When the sum of the parts
The subdivision of buildings retains its popularity amongst developers either through the creation of apartments, HMOs or in certain circumstances the creation of terraced housing through the subdivision of a detached building.
The rewards can be significant. The rental return of the parts is likely to significantly exceed that of one larger unit and the capital values are also likely to lead to a far higher Gross Development Value (GDV). Additionally, in many areas the smaller units are more saleable.
However the subdivision of buildings is not merely a case of buying an extra couple of Kitchens and Bathrooms, there are some significant issues which need to be addressed to successfully achieve a multi unit scheme.
In essence instead of refurbishing one building you are actually “building” several and the project should be viewed as such.
Initially you have to consider the compliance issues including planning permission and Building Regulation approval which will principally be concerned with items such as fire separation and the transfer of sound. One large dwelling in single occupancy is likely to require nothing more than mains smoke detection in each of the circulation areas, principal reception and heat detection in the Kitchen. That same building arranged as say four self contained apartments will require a full fire system with call points by the exits, fire doors, heat and smoke detection both in the communal areas and the apartments themselves. An automatic smoke vent is likely to be required in the roof of the communal area. Furthermore emergency lighting will be required throughout the communal areas. This will significantly impact both design and cost.
Sound transfer is a consideration in multi unit buildings and the cost in providing sound protection between the units will not be inconsiderable.
Another significant cost is the provision of separate gas, electricity, water and drainage connections for each of the units that you are creating. These costs can be very significant and therefore research and due diligence is required to ensure that your proposals are not only viable, but profitable too.
Assuming the numbers add up, I would always advocate looking at the proposed units and assessing their suitability for your market place. Many newbie developers give their architect the remit simply of providing as many units as is possible thinking this will maximize their return. I make this comment as that is what I used to do! This is not always the best way. By way of an example I am currently involved in the subdivision of a large townhouse on the seafront in Margate. In terms of size, the premises are capable of being subdivided into four apartments. As four there would be one apartment to the rear with no sea view and the remaining three would consequently be on the small side and probably best suited only to rental investors. My preferred alternative is the creation of three units which will be of a good size, all with sea views and will allow me to offer the space and finish demanded by the out of town holiday home buyer. The GDV of three units is the same as the four would achieve but the costs of the conversion are significantly less given we will require less sound and fireproofing, one less gas and electric supply not to mention the reduction in costs on Kitchen and Bathroom fittings.
If you are planning on completing the development and retaining the units for rental, you should undertake similar calculations of the likely gross yield based on the costs involved set against the number of units. You may well find that fewer is more lucrative.
A further consideration which should be factored into your development appraisals is the increased legal costs that such plans will require. Instead of one conveyance on sale, you will be looking at several and you will also need to create leases for the various flats you have created or split the title in the event that you are creating freehold houses. That said, by developing flats you could be left with a freehold which has a significant value which could more than offset those lawyers fees.
A wise investor will also factor in the additional time that a subdivision project will take. Be aware that there can be significant lead times for new utility supplies to be installed and you will almost certainly need planning permission to subdivide a building which is likely not to be required if you were simply refurbishing a large house.
Subdivision can be a rewarding and lucrative way of progressing your property journey but it is not, in my opinion, for the very inexperienced. I would suggest you gain some experience and confidence in a single unit conversion or refurbishment before you make the leap to a subdivision scheme.Back