I have decided to provide an insight into my Property Investment arm for this month, with case studies. This is the first time, I have opened the door to my property investment arm and hopefully this will provide a valuable insight into property investment. (Please note – this is for more advanced property investors. I will do a course for Beginners also)
I have never bought a property through my agency, due to there being a potential conflict of interest (I could, but chose not too). However, having the knowledge, passion, understanding and experience in working daily in property, for over 20 years means its easy for me to find properties where I can add value, help people move home and generally buy investment properties with ease.
So, lets gets started. This month, I have Completed on one Site, Just finishing off a second site and completed 4 days ago on a new purchase.
I have just employing a P.A./Logistics Manager to run my sites and help me operationally, so I can spend more of my time training people in property investment in 2018 and working with investors, family and friends who want to achieve higher returns, rather than lose money sat in a bank account (Given bank rates are 0.1% and inflation is 3% per year, on £100,000 – that’s £3,000 lost in one year!).
PURCHASE – BUILDING A PIPELINE
First, the new purchase is the most exciting for me. A commercial shop, with another agent on the open market being advertised at £142,500, (Listed on 6th Mar 2017). A week later, I had my offer accepted for £100,000. Approximately 30% off (you can learn how, in my Property Training Master Class Starting in 2018.)
My costs, buying and refurbishment, will be circ. £7k and here is the property:
The agent also found a potential tenant at a rental of £11,500p.a. with rental increases every four years by £1k, for a term of 16 years. Now, what I really like about this, is once its set up, my repayment mortgage is 15 years and I’ll invest and forget. Lets have a look at the numbers;
Purchase Price £100,000, Costs £7,000. Total£107,000.
Income £11,500 for 4 years, £12,500 for 4 years, £13,500 for 4 years and £14,500 for 4 years.
Average £13,000 p.a. @ £107k is a Gross Return 12%.
So, on £100k finance @ 4.5% interest rate, the repayment 15 year mortgage is £775pcm (the interest only is £375pcm). So the monthly profit is £708pcm (average £13k divide by 12 months = £1,083 minus £375). The annual Profit is £8,500.
I put £7k of my own money, Profit £8,500p.a. = a ROI – (Return on Investment) of 121%. So a really good investment.
I have lots of places available in my property course but I am going to limit my first course to only 80 people and will contact you with dates and further information, when the course is ready. (My Email is [email protected])
The next project, I’ve just finished. This is a freehold building arranged as 4 flats. (2x 2 beds and 2 x 1 beds). The rent achieved for the 2 bed flats in the central of Bournemouth was £650pcm – I know ! I was going to tell her to bin her letting agent but she self-manages (why? – because she THINKS she is saving money. NOPE. She saves £50 a month doing all the work herself and loses £200 a month, per flat, on the other hand because she does not have the local market knowledge and finger on the pulse. Personally, I’m not a Landlord, I’m an investor, I would always leverage an agent freeing up all my time. If I wanted another job, I would do it for much more than £50p.m. Letting Agents charge these small fees, due to scale, systems and volume).
Anyway, I bought this property through a National Estate Agents chain, on the open market:
Bought for £425k plus costs £60k = All in at £485,000. (The mortgage is £302,000)
So, Four flats bringing in an income of (£650×2, £450 & £500) total £2,250pcm.
- The return is rubbish and doesn’t look a very good investment.
- The property had structure movement.
- Like the rents, the outside & inside had been poorly maintained
- It had been on the open market for some time, sales had fallen through
I enjoy problems. I like chess, maths, logic and enjoy finding solutions. I like finding win, win situations. The owner had an offer for £400k and was thinking about accepting this. However, my figures worked at £425k and decided to offer this and the owner was delighted. Here are the solutions;
- On reviewing the floor-plan, I could see I could simply convert the 2 bed flats, into 3 bed flats. This has been completed and now lets for £1,200pcm each. (Added value). I also would increase the rents on the 1 bed flats to bring up to market value.
- My experience told me the structure movement was historic and I was not concerned with this. The paperwork during the purchase confirmed this movement happened in the 1980’s and lastly, the previous buyer had a structural engineer carry out a full report and this cemented the conclusion.
- By refurbishing Inside and outside, I would (Add value) to the property.
- The owner was disappointed and really wanted to move on with her life, I could help AND she would achieve a higher price selling to me. Fantastic, a win – win solution.
The rent now is £3,500pcm, which is £42,000 p.a. @ £485,000 = 8.6% Return.
Now, this return is below what I normally find, however, the building is now worth, as an armchair investment, in good condition outside and inside £700,000. So potentially, a £200k profit. For valuation purposes @8%, the value is £525,000 and a re-mortgage at 85% is £446,250, meaning I pay off the £302k mortgage and receive back £144,250.
This is the £123,000 deposit I put in to buy the property and £21,250 from my £60k of costs. Unfortunately, I have left £38,750 of my own money in the property, which is why I have to work with investors. It helps them, they leverage my time, experience, skill and knowledge to gain good returns and it helps me to further develop my property business creating win-win situations around me.
Lets look at the figures: Mortgage £446,250, interest only plus B. Insurance = £1,335pcm.
Income £3,500pcm = Profit £2,165pcm, £25,980 p.a.
The money I left in the deal is £38,750, so the ROI is 67%, which is good.
If you want to invest with me in property … please email me.
FINISHING TOP FLOORS THIS MONTH, GROUND FLOOR IN OCTOBER 2017
Lastly, the site I’m just finishing off, lots of problems. Which is great because I enjoy problem solving.
This is a freehold building arranged as a First & Second Floor five bed maisonette and Ground floor three bedroom self contained flat. Bought for £330,000 plus £20k buying costs plus refurb costs (The site is not finished & therefore I have not finished the costing’s yet, however, I do know I’ve gone over budget).
This is when things don’t go to plan in property. The house is all on one title and the same layout for several decades. What’s interesting is, nearly all the property investors I spoke with, knew of this house. The agent had over 30 viewings and multiple offers of £290k, £300k, £325k, £310k – the agent was telling everyone £330k would secure the house and no one wanted to pay this price.
The roof was knackered, the property was smelly, the windows rotten – it needed gutting. I’m pleased to say after several months on the open market, I decided to pop along and when the agent said, the owner wanted £330k for the seller to move home, I said, ‘Fine, £330k, deal done’. As easy as that – My figures worked, even with a new roof.
Plan A – The first & Second Floor is an established 5 bed HMO and I thought it would be straight forward to make the whole house a HMO. I thought this was ‘in the bag’. Submitted planning and this was declined.
TOP TIP – Do not take planning for granted. You just don’t know what will happen.
Plan B – Keep the First & Second Floor 5 bed HMO and I had architectural plans made to covert the 3 bed ground floor flat into 2 x 1 bed flats and extend in the rear garden on the ground floor to create another one bed flat … declined.
Plan C – Keep the property how it is. A 5 bed licensed HMO and 3 bed Flat – but I’ll be applying next week to build a single unit, 1 bed flat in the rear garden. However, I’ve run out of time because the tenants move into the 5 bed in 4 days time AND the property is not quite finished. I’ve discovered there is no gas meter, this is being fitted 3 days after they move in meaning no heating etc. I have given the tenants one week free rent has compensation.
Lets look at the figures: £3,050pcm (£36,600p.a.). The finance/Mortgage on £330,000 @ 4% rate, Interest is £1,100pcm plus B. insurance £44.58 p.m., meaning a profit of £1,905pcm or £22,865p.a.
£330k Purchase, £20k purchase costs, Estimated TBC £60k refurb = £410k. Gross Yield 8.9%.
My money £80,000, meaning a ROI (so far) 45% – This is good BUT here is the cream:
The one bed flat in the rear garden – an extra £650pcm rental and £130k equity PLUS no land cost because I already own it.
So, that’s this months property I’m working on.
Its not always about buying below market value, its about adding value.
Its not about buying a house, its about seeing a home.
If you are interested in Booking my Property Training Master Class in 2018 or looking to invest capital in property but don’t have the time or knowledge and want to leverage me: please email me.
Many Thanks – James Scollard
Posted: 6th September 2017