INTRODUCTION
Another week of Covid-19 (Coronavirus) isolation down and I’m still keeping safe with Laura and our son, Bobby. Is anyone else finding that the days of the week blend? It seems to me we’re basically awake, asleep, awake, asleep on an endless loop that is permeated by things like mowing the lawn and washing the cars.
Of course, the JL Property Solutions team are still being kept busy. We’ve got projects that are continuing at snails pace due to social distancing but at least work is still getting done. There’s accounting, bookkeeping, general planning and housekeeping, reviews, marketing…we certainly have things to get on.
I decided I’d take the time spent self-isolating to write ten blogs which deliver a warts-and-all insight into the life of a self-employed professional property investor. If nothing else, it’s 10 minutes to fill your day!
So, let’s get into deal number four! Deal number four that I’ve picked out to share was a huge renovation project. There was a mix of angel investment and bridge funding, knives in the ceilings, a big uplift in rent and everything in between.
PROPERTY DESCRIPTION
This three-bedroomed, mid-terraced property in Pontypridd was a real gem in our portfolio. The house itself is situated in a great spot near a local school and amenities, in an area where Rightmove sales comparables were showing house after house EXACTLY the same as ours selling for around the £120,000 mark.
We were turned on to the area by our carpet fitter, Alan, who had lived in the street with his first wife some years ago. He had done some work for a London-based landlord who had allowed the property to fall into disrepair. Amazingly (from these photos) people lived in the house in this condition until roughly 6 months before our purchase was agreed. Incredible.
The London-based landlord eventually put it on the market with a local agent, Peter Alan, who I had got quite friendly with over the course of several previous viewings. I got a call from Jess, who told me the house was unmortgageable and that she knew I bought these kind of properties because I could get the funding.
The state of the building was fairly horrific. Each bedroom upstairs had a large carving knife embedded into the ceiling above it. Apparently, the previous tenants had some drug issues and it was a defence in case the dealers called in their debts. Scary stuff.
There was a little bit of back and forth on the offers. I knew from Land Registry and Mouseprice that anything under £60,000 would be a steal, but I had a feeling the refurbishment was going to be expensive. Eventually we got it for £53,500.00
SOURCE OF DEAL
For this fourth deal, as I mentioned, this property was listed on Rightmove and sold through a local agent, Peter Alan. There was virtually no competition for the property because (as you can see from the picture) it was unmortgageable due to the terrible condition.
We picked up deal number four, our three-bedroomed mid-terraced property in Pontypridd, completed for the sum of £53,500 with the conveyancing done by our trusted family solicitor - Kenneth Curtis LLP.
FUNDING
This was another property purchased with a view to rental as part of our cashflow strategy under the JL Property Solutions company structure, meaning it was owned by the business. Because it was unmortgageable that meant we had to utilise a mixture of angel investment and a bridging loan to get into the deal.
For angel investment we tapped into our network to raise OPM (Other People’s Money). We work with sophisticated investors and high net worth individuals (HNWI) to secure private funding that we use to invest in property. For that privilege we create WIN-WIN deals that benefit us, the investor, local tenants, local trade, local letting agents – it’s a chain of winning. We pay investors between 5-10% depending largely on the deal. Find out more about investing here.
For deal number four, we secured a bridging loan from Together for a gross loan of £41,280 with interest retained for 6 months meaning we didn’t pay monthly during the first six months. That meant that our net advance was £39,780. As I mentioned in my previous blog post, it’s a really good tip for anyone looking into bridge finance to take into account your net advance WON’T equate to 75% LTV, however your redemption statement WILL (in this case, £42,091). We raised £40,000 in angel investment from a family member and paid a 10% rate of interest. The mortgage, as usual, was brokered by Morgan Financial Solutions).
REFURBISHMENT
As you will have seen from the pictures dotted around the blog, this house really was in a bad way. Our Power Team was now well established and our system of working now meant that all interior design and layout decisions are mine, with all work carried out by Maintenance Solutions Wales. Our build team look after the day-to-day project management which allows me to keep a closer eye on the overall project management and budget control, as well as positioning the project in line with our core business strategy.
The house needed the following:
· New flooring throughout
· A full rewire
· Replaster throughout, including ceilings
· Redecoration throughout
· Soffits and fascias redoing
· Work to repair the roof
· New walls in the whole upstairs (due to rotten wood)
· Lounge and dining room knocked through with concrete lintel to support
· New kitchen space created in the dining room area
· Existing bathroom knocked through to create large family bathroom/utility
This refurbishment took a little while. There were leaks because of bad weather, problems with rotten timbers and a delay getting hold of certain materials. That said, we still finished well within the 3 months we had allocated for the project and a total cost of £22,000 was very reasonable given the scale of the task.
EXIT STRATEGY
As always, we made sure before entering this deal that we had our pre-requisite MULTIPLE EXIT STRATEGIES. With £40,000 of OPM at stake we knew that having bought significantly below market value, we had the option of selling or renting. We chose renting to suit our cashflow strategy.
B – Buy below market value
R – Refurbish and add value & marketability
R – Refinance at the new market value, getting as much money out as possible
R – Rent to tenants who you look after and keep long-term
For deal number four, we got a tenant in relatively quickly because of the popularity of the area, via our lettings agent First4Rentals.
The tenant agreed to a rent of £565 per month which was almost £100 higher than the rest of our portfolio in Merthyr Tydfil.
The refinance valuation took us onto a mortgage with Aldermore, one of the fringe lenders, who valued the house at £115,000.
EVEN SO, THAT’S A WHOOPING 115% INCREASE IN VALUE IN JUST SIX MONTHS.
Now you can see why I called it a gem…
THE NUMBERS
Purchase Price: £53,500
Deposit: £13,720
SDLT (Stamp Duty): £1,605
Legal & Broker Fees: £2,000
Original Bridge Loan Redemption: £42,091
Refurbishment: £22,000
Total Money Used to Buy: £39,325
New Value: £115,000
New Mortgage: £86,250
Less Original Mortgage: £36,824
Less Total Money Used to Buy: £2,068
Less Angel Investor Interest: £-1,932
Total Money Left in Deal: £1,932
Rent: £565
Mortgage Cost (Per Month): £225.98
Agent Management Fee: £54.24
Insurance and Operating Expenses: £27.73
Monthly Net Profit: £257.05
That’s an annual passive income of £3,084.60 for a property we effectively paid £1,932 to own. The property will become cost-neutral in the first year.
THAT’S A STAGGERING 160% RETURN ON INVESTMENT
CONCLUSION
This deal really stands out for me as one of our very best. I love the house and with a great pair of tenants in there I hope it’ll be a place that brings a smile to my face for many years!
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