10 Property Deals in Detail: Deal Number Two
Hello, Josh here from JL Property Solutions. As promised, whilst we’re all experiencing the far-reaching implications of the Covid-19 (Coronavirus) pandemic 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.
For those of you who take the time to read, again I want to thank you in advance! For first-time readers, just for context, my fiancée, Laura and I started JL Property Solutions in 2017 and we set about trying to build a high yield, high cashflow portfolio of residential property investments. Are we there yet? No! Not by a long shot. But, we have managed to achieve our initial financial freedom figure and we continue to push hard each and every day to grow the business and develop.
So, let’s get into deal number two! Deal number two that I’ve picked out to share is actually a property that pre-dates our “investment” career, harking back to a time when we thought that “doing property” meant buying a residential property for ourselves (PPR) in need of refurbishment. Doing the work (mainly ourselves) and the flipping it for a tax-free profit.
This deal came right on the cusp of (and subsequently overlapped) our Asset Academy training. We purchased the house on 31st August 2016 and sold it on 2nd February 2018. To date, it’s the only house that Laura and I have spent consecutive Christmas’s in! It’s a house with mixed memories. We used it to fund our Asset Academy training through equity release in September 2017, but this came just a couple of months after losing my Dad to a short battle with cancer.
Dad was synonymous with this house because it was him who found it! Ever the tactician, Dad spied this 2-bedroom barn conversion in Redditch at its original marketed price of £250,000 some months before we viewed. I loved it, Laura loved it even more, but we waited. It sat on the market for a LONG time, which may well have put a lot of buyers off. Dad had a simple mantra when it came to property:
“Buy the worst house in the best street or area. Look for property that needs non-structural, cosmetic refurbishment and, above all, keep costs to a minimum. Every excess penny spent on expensive tradespeople, a high-end appliance or non-essential furnishing is a penny coming off your profit margin.”
So, one day Dad called whilst he was sat on Rightmove (something he did every morning) and told me that the agent had dropped the price to £230,000 and they were holding an open day. He’d checked the weather forecast and it was due to rain (I think it was a Saturday). We both clicked that this was an opening – no one was going to come out to an open day in the rain!
When we got there, the elderly lady who was selling the property was sat in a chair in the unbearably hot house. The agent said we were the first people to arrive. Whilst I set about viewing the house, Dad sat down with the lady and chatted. He spoke about the weather, kids, grandchildren, TV – anything. When I was done, I joined him, spoke to the lady face-to-face and thanked her very much for letting us into her wonderful home.
We offered £200,000 for the property and it was accepted within 24 hours. The lady said we were the only people who viewed in the entire time it was on the market who even seemed to notice her. Moral of the story – property is a people’s game. Dad taught me that.
SOURCE OF DEAL
For this second deal, although we looked at Rightmove and did our due diligence, the fact we managed to negotiate a £50,000 discount on the property made it an absolute no-brainer. This particular area of Redditch was highly sought-after and property generally sold quickly.
We picked up deal number two, our two-bedroomed semi-detached barn conversion in Redditch, via a local estate agent, Arden, for the sum of £200,000 with the conveyancing done by our trusted family solicitor - Kenneth Curtis LLP.
These days, now that we’re more seasoned investors, when we’re buying assets for JL Property Solutions we utilise 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 two, we self-funded via the proceeds of our previous flip in Birmingham. We sold that house for £217,000 having bought for £180,000 and it gave us enough (with a Nationwide mortgage which was brokered by Morgan Financial Solutions) to do this attractive deal.
I mentioned earlier that we funded our Asset Academy training through equity release. We remortgaged the property at a valuation of £260,000 at a LOWER LTV than we had bought the property with. That meant we released in the region of £25,000 courtesy of West Bromwich Building Society and it was actually CHEAPER per calendar month than the previous mortgage. We also got it on a variable rate – so no ERC. More on that in the numbers section.
As far as our flips go, this was a decent sized project. The house (as you can see from the photos) was extremely dated. We set about doing the following:
· Install an en-suite off the master bedroom
· A new bathroom
· New flooring throughout
· A new staircase
· A new kitchen
· Redecoration throughout
The refurbishment was relatively smooth, and we used a mixture of local trades and a bit of help from Mom and Dad to get the job done. It’s hard to think back to the sight of coming home and seeing Dad painting our wooden front door in the cold, knowing that he may well have been walking around with a neuroendocrine tumour. But Dad loved getting stuck in and I owe a debt to him for my own DIY knowledge, even if for the most part he wouldn’t let me do more than pass him the tools! I would do jobs with Dad from as early as five or six years old and maybe he didn’t want to admit that I wasn’t his little boy helping – maybe he wanted to feel needed.
I think it shocked him when I started fitting kitchens, doing landscaping, carpentry and flooring. He didn’t realise that for years I just enjoyed doing the jobs together and put up with being patronised for the love of his company.
With our PPR flips we followed the mantra of having multiple exit strategies (we could have refinanced and rented these places due to the increase in value) but we generally bought savvy and honed in on buoyant markets with an onus on selling QUICKLY (within 12 months of purchase).
You’ll see from the sale date that didn’t happen in this instance. But with everything that went on in my life over that time period it goes without saying that property wasn’t always at the forefront of our thinking!
We sold the place for £268,000 in February 2018 to a nice younger couple who loved the juxtaposition between old, feature-laden building with a modern interior.
THAT’S A WHOOPING 34% INCREASE IN VALUE.
Not only that, thanks to Smart Homes for selling the house, with this being a flip property we were getting a reward of cold, hard cash in our bank account!
Purchase Price: £200,000
SDLT (Stamp Duty): £1,500
Legal & Broker Fees: £750
Original Mortgage: £160,000
Total Money Used to Buy: £54,250
New Value: £260,000
New Mortgage: £178,750
Less Original Mortgage: £23,734.99*
*NB our original mortgage was capital and repayment meaning by the time we remortgaged our balance was £155,126.01
Sale Price: £268,000
Less Mortgage: £89,250
Less Total Money Used to Buy: £35,000
PLUS Refinance Monies: £58,734.99
That’s the start of our investment minds taking shape! We managed to earn £58,734.99 in pure profit from this house in 17 months.
Or, a cool £3455 per month TAX FREE.
Despite the heartache and the massive changes in my life during our time spent in this house I can’t help but look back and think what a fantastic deal it was. Dad would have been proud.