Nurturing a long-term investment

The old saying “Don’t wait to buy real estate, buy real estate and wait” has been very much on my mind the past few weeks. Long term investment in property is something we truly believe in. We always look at a five to ten-year horizon at least when assessing any property investment.

This leads me on to the sale of 37/39 Rookwood Avenue in New Malden, London which completed last week. The property was a small warehouse / workshop that was occupied by a printing company until September 2017. It is located at the end of a residential cul-de-sac in New Malden, just off the A3 (an arterial road leading to Central London). My Father purchased this property in February 1986 (a couple of months before I was born, a sign perhaps!) for the princely sum of £25,000. It was rented out (with minimal void periods) from the moment of purchase, until the printing company moved out.

As the property was located at the end of a residential cul-de-sac we had always earmarked it for residential development. However, as with most things property related, it was not that simple. The site was large enough for two houses, but it is an odd shape - with the Beverley Brook at the bottom of the site, and Tree Preservation Orders (TPOs) on several neighbouring trees. Therefore, we knew that achieving planning permission could be a struggle. 

Planning permission - against the odds

We had previously worked with David Morehen of Morehen Architects (http://www.morehenarchitects.co.uk/) on another tricky project in Earl’s Court, so I asked him to have a look at the site and come up with some ideas. David put together some great plans, showing that two, three-bedroom houses could fit on the site. The final design was a modern take on the terraced house, which is exactly what we were looking to achieve. 

We knew that achieving planning permission could be a bit tricky, but did not envisage just how tricky it would turn out to be! The details deserve their own blog post; and include tales of break-ins, squatters, fires, tree preservation orders (thanks to Crown Tree Consultancy (https://www.crowntrees.co.uk/) for all their hard work on that), and abandoned vans.

Finally, in April 2019, we were finally granted planning permission, on appeal, for two three-bedroom houses (this followed an arduous process of submitting a pre-planning application, one accepted planning application and one refused planning application!).

The decision to sell

REITs are allowed to carry out development work, however, any newly developed property must be held for at least a period of three years. We knew that the two new houses would rent, however, the yield would not be at a level we are looking to achieve. Therefore, we reluctantly decided to sell the site rather than develop it ourselves. We successfully sold the site to a south London developer for £440,000, giving a gross profit of £415,000, or at face value, a 1760% gross return (in fact, if we included rental income over the years, this would be higher). In addition, as a REIT we do not pay Corporation Tax on this profit and can, therefore, plough the funds back into the company to use in higher-yield projects

Now, if anyone can build me a time machine so that I can go back to 1986 and buy more of these sites, my email address is: tom@somersetestatesreit.co.uk.