradespeople and suppliers for items or services
you need. No staged mortgage will be able to cope with all of this.
Be prepared to go to your bank. Alternatively, you may want to use a combination
of interest-free credit cards deals and similar lines of cheap credit to
temporarily fund the build project.
The insurance:
some of this is specialised stuff. You will need four types of cover –
Site insurance to cover against public liability, theft or damage from the
site and employer’s liability. You may also need legal expenses cover
– if work turns out to be defective, you may need to take action against
your builder
Structural warranties: this is protection against long-term failures in the
work carried out to your house and will help when you sell the property on,
as it protects for a fixed number of years after the building is completed.
There are specialised insurers who offer these services and it would be invidious
to mention them now – you’ll find out their names soon enough.
Saving on the VAT
Let’s assume that you have managed to find land, come up with an
architect’s drawing, it was approved by local planners, you worked out
the costs, found builders and are ready to start.
How can you save several thousands more pounds? Think of the VAT angle. Here
are a few tips:
Building work is normally subject to VAT at 17.5%. But not new buildings.
However, you can only claim once: all work AFTER you have submitted a claim
for a refund will be liable to full VAT.
If you use non-VAT registered builders you won’t be charged VAT on their
labour.
Landscaping for new buildings is also zero-rated for VAT purposes, as long
as it is carried out at the same time as the main build itself.
Listed buildings, residential conversions, renovations of empty buildings
are zero-rated.
If you demolish and rebuild you will also be zero-rated.
For details of this and other money-saving ideas, go to the selfbuildit.co.uk
site.
Or try the Customs & Excise site for more information
Finally
There is no question: you can make money out of self-build. But it does take
time and organisational skills. If you have both, you could be on your way
to becoming property billionaire.
As for me, I’ve just re-plastered the ceiling and laid a new floor to
my own garage. Any takers?
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