Re-purposing a commercial property such as a former office, a shop with flat above (shop and top) or a pub into residential units, may sound a little ambitious. Especially if it isn’t something you’ve done before. However, in the current market, it is proving to be a popular, and more rewarding, alternative to a standard buy to let strategy.
It will come as no surprise that over the past two years (some would argue even longer), traditional business environments have become less popular. Some business owners have been forced to take their businesses online and have had the realisation that not only is it not detrimental to their business, but it allows them and their business to thrive.
Consequently, there is an abundance of empty commercial properties with owners wanting to sell. Further to this, the Government introduced ‘Permitted Development Rights”. This means that certain types of commercial properties can be converted to residential properties, without the need for Planning Permission.
Why it Works:
You will quite often get a much bigger property for your money
Less competition in the current market
Some conversions can be carried out under Permitted Development Rights.
Things to Look Out For:
Sometimes VAT is charged on the purchase price and may affect the cash flow of the scheme. (This can be avoided if the vendor is willing to complete a 1614D form)
Development costs are higher
A Warranty/PCC will be required if you are planning to sell the apartments.
Identifying a Property
As with any strategy, identifying the right property is vital. In addition to considering the more obvious things like the area, transport links, proximity to amenities, use class (more below) etc. try to identify properties with:
A shallow footprint (think about where natural light will flow in)
A rectangular footprint. That way you can use a “cookie cutter” approach to your apartments which will save on costs
A flat roof. This *could* allow you to add a level under permitted development. (This isn’t an option everywhere so make sure you do your due diligence).
We’ve mentioned Permitted Development Rights but be warned, there are some exceptions.
Buildings within conservation areas or national parks
Buildings within designated areas of natural beauty or scientific interest
Listed buildings
Buildings within safety hazard areas/military explosive zones.
Identify the ‘Use Class’
The UK classed are broadly as follows:
B class | This includes offices, storage facilities and warehouses. C class | This includes residential properties, and other places of habitation -e.g. hotels, care homes.
In order to convert a building into residential, you will need to apply to change the class. Top tip: When you’re searching online for potential properties, you might find an amazing office or light industrial unit to convert. Always ensure that you look at the property on street view to make sure that it isn’t in the middle of an industrial park!
How Do I Know How Many Apartments I Can Fit In?
When viewing a potential conversion property, to get a rough idea on how many units you can fit in, take the area from the EPC, Sales Particulars or Nimbus maps, and use this quick calculation:
Gross Internal Area less 15% = Total space for development Divide by the apartment size (approx):
30sqm Studio apartments
45sqm 1 bed apartments
61sqm 2 bed apartments
Top tip: If you go onto Google Earth and find the property and draw around it, it will give you a very rough floor area. Always consider layout and shape, as well as area demand. From this rough calculation, you would then be able to calculate an estimate of your construction costs based on price per sqft or price per apartment.
We would also recommend that you get your architect to do a desktop feasibility study. This is a slower and more expensive process but it’s much more accurate indication of the viability of a project.
Comments