richard little

155: Richard Little comes back to the show to discuss the important elements of successful deal appraisal

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Richard LittleMany of you will remember Richard from episode 29 when he joined us with his son Brynley to talk about their property journey.

Richard has been investing in property for around 40 years now, and when I posted a question on facebook recently about appraising a development deal he offered to help.

We decided that this is an area a lot of people struggle with, so rather than using Richard’s time to just help me with one deal, he kindly offered to share some of his expertise on the theory of development appraisal with the Inside Property Investing audience.

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The 3 Stages of Deal Appraisal

Stage 1 – Initial Assessment
This is a desktop assessment that looks at things like land registry details, planning history, tree preservation orders, and site access. Over 50% of the deals Richard looks at get past this first stage.

Stage 2 – Preliminary Planning Assessment
Whilst the first stage can be done with relative ease and low expense, this stage normally requires the input of a professional, in terms of either a planning consultant or a competent architect.

You should be looking for what is possible on your site, based on your local authority’s development plan, comparable applications in the same area (what’s been approved and what’s been rejected), housing density allowances and so on.

You will likely find your preliminary planning assessment returns a number of different options that allows you to start thinking about whether or not the deal stacks up.

Stage 3 – Development Appraisal
When Richard is looking at a site, he only gets to the appraisal stage once he’s secured an exclusivity period of 4, 6 or even 8 weeks on it to give him time to complete the process thoroughly and give him security that he can’t be gazumped during that period.

He suggests a multi-column appraisal, which is a spreadsheet split into different sections including income (sale, rental etc), fees (planning consultants, architects, surveys), developer contributions (CIL, section 106, affordable housing), build costs, and finance costs.

The reason each of these is multi-column is that very few of these costs are certain/fixed at this stage in the process. Each item in each section has a best case and a worst case column, and a 3rd column that explains the reasoning behind the range.

As the appraisal progresses and more questions are answered, the range gets smaller and more accurate, and anything that can’t be determined during this phase would normally end up as a ‘subject to’ part of any offer made.

9 Pillars of Appraisal

During the interview, Richard talks about the 9 pillars of their appraisal process, and where the most common mistakes are made in each pillar. Some of the big problems he comes across relate to demand analysis, deal structure, funding through the whole process, and the legals.

Richard Little’s Links & Resources

Property Developers Academy – Interested in property development? Speak to Richard about the help and support he can offer you.
Nation Space Standards – Understand the minimum sizes for different types of new build properties
Land Registry E-Services – Fed up with the land registry payment process? Sign up for an e-services account and make your life easier

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