My First Commercial to Residential Conversion (Is It Worth It?)

Рет қаралды 21,226

Күн бұрын

In this video I explore the commercial to residential conversion potential of converting the top floor of this commercial retail property I recently purchased. I go through all the numbers to see if its worth converting the top floor only to residential use.
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Chapters:
00:00 Video starts
01:36 Property tour
06:13 Conversion thoughts
08:54 The numbers
11:27 Two flats worst, medium and best Cases
13:57 Refinancing - cash in deal
15:17 Key lessons
I give you a tour around the top floor which is the area that could be converted to residential. I explain some of the good and some of the bad, about converting it.
Bear in mind this is my first conversion so I am not confessing to be an expert at it, but did educate myself on the subject before buying it so I do believe I have followed best practice.
I attributed £100 per sqft for the conversion build costs.
When planning a conversion its best to engage an architect and you should include their fees into your costs. I use 11% of the conversion cost as a rule of thumb prior to quotes.
With anything it's always good practice to add in a contigency cost which I added in 10% for a contigency and would use a bridging loan to fiinance the commercial to residential conversion work.
I factored in a 9 month build time, along with stamp duty and legal costs. Fortunately there is no CIL applicable for this area. Check your local area for CIL charges which is a levy imposed by the local council for new development work. This typically costs around £100 sqm but vairous by local council.
When calculating GDV which is the gross development value I used 3 cases which were Worst, Medium and Best case scenarios with a view that the real costs (and profit!) should be in that range.
One the best reasons to look at commercial to residential is the potential for the increase in per sqft value. This is proven when you come to refinancing your development as its new value is based on the residential per sqft price. Refinancing will also allow you to get back your cash and profit from the deal so you can then go again on the next one.
Recommend Reading:
The One Thing, Gary Keller amzn.to/3fTDKpK
The 7 Habits of Highly Effective People, Stephen Covey amzn.to/3pn81QS
#propertyinvesting #commercialtoresidential #buytolet

Пікірлер: 76

@StephenDuncombetv 3 жыл бұрын

I hope this gave you some insights into the costs associated with converting commerical to residential - let me know below YES or NO? Thanks for watching.

@RaphOrChuks 2 жыл бұрын

Yes

@vvwalker7261 2 жыл бұрын

Great video, thanks for posting!

@veryviral9967 Жыл бұрын

oh Yes!

@natashagrays7826 2 жыл бұрын

Thanks for your advice Stephen… I really appreciate it! Looking forward to the journey! Keep up the FAB videos-they are much appreciated! Thanks, Natasha

@daveukish 11 ай бұрын

Thanks Stephen for that great advice, I am looking in to the best ways to get into commercial property therefore I'm looking for more great advice like this, thanks again.

@nameless8132 Жыл бұрын

Really good insights and break down of the costs. Thank you.

@StephenDuncombetv Жыл бұрын

Thanks @Nameless for the encouraging words.

@helenallen2394 2 жыл бұрын

Thanks for Sharing Stephen, It is very helpful ! 👍

@StephenDuncombetv 2 жыл бұрын

Thanks Helen.

@warrengosling 3 жыл бұрын

Excellent video 👌🏾most informative information I've found on developing

@StephenDuncombetv 3 жыл бұрын

Thanks Warren for the kind words.

@steveharman8907 2 жыл бұрын

Thanks Stephen....nicely described and well presented

@StephenDuncombetv 2 жыл бұрын

Thanks Steve. I appreciate the kind words and thanks for watching.

@AAA19999 2 жыл бұрын

Really useful video thanks

@StephenDuncombetv 2 жыл бұрын

Thanks for watching.

@sukikaur4658 2 жыл бұрын

Love your video one of the thanks for info God bless you

@StephenDuncombetv 2 жыл бұрын

Thanks Suki for the kind words. I appreciate it.

@adinaa3945 Жыл бұрын

Thank you for this, Stephen. How did you calculate the architect+bridging+contingency? In the chart it shows 28.64% whilst if we add them (10%+0.85%+11%=21.85%) How did you obtain 26.673? Thank you

@maxboynett7318 Жыл бұрын

Hi Stephen, watching this a year late. Super helpful! Making me thing commercial might be the way to go. Have you managed to agree this with card factory? would be interested to follow the progress if so.

@StephenDuncombetv Жыл бұрын

Hi Max. Not yet I’ve been busy buying more commercial since I bought it. But when I do I’ll post updates on the channel.

@annonymousperson8570 Жыл бұрын

Hi Stephen, do you make sure the EPC rating can be a C or higher?

@RaphOrChuks 2 жыл бұрын

Great video Stephen

@StephenDuncombetv 2 жыл бұрын

Thanks Raphael. Pleased you liked it.

@natashagrays7826 2 жыл бұрын

Hi Steven, Thanks for this great video- I had watched it months ago but found new value in watching it again after your recommendation:-) I have been advised that if I buy a commercial property (to use PD rights and convert to redo) as my 1st project, it will be more challenging to find a lender and higher rates for loans etc.. it will also be challenging to finance the deposit, stamp duty, architect and all other costs with my small budget. Would you advise doing a brrr with a vanilla buy to let before doing a commercial investment or an hmo? Thanks , Natasha

@StephenDuncombetv 2 жыл бұрын

Hi Natasha, yes as your first deal with no experience I would find a buy to let that you can fix up and refinance. Then when you get some confidence and experience of doing that you can look at more advanced things around commercial pd rights.

@Floatingnestsirius 11 ай бұрын

What did your actual numbers come out as. These were vague and fairly off the cuff. When it comes to what you actually paid is there a video on this.

@AaishaQureshi-me9gg Жыл бұрын

Hi Stephen I have been trying to get my head around figures espcially in relation to GDV etc. I follow this video up to the costs and the price per sqft but then I get confused by where the price for the gr&ff comes from? Please can you clarify for me something that is probably very simple but has me confused.

@chrisbuller2472 Жыл бұрын

Great video Stephen, would you be happy to share a blank version of the spreadsheet?

@StephenDuncombetv Жыл бұрын

Good ideas I’ll probably add things like that to a free download resources section on my website. I’ll probably do it next week sometime.

@mikgsal1384 10 ай бұрын

Great video thank you. I saw a similar one elsewhere but Grade II listed and very cheap is it one to avoid because its listed? Do you do any training on Zoom? Thanks

@StephenDuncombetv 10 ай бұрын

I avoid grade II. Yes I do mentoring. Email is in the about on KZfaq.

@veryviral9967 Жыл бұрын

Hi Stephen, great content! just what i was looking for, however, how did you arrive at the £134 price SQFT?

@StephenDuncombetv Жыл бұрын

Hi Veryviral it the purchase price divided by the total sqft = £134. Pleased you liked it.

@fifi78962 Жыл бұрын

Excellent explanation

@StephenDuncombetv Жыл бұрын

Thanks I appreciate that.

@michaeldark2092 4 ай бұрын

so what was the actual results? what further issues did you encounter.? does the result match your spreadsheet?

@eloisebevan1316 3 жыл бұрын

Hi Stephen great video the run down of the numbers was very helpful! I have one question regarding these though, what is the loan for and how is the £2,472 value calculated? Eloise 😊

@StephenDuncombetv 3 жыл бұрын

Hi Eloise there are two loans I refer to. One for bridging and the other is to refinance that bridging loan into a commercial loan. Where are you seeing £2,472?

@eloisebevan1316 3 жыл бұрын

Hi Stephen, the £2,472 is the amount you’ve said is needed to service the loan in the best case scenario. I think this is the serviceable amount you pay back each month for refinancing to a commercial loan? How did you calculate this? 😊

@ashleyspencer3664 2 жыл бұрын

Great video did you get a capital allowance survey done, pretty much gives you two years free income. Vat I believe should also only be charges at 5% which is a nice bonus

@StephenDuncombetv 2 жыл бұрын

Hi Ashley no I did not get one. There was some capital allowances passed from the previous owner to me based on work they had done prior to leasing the property. But I’m interested to understand more about the survey so will look into that. Thanks for watching.

@debbyshapiro2125 Жыл бұрын

Oood music!

@noble4300 2 жыл бұрын

Can you do a video on commercial property you see in the right move app? It’s ambiguous, is it the business or property? Properties seem to cost 50k in Nottingham which seems unrealistic. I would like to start dipping my toes commercial projects, buy it in cash so I can go slowly through the process. What is the vanilla commercial property investment in the with a 200k budget? Thanks Stephen, love your channel

@StephenDuncombetv 2 жыл бұрын

Hey Noble. Sure I’m happy to take ideas. From what I can understand, if the price is £50k in Nottingham, it probably is a business sale. They should say in the description or brochure, so double check that if you haven’t already.

@Mac10655 Жыл бұрын

great videos, thank you. Is this a good time to invest in Commercial properties?

@StephenDuncombetv Жыл бұрын

At the moment interest rates are the highest they’ve been for ages. If you don’t need to continual loan then anytime is a good time, especially in a downward trending market. When interest rates start to drop, I would start looking for deals. But don’t let that stop you.

@victoriaibidunogunniyi5510 2 жыл бұрын

Thanks

@Daniel-be7mu 2 жыл бұрын

Hi Stephen, great content as always 👍 Just wondering, with a conversion of this type are you ever worried that you wouldn’t be able to mortgage the flats above the shops? If so what can you do to lower the risk of that happening? It’s just that I’m aware that some lenders aren’t keen on mortgaging properties on high streets, away from other residential properties, near takeaways etc

@StephenDuncombetv 2 жыл бұрын

Hi Daniel, I’ve been looking at mortgages on buy to lets recently and yes flats above take away shops could be a concern. So I would avoid those. But flats above a shop, especially one that does not produce food or near those types of shops, I would still go for if the numbers make sense as lenders will still lend on it. In this example the flats would be above a card shop so it would be easy to get finance. Ask the properties in the area have flats above shops too across the street. This is another thing to check when looking at the area. Also check planning for similar projects in the street that you want to do that have been approved, as it means residential homes are in the same area if your not sure.

@Daniel-be7mu 2 жыл бұрын

Hi Stephen, thank you for your reply, that makes total sense. I’ve had issues before with takeaways but good to know that shops are a lot less of an issue. Thanks again and I look forward to more great content

@hakimvlogs6579 2 жыл бұрын

By the way do you have final numbers on this? How it went?

@StephenDuncombetv 2 жыл бұрын

No yet Hakim, its rented for a while (6 years left) and I'm busy with a few other transactions which I will reveal later on my channel.

@HouseFairyDIY 7 ай бұрын

Very informative videos but the music is so grating!

@DigiHack Жыл бұрын

Hi Steven, we're can I get this Excel sheet format to put all these numbers in ?

@StephenDuncombetv Жыл бұрын

Microsoft or Google sheets 😀. Only joking. I’ll put a resources section on my website soon with that type of free stuff in it. Probably in May it should be live.

@DigiHack Жыл бұрын

@Stephen Duncombe that would be awesome it would defo help 👍🏽

@debbyshapiro2125 Жыл бұрын

Wow. What is easiest type of commercial property to convert to res?

@StephenDuncombetv Жыл бұрын

The one that gets permitted development rights.

@alfiecroft2435 3 жыл бұрын

You can do some permitted development on a listed building

@StephenDuncombetv 3 жыл бұрын

That's interesting as my understanding is not for commercial conversions which is the subject here. What pd rights are you aware of on commercial listed buildings?

@alfiecroft2435 3 жыл бұрын

@@StephenDuncombetv you're able to do class G in a listed building, if this building was listed then you could have done what you were planning on it

@StephenDuncombetv 3 жыл бұрын

@@alfiecroft2435 you still need listed building consent for class g but yeah you're right. Key thing is it will take more than 56 days for the listed building consent so kind of nullifies the pd right.

@KarlsBerg87 Жыл бұрын

Here is one thing I don't understand. If the property have seven year remaining. Why will you pay 300k for it if later it comeback to the original landlord isn't ?

@StephenDuncombetv Жыл бұрын

Hi Juan. The property is bought freehold with a tenant in place who has a lease. When you buy this type of property you are the owner of it going forward.

@Stabila64 2 жыл бұрын

Hi Stephen, very helpful video. Though I don't understand how the approx. 26k ( costs for Arch+Conting+ Brdging) isn't higher because of your 9 month lending at 0.85%

@StephenDuncombetv 2 жыл бұрын

Hi @stabila64 thanks for your comment and watching my video. The cost of the conversion is £93,100. Bridging is 0.85% of £91k = £791 pcm * 9 month build time = £7,122. Add 11% Architect fee, 10% contigency = £26,673. Does that make sense now?

@Stabila64 2 жыл бұрын

@@StephenDuncombetv Morning Stephen and of course - thanks. (Dont know what I was thinking). While I have your attention Stephen, can you clarify a 'shop and upper' P.D. requirement for me? Its about min. room size of the ancillary rooms above shop. Do they have to meet the 37sq/m requirement as on a ground floor conversion. I ask because I'm sure I've seen plans ( passed) of an upper conversion and the rooms well under that 37sq/m size. Thanks again for your time and videos. Very interesting to see you at work!

@Stabila64 2 жыл бұрын

....sorry, obviously I'm talking about Class G regarding my query of room size about shop and when I mentioned the 37sq/m requirement for downstairs, I know its for the Class MA.

@StephenDuncombetv 2 жыл бұрын

Hi yes minimum space standards are now 37m2 if you want to use pd rights. You can still go to full planning for a smaller size. Check the date on those plans you’re looking at or if they went for full planning permission.

@Stabila64 2 жыл бұрын

@@StephenDuncombetv ahh right, doing a full P.P. ( rather than P.D.) application would allow you to plan for smaller sizes then. Thanks again Stephen!

@hakimvlogs6579 2 жыл бұрын

I didn’t understand why as the yield went down.. the value went up?

@StephenDuncombetv 2 жыл бұрын

Hi Hakim, a lower yield increases the price as the constant is the income. So you divide the annual rent by the price to get the yield %. If you make the price higher the yield goes down. Try it out and work out how this works. This is how commercial properties are usually priced for investments.