Another one of my early investments was this three bedroomed mid-terraced house in Sheffield with four bedroom Houses in Multiple Occupation (HMO) license. It's close to a local hospital and two universities, so I knew it would make a good rental property.
I got the property through Saxton Mee estate agents below market value (BMV), for £165,000 (advertised for £175,000), as I was able to make a cash offer using bridging finance. I put down a 30% deposit (£49,500), borrowing £115,500 at 0.8% interest for four months whilst the renovations were completed (£924 x 4 = £3,696). The development cost around £19,000, plus conveyancing and loan product fees totalling around £2,300. This meant a total spend of around £190,000 with the property being revalued at £200,000 just five months later.
The refurbishment took around five months in total. It was a big job including full rewiring, new heating system, re-plastering, loft reinforcing, new kitchen and internal redecoration.
Within a month of purchasing the property, the country went into lockdown due to Covid-19, which made getting tradesmen to work on the property and sourcing supplies much more difficult. Cash flow was also a problem as rental income from other properties was delayed (tenants not paying on time due to work/furlough issues) and future income was very uncertain.
Thankfully as a Limited company I was able to access the Business Bounce Back loan scheme. I used this money to incentivise a single builder to stay in the property for two months whilst the work was completed - fitting the kitchen and doing all of the replastering, carpentry and internal redecoration. This meant I only needed an electrician for the rewiring and plumber for the heating system, with everything else being done by one person.
There was also a lack of material supplies, such as plaster, so I had to order some from a family run company in Wales and it arrived two weeks later!
The property was finished to a high specification, including new open plan kitchen and high quality bathroom, as well as retaining period features such as the iron fireplace in one of the bedrooms.
Since we could no longer do physical viewings during lockdown, we asked the estate agent to do Zoom viewings, including a walkthrough. This was thankfully very successful and we had two offers from groups of three and four people on the very first day.
| Investment | |
|---|---|
| Purchase price | £165,000 |
| Stamp duty, conveyancing & loan fees | £6,000 |
| Total purchase price | £171,000 |
| Development costs | £19,000 |
| Total spend | £190,000 |
| Return | |
|---|---|
| Current value | £200,000 |
| Rental income | £1,400 pcm gross, £600 pcm net |
| Ongoing costs | £800 pcm1 |
| Rental yield | 8.8% gross, 3.8% net |
| Return on capital (ROC) | Approx. 20%2 |
1 £515 mortgage payment, £15 insurance, £130 letting agent fees and £100 contingency (for repair/maintenance etc.) plus council tax for four months during refurbishment averaged over the course of 12 months (£480)
2 Net rental return of £7,200 per annum on £36,000 capital
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