Another below market value (BMV) property I renovated was this three bedroomed terraced house in Sheffield. It's close to a local hospital and two universities, so I knew it would make a good rental property.
I got the property at a Mark Jenkinson & Son property auction for £165,000. The development cost around £20,000 using bridging finance to mortgage product. This meant I needed two lots of conveyancing - one for the purchase with bridging finance and one for the remortgage, costing around £7,000 in total (including surveys).
The refurbishment took around three months in total. It was a big job including full rewiring, full replastering, loft reinforcing, new heating system, new kitchen and bathroom, new carpets and complete internal redecoration.
Sadly we came across an unexpected challenge when we discovered problems with the foundations in the kitchen not being stable. This meant taking the whole thing back to brick and reinforcing the flooring. This project also involved a lot more trades, including builders, roofers, a loft conversion specialist, kitchen fitters, plumber and electrician.
To recoup some of the losses in the kitchen we used William George Auctions to buy luxury high-end bathroom fittings at wholesale prices.
The property was revalued at £205,000 and remortgaged on an 80% Loan to Value (LTV) ratio for £164,000. As there was only £13,000 equity in the property at this point, that meant leaving a cash deposit of £27,000.
The return on investment is modelled on annual Assured Shorthold Tenancies (AST) as it's very close to the hospital and universities.
| Investment | |
|---|---|
| Purchase price | £165,000 |
| Stamp duty and conveyancing | £7,000 |
| Total purchase price | £172,000 |
| Development costs | £20,000 |
| Total spend | £192,000 |
| Return | |
|---|---|
| Current value | £205,000 |
| Rental income | £1,100 pcm gross, £400 pcm net |
| Ongoing costs | £700 pcm1 |
| Rental yield | 6.9% gross, 2.5% net |
| Return on capital (ROC) | Approx. 17.1%2 |
1 £520 mortgage payment, £10 insurance, £120 letting agent fees and £50 contingency (for repair/maintenance etc.)
2 Net rental return of £4,800 per annum on £28,000 capital
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