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Forced Appreciation

Veteran international investor John Corey offers his latest opinion

In a climate where the underlying economic market forces are not driving up the value of your UK property you may think you need to switch strategies. Alternatives are to buy & hold for cashflow only, to do property development or switching asset classes and in this article I want to focus on the later two.

Development sounds a bit grand or large scale. It does not have to mean a large new construction project on a green or brownfield site. It could simply mean a situation where you are transforming a property while adding value. For the sake of brevity, let's leave out cosmetic projects where a bit of paint and a good clean up is all that's required. If we are talking about a simple residential property, the projects I am thinking of are going to take many weeks rather than just a few days. Call it modernizing, refurbishment/updating, minor structural changes or something else. You invest your time and capital after picking up the keys to produce something that has the capacity to have more value than the total cash that you have invested. You build something while you manage the project to a successful completion. Managing such a project is what I like to label as 'execution risk' so it is not without an upside or downside.

Entry Level
In a market where seller demand is not going to push up property values, you can force the application through smart development. Simply pick out a few episodes of Property Ladder and listen to Sarah Beeny when she suggests ways to create value through improving the layout. However, you are not 'adding' value if it costs more than the finished product is worth so watch the budget like a hawk. An alternative is the situation where the rental income is increased though the underlying bricks and mortar value does not really change.

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