10 Property Deals in Detail: Deal Number One
Hi all! Josh Reeves here from JL Property Solutions and in the midst of the global pandemic that is Covid-19 (Coronavirus), I thought I’d take the time spent self-isolating to write ten blogs (oh, I know how to have fun). These blogs are a warts-and-all insight into the life of a self-employed professional property investor, and I’ve picked out ten deals to share with you.
For those of you who take the time to read, I want to thank you in advance! When my fiancée, Laura Marriott and me started JL Property Solutions in 2017 we had lofty ambitions and each day, week, month and year we are pushing hard to reach them. Goal-setting plays a big part in our day-to-day life and as relatively fresh-faced investors we know that we still have a lot of learning to do.
Our goal with these blogs is twofold. First and foremost, we hope that any of you reading this will get a real flavour for how we operate. Secondly, we’re giving a lot away! Our property team including builders, solicitors, brokers…they’re all linked in these blogs and for anyone thinking about getting into property we hope this will give you an idea of what is involved.
So, without further delay, let’s get into the deals! Deal number one that I picked out is actually our very first investment property…so it’s the Jose Mourinho of properties – a Special One.
It’s worth mentioning that we purchased our first investment property on the back of completing our property education training with Asset Academy. Sure, we’d done a lot of flips before we got to that point, but we knew very little about running property as a business before our Asset Academy training and it was worth every penny.
Deal number one was situated in South Wales, not a million miles from Merthyr Tydfil. Why? Well, I did my BA and MA degree at Swansea University so I knew a little bit about South Wales after four years as a resident. Principally, however, we spoke to a mentor as part of the Asset Academy package and he gave us a great tip…
“Draw a line in the UK from Cardiff to Newcastle. Anything on the left side of the line (incorporating much of Wales, the Midlands, North West and North) is a decent bet for Buy-to-Let. Buy between £40,000 and £70,000 with a view to a DUV (Done Up Value) of £70,000 to £100,000.”
So, armed with that information we managed to pick up this property, which was a large, three-bedroomed mid-terraced house that had been lived in by one family since the 1950’s. We viewed probably ten to fifteen properties before we settled on the area, a lot of time trawling Rightmove and Britain’s motorway network!
SOURCE OF DEAL
For anyone reading this section title and thinking, “what does he mean, source of the deal?” well, that’s ok. We generally think of property being purchased in the more traditional methods, i.e. via an Estate Agent, the Auction House and so on.
Once we started running a property business, we’ve come to learn that property can be found via a multitude of sources. Direct to vendor, probate, housing associations, direct from other landlords, sourcing agents, empty homes registry – there’s a ton of them.
For this first deal, we spent a lot of time on research. We looked at Rightmove and assessed the comparables (nearby sold prices, SSTC properties, similar listings) and compared those to other sites such as Land Registry and Mouseprice. Although property is a fairly stable market, you can never GUARANTEE a deal will work, but we certainly spend time doing as much due diligence as possible.
We picked up deal number one, our three-bedroomed mid-terraced property in South Wales, via a local estate agent, Darlows for the sum of £61,000 with the conveyancing done by our trusted family solicitor - Kenneth Curtis LLP.
Ah, the bit that everyone wants to know. Here’s a few common things we heard when we made the leap into full-time property investing:
“You need loads of money to get into property.”
“You’ll never be able to find good tenants.”
“You’ll be scammed by cowboy builders if it’s an area you don’t know.”
“You need to find 25% deposit for buy-to-let mortgages, you’ll never be able to afford lots of houses.”
In order for JL Property Solutions to grow into the gargantuan property empire that we would like it to be, we have utilised 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. In all of the blogs I certainly won’t give away the names of our investors (GET YOUR OWN!) but I will say whether they were family, friends, tradesman, business owners etc. I’ll also tell you how much they invested and what rate they were paid. Find out more about investing here.
For deal number one, we made a big sacrifice. We sold our house and moved in with my Mom! It was a temporary solution, but it meant we could raise some capital to put into this deal. We also raised £12,000 from a good friend who was paid 10% and became our first angel investor. The property was mortgaged on an interest-only buy-to-let mortgage provided by Skipton.
What I should have mentioned early in the blog is that WE MADE MISTAKES. The biggest of which is also quite funny in hindsight.
Having done a lot of work in our own houses which we flip for tax-free profit (we don’t spend a Christmas at the same house twice), both myself and Laura are fairly competent DIYers. So, thinking it would be a huge money-saving move, we decided to tackle a lot of the refurbishment ourselves.
The house needed:
· A new heating system (it was currently supplied by a back boiler)
· A new roof
· Fully redecorating including replastering and stripping wallpaper (which was EVERYWHERE, check out the photos)
· A new kitchen
· A new bathroom
· Installation of an upstairs WC
For the plumbing and heating work we used a local tradesman, NGT Plumbing and Heating, and for everything else, there was me (and Laura for a short time, due to work commitments). Laura and I went down for 2 weeks in December 2017 to strip wallpaper and start the rip-out. After that, I was on my own! Sleeping on an air bed in a building site with no heating, no fridge, no shower and very little cooking facilities. I travelled down to Wales from the Midlands every Monday and came back every Friday. I was away from Laura and it was bloody tough!
I hear the dissenting voices out there. Telling me to “man up”, telling me “it can’t have been that bad”. Well, here’s the stark
reality folks. We went through two wallpaper strippers on the rip-out there was that much wallpaper. I carried a kitchen, including worktops, alone up steep steps to get to the property. There were injuries galore. I got a parking fine leaving my car on double yellows so I was closer to the property to carry said worktops. I spent two weeks living at the house with no bathroom (and yes, no toilet). The dust was so bad that when we originally went down to stay neither of us could breathe in the night. I got ill because of the cold and damp conditions. I could go on but I’m sure we’ve all had a laugh!
In the end, Laura came back down to help me finish the job. We painted it, brought in carpet fitters and, as you can see, the result was decent.
A great tip that we’ve learned is that you should always have more than one exit strategy. It sounds simple, but if there is OPM at stake it’s important that you’ll never, ever let down your investors. We buy significantly below market value, i.e. we buy dirty, smelly houses that are in dire need of modernisation and refurbishment.
By doing this, we know that we are buying an asset which will appreciate (go up in value) very quickly, even if there is a downturn in the market. Investors call this “downside protection”. Our strategy is cashflow, we want to create passive income streams from property, which means BRRR is our model:
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 one, we wanted to rent, but we knew at the same time if that didn’t work out for any reason we could sell – MULTIPLE EXIT STRATEGIES.
What happened was amazing. We refinanced the property, taking out a new mortgage at the increased value due to our refurbishment work, and paying off the original Skipton loan. Our new mortgage company, The Mortgage Works, valued our house at £110,000.
THAT’S A WHOOPING 80% INCREASE IN VALUE IN JUST SIX MONTHS.
Not only that, we found a lovely tenant via our letting agent, First4Rentals, who paid £475 per month.
Not bad for a first effort…
Purchase Price: £61,000
SDLT (Stamp Duty): £1,830
Legal & Broker Fees: £1,000
Original Mortgage: £45,750
Total Money Used to Buy: £35,080
New Value: £110,000
New Mortgage: £82,500
Less Original Mortgage: £36,750
Less Total Money Used to Buy: £1,670
Less Angel Investor Interest: £470
Total Money Left in Deal: £0 – WE ACTUALLY GOT PAID £470 TO OWN THIS HOUSE
Mortgage Cost (Per Month): £205.56
Agent Management Fee: £45.60
Insurance and Operating Expenses: £27.08
Monthly Net Profit: £196.76
That’s an annual passive income of £2,361.12 for a property we got paid £470 to own.
Whenever I go back to Wales I drive past this house and smile. I love it so much!