A property investor set to embark on their first property development project - a prime piece of land in Somerset with planning permission for four detached two-bedroom houses.
With a land purchase cost of £550,000 and estimated development expenses of £1.1 million, the first-time developer needed a financial injection. They sought property development finance of £1.25 million to cover the land acquisition and development costs.
The average projected selling price per property was £550,000, and with a gross development value (GDV) of £2.2 million, the project presented a promising return on investment.
The investors had two financial options: property development finance or a bridge loan. Due to the project's nature and lack of experience in property development, the investor was still determining if they could secure development finance. However, they already had six existing buy-to-let properties in their portfolio that could be used as collateral for a bridge loan if needed.
The property had a gross development value of £2.2 million, and with £280,000 allocated towards the acquisition, fees, and SDLT tax, the total finance requirement was £1.25 million - equating to a loan-to-value (LTV) ratio of 65%.
Somerset has many commercial hubs, and its proximity to Bristol presents many buy-to-let investment prospects.
Property prices: While Somerset's overall house prices surpass the national average in England, affordable property investment opportunities exist. According to Rightmove, Somerset properties had an average price of £365,002 - with detached properties fetching a high £554,320. The high prices render it an appealing destination for property investors.
Rental demand: Somerset provides buy-to-let landlords opportunities in local and work-related rental markets. However, for student accommodation investors, the opportunities are primarily concentrated in Bath, with the University of Bath and Bath Spa University having a combined student population of approximately 27,000. This offers a tangible financial incentive for those contemplating investing in Somerset.
Transport links: Somerset is also well-connected to the M5 motorway, A303, A37, A39, and A361, along with efficient rail services to Bath, Bristol, Exeter, London, and beyond, attracting job opportunities. Some areas fall within the Bristol commuter zone, resulting in heightened demand for buy-to-let properties. The easy accessibility enhances the county's appeal to residents and prospective investors.
The investor secured the development finance of £1.25 million, with the loan value encompassing both the land acquisition and development costs.
As construction progressed and the properties took shape, the property market in Somerset showed promise - with detached properties making up the highest number of sales (28.5%) in the year to October 2023.
Upon the successful sale of the properties at an average price of £556,000 per unit, the couple released a revenue of £2.2 million. With the development finance of £1.25 million settled, the remaining funds provided a substantial return on investment.