PIN Oct 16 P18-19+21 Interview Edge (1)
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Kevin Edge is a property developer in Hertfordshire who has decades of experience in the construction industry. He recently completed converting a former gym into four high-quality HMOs near a train station. Each HMO has three bedrooms, large kitchen, and bathroom. This created more profitable units than traditional flats. Kevin's extensive industry knowledge helped add value during the conversion. He plans to hold the properties for long-term rental income but may eventually sell. Kevin aims to continue growing his property development business using his expertise to create desirable projects.
PIN Oct 16 P18-19+21 Interview Edge (1)
- 1. www.property-investor-news.com18 << PROPERTY INVESTOR NEWS TM K E V I N E D G E I N V E S T O R I N T E R V I E W O vertheyearsI'vebeeninsidemanya HMO property, both before and afterarefurbishmenthastakenplace andmoreoftenthannotthestandardof finish and furnishing could at best be described as being'satisfactory'butnotexactlyinspiring. So when I recently returned to St Albans in Hertfordshire to conclude on an investor interview and final video shoot, my expectations were understandably based on my previous experiences. "Wow, when can I move in?" was my initial reaction when walking through the front door of the HMO property and it was made to Kevin Edge, a long standing magazine subscriberwhoselatestdevelopmentproject I had come along to view. I'd previously been at this development site some three months earlier in June of this year at around the 'first fix' stage with loose wiring hanging everywhere, and with walls still being plastered and so to see the product in its almost finished stage was a real eye-opener. Alongside Kevin was his partner Anna, whoclearlyhasagreateyeforinteriordesign as the photos in this article demonstrate. "It's been a hard three months but now we are almost finished, and to see people's very positive reactions when they first come through the doorway makes it all worthwhile," says Kevin. It's been a long journey for this property investor-developer as he explains: "Moving into property investment and development has been a natural progression for me. I've spent almost 30 years in the construction industry and to take the numerous lessons learned and then apply all of that accumulated practical site knowledge to an end-to-end development project was almost inevitable. "I started my construction career in my teens, working as a bricklayer. Twenty years ago I set up our company Civic Design + Build. We have set ourselves apart in the market - not just with the quality of workmanship, not even with the holistic approach with project management, in-house architect, interiors specialist and trades - but by building relationships with planning departments. That's a big differentiator. And it matters in understanding the local residential mix, whichisimportantinpropertydevelopment. "I'd already studied project management to ensure we were managing each customer's home as well as possible - and morethanoneatatime.I'dbeenconsidering the move into property development for a while and a few years ago I bought a couple of properties, fairly randomly if I'm honest, and turned them around. "But I also knew that I needed to know more about the financial aspects as well as the physical and product side of the industry. As a result, I have been on various education courses including an accountancy course and a project management programme at the University of Hertfordshire. "Over the past few years I've also invested in more structured property investment training events, including Simon Zutshi's year-longPropertyMastermindProgramme, Paul Higgs's excellent Land Sourcing course, andIhaveevenhadsomementoringrecently with property entrepreneur Dan Hill. It's all been quite eye-opening and I now take a much more strategic approach to property development. The education process has graduallygivenmemoreconfidencetoapply the investing theory to my own knowledge basedonyearsof practicalexperience." Kevin explains that alongside his ongoing learning process in business and property project management he gradually gained more confidence (and profits) with doing house conversions (flips), and then progressed onto doing some new build projectswithJVpartners.Oneof thosewasa site with an existing bungalow upon it, which wassubsequentlydemolishedandthenasix- bedroom house with six bathrooms was built on the site. And like many a successful landlord and property investor he also appreciates the value in not straying too far fromthelocalpatchthatheknowssowell. "It's very rewarding and enjoyable to create something out of the ground," says Kevin, "to take something from beginning to end and see your vision realised." Hislatestprojectisasalreadymentioneda HMO development but it's very different fromtheusualformulaof carvingupaformer traditional family home into shared accommodationwithfourormorebedrooms plus a kitchen and bathroom(s) in one dwelling. This is without doubt a property investor-developer who thinks laterally and who is also not afraid to go the extra mile to createanappealingproductforhisclients. RichardBowsertalkswiththeHertfordshirebasedlandlordandpropertydeveloperKevinEdge HMO Property - 21st Century Style This article has been reproduced from the October 2016 issue of Property Investor NewsTM . To subscribe go to: www.property-investor-news.com or contact us on 020 8736 0044 © All rights reserved. Farscape Ltd - copyright. The content within is not to be reproduced or transmitted in form or in part without the express written permission of the publishers.
- 2. "This stand-alone two-storey block was originally intended to be a gymnasium," says Kevin, "and initially was used as the site offices and employee canteen for a large house-builder who completed some 500 residential apartment units on the adjacent land here in St. Albans. They had obtained planning permission to turn the self-contained block into 4 x 2 bedroom flats over two floors but upon completion of the adjacent residential apartment blocks they moved off-site and decided to sell up without doing the development themselves. It was perfect for us to take on and adapt to what I felt would create a more profitable venture. "We have turned it around into four separate 'mini-mo's', with each completely self-contained HMO apartment having three good sized bedrooms, a large kitchen diner, separate bathroom and at least one en-suite in each apartment. When we acquired the unit it was literally a concrete block with little more than a floor and a basic shell which we then reconfigured to our specifications for shared accommodation purposes." One of the key attractions for Kevin was the site's location, just a few hundred metres fromthemainlinerailwaystationinStAlbans, which is a very popular commuter town less than25minutesbytrainintocentralLondon. "I heard about the opportunity through my network of contacts and we're well known for our construction work in the locality - and increasingly for property development - in St Albans and nearby. It suited me for several reasons." I ask Kevin why he decided to purchase and develop the site into HMO's rather than just finish them off as two-bed units to then sell on to owner-occupiers. "I know the local market well and there's a shortageof flatsandparticularlyhigh-quality houses for multiple occupation usage. And yet St Albans is a prime commuter belt - just 20 minutes from St Pancras by train with the next stops being into the City at Farringdon/Blackfriars. So this building's close proximity to the train station was immediately interesting. If you're a young professional, heading off into the City for a long day climbing the corporate ladder, you don't want it to be even longer by the time you've reached your home town. "Once I knew the location was perfect, I needed to see what the building was like. It turned out to be relatively new, well built with concrete floors and staircase, structural steelwork and good floor-to- ceiling heights, and I knew it was right for conversion. That's the advantage of spending 30 years on building sites!" So it seems all those years 'knee deep in muck' can pay off if you learn from the experiences. I ask Kevin why he chose to take the build torent(BTR)approach."Decidingonbuildto rent was easy, really," he reples, "as I thought I could get the property at a price below marketvalue,whichgavememoreleewayin creating a high-end finish. The shortage of flats locally means that values tend to rise, makingroomrentalevenmoreattractive." Experienced readers will be well aware of theneedtoalwayssourcestockwherebyreal value can be added and what is clear from this project is that Kevin has significantly enhanced the value of the asset by converting the lounge in each of the four PROPERTY INVESTOR NEWS TM >> 19www.property-investor-news.com I N V E S T O R I N T E R V I E W K E V I N E D G E Top10TipsforPropertyDevelopment 1. It is all about creating value. Get real with Gross Developed Value (GDV) by researching the market. Break down to £ per square foot value. Get to know local agents and invite their opinions. Be conservative with GDV! 2. Look for angles others might have missed, like increasing square footage of net saleable space, upping desirability or introducing clever design. Be realistic and have a friend with industry knowledge to check your ideas. 3. Reverse-engineer your projects (Residual Valuation). Work from a realistic GDV to ascertain purchase prices and refurb budgets. 4. Look at previous planning applications for local precedents or failed applications on the site. These can indicate the local authority's mindset. 5. Old buildings have a habit of hiding nasty surprises; allow 30-50% cost contingency, depending on the building. 6. Don't trust benchmark figures on £ per square foot - break down costs in detail; talk to your builder and trades. Budget for a site or project manager. 7. Time has a cost. Rose-tinted glasses are expensive. Projects, even tightly controlled, can overrun, so factor this in. 8. Do utilities, water and drains need applying for or moving? Don't underestimate the cost or time this takes. Utility companies are not your friend. 9. Plan multiple exits. What happens if the market changes? Can you rent out? Protect your downside. 10.Prepare early. Plan, schedule and specify the project in detail and organise your builder up front. This saves time, money and stress. Confirm assumptions to create as much certaintyaspossible.
- 3. PROPERTY INVESTOR NEWS TM >> 21www.property-investor-news.com I N V E S T O R I N T E R V I E W K E V I N E D G E apartments into a third bedroom with an en-suite attached. The kitchen diner areas within each of the four HMO apartments are still of a sufficient size to be appealing to the three sharers within each unit. This resulted in a complete transformation of the financial projections for the site and a commercial valuation being subsequently given based on the monthly income via the 12 room sharers who will each be paying an average of £750 per month per room. See the accompanying financial breakdown of basic costs and cash-flow. "The appeal of BTR for me was that I could build enough equity," adds Kevin, "by adding real value into the building and then to take the development investment back out; I still get to leave a good level of equity in the property, which is tax-efficient, and with the bonus being that I've still got capital released for the next venture." I ask if he has a sales timetable for the development at any time in the foreseeable future. "Possibly, but the current plan is to keep them all for at least five years and to use the very positive cash-flow to reduce the outstanding finance debt. We may then decide to have a gradual sale process, subject to advice from our tax advisors but it may also depend on whether government changes its views on the tax treatment of individual landlords in the future." It's very clear to me that this is not your typical builder, and that Kevin has a real business brain as well as a keen eye for detail. Many successful property investors will often have the financial and business skills but without having the hard won years of practical experience in the building industry, which can make a big difference. Kevin continues: "I have met many property investors and even some developers over the years who really do not appreciatethevalueof havingagoodbuilder and working with them to maximise their returns. Many investors will be skilled with spreadsheets etc. but just don't grasp the extra added value elements that a skilled builder can bring to the table. As an example it's a fact that qualified gas engineers have to do regular training updates and probably havedoneasmanyhoursof classroombased learning as a lawyer or accountant. These guys can often work with you to help reduce your costs, to add investment value or to suggestalternativewaysthataninvestormay not have considered. Spreadsheets and drawings are all very well but practical buildingrelatedexperiencereallycounts. "With the architects and interior designers on my projects, as we are a design and build company I get to work closely with them and to help engineer value into the projects. Pre-planning is probably the most important thing to consider as many people want to get started too quickly. The fact is that most value can be added into the project even before you start, if you go about it correctly. Paying more attention to the detail before you get there and start the works will pay dividends. By doing so you can then often eliminate many construction hassles ahead and so have a far smoother journey." Having perhaps somewhat belatedly realised the commercial value of his accumulate years of learning on construction projects I would have been very surprised if Kevin has said he was about to now head off to the beach or golf course into retirement when I ask him what he now plans to do. "I'll be continuing to grow the property developmentsideof thebusiness,"hereplies, "exploiting those decades of construction experience and building an even stronger professional network. I hope that quality will continue to be a differentiator; the end product has to be something I'm proud of, that I'd be pleased to live in myself. I'm particularly interested in new-build developments and the BTR sector, and I'm equally comfortable with assessing opportunitiesforhouses,flatsorHMOs. "I do now have a few developments at various stages along the pipeline, working in partnership with a couple of other property investorsinthearea.I'llalsobecontinuingmy training. I don't think we should ever stop learning-youcanneverknowenoughabouta subject. I'd like to share what knowledge and experience I do have, though. Over the years I've worked with some very knowledgeable people who've been good enough to share their insights with me and offer me their support, and in the same vein, I'm always happy to hear from and offer advice to investorsandpropertyprofessionals." And in the spirit of sharing with other investors Kevin kindly offers some further words of wisdom and practical advice for aspiring property developers with his top 10 tips on property development. PIN The Video interview with Kevin will soon be available to Property Investor NewsTM subscriberson:www.property-investor-news.com Financialbreakdown… Purchase Price £525,000 Conversion costs £265,000 Legals and SDLT £20,000 Finance costs £55,000 Total Cost £865,000 Valuation at Aug 16 £1,720,000 Profit £855,000 Section 106 max. (under negotiation) £150,000 Cashflow (after taking out all costs through refinance) Projected Income £9,000 Expenses £4,200 Profit £4,800 ROCE % Infinite