Revisited - Off-plan flip #2 (ROCE 84%, IRR 151%)
Last week I shared my first off-plan property flip in Croydon. The second one is in East London, reserved in 2013 at ￡371 /sqft. Why use ￡ per square foot? Does it matter?
Size matters
Using ￡/sqft makes it relatively easier to compare properties. Flats built in 2014 and of similar size are now priced around ￡600/sqft. This indicates that house prices in that area have an 'inflation' of +￡230/sqft (+60%) over 6 years.
But even more important, did you ever compare relatively similar 'types' to each other? Many properties are advertised as 1-bedrooms, 2-bedrooms etc., which is ok if you are limiting yourself to the number of beds you need to put in your house. What about actual space?
Let's compare a 1-bed with an asking price of ￡325,000 and a 2-bed priced also at ￡325,000, both in Croydon and not too far apart*. I assume you would prefer the 2-bed because.. having 2 bedrooms means it is larger. Right?
Well.. not always. What if I tell you that the 2-bed flat is 741 sqft and the 1-bed is 1042 sqft? The 1-bed with an extra 300 extra sqft will easily give you an extra bedroom. And you still have 742 sqft for the rest of the house.
Despite having the same asking price, the 1-bed is actually 29% cheaper: ￡312/sqft compared to ￡439/sqft for the 2-bed flat!
So it may prove useful to look at the actual size of a property in sqft next time, as well as the number of bedrooms. Size matters in more than one way.
Proof of the pudding: Aberfeldy Village, Tower Hamlets (East London)
Back to my off-plan flip #2.
This 1-bed flat is located in the first phase of Aberfeldy Village by Willmott Dixon and rather typical for this kind of development: demolition of 297 housing units (211 units at social rent and the rest leasehold) and their replacement with 1,100 new homes (of which 170 will be for social rent).
Why East London? This area was still extremely affordable given the proximity to East India Road DLR station, providing fast transport links to Canary Wharf and central London. And with Crossrail due to arrive some years later (2022), this development was earmarked as in one of the up and coming areas in London for the next decade.
- Reservation (Dec 2013): ￡256k
- Sold pre-completion (Aug 2014): ￡305k
- Deposit: ￡51k
- Net profit: ￡43k
- ROI: 84% (=ROCE)
- IRR: 151% (=ROCE per year)
- FTSE index (same period): ROI 2%, IRR 3%
While the ROI is pretty good, the short timeframe of just 9 months makes the IRR particularly impressive!
What are ROI and IRR? I explained both terms in my previous article:
I will go through other deals in future posts. And yes, they were (and still are) done all over the UK, not just London.
Any questions? Looking for interesting returns? Simply drop me a message.
Disclaimer: this is not investment advice. Always seek independent. tailor-made professional advice before you allocate any funds to an investment.
*I compared the following properties: https://www.zoopla.co.uk/for-sale/details/56596972 and https://www.zoopla.co.uk/for-sale/details/56943196.