One of my most recent investments was this conversion of a three bedroom, one bathroom, terraced house in Sheffield, to a five bedroom, two bathroom property, with Houses in Multiple Occupation (HMO) license.
Whilst the redevelopment works themselves only took four months, this was a longer term investment project due to the extent of the works - requiring an architect, structural surveyor and application for planning permission over the course of two years.
I got the property below market value (BMV) at auction, through Mark Jenkinson & Son, for £158,000. This was after multiple attendances at other auctions, as an observer, and doing my homework researching the local property market.
This property appealed to me for multiple reasons, including it's location (close to a hospital and two universities), the potential for loft conversion (with the addition of two more bedrooms and another bathroom) and HMO license, and the fact that Crookes is a very desirable suburb in Sheffield, with a large number of graduates choosing to settle in the area longer term.
Although the refurbishment only took around four months in total, it was a huge undertaking, made even bigger due to a few complications along the way.
The original plan for the property focused primarily on the loft conversion - adding a further two bedrooms and a bathroom, in addition to complete rewiring and making the necessary improvements for fire regulations with an HMO license (e.g. fire doors, hard-wired smoke alarms etc). However, on commencement of the works we discovered that the roof was actually rotten and the whole thing needed to be taken down and replaced. To make matters worse, during the roof works, exposure to the elements meant that rainwater percolated into the lower floor bedrooms, so the ceiling of the middle floor needed re-boarding, re-plastering and re-decorating too.
With the various hiccups along the way, a key learning from this project was the importance of party wall agreements and giving written notice to neighbours in advance of works taking place. This was an even greater challenge during lockdown due to Covid 19.
The works for the roof and middle floor ceilings cost an additional £7,000, so I've also learned that for bigger projects I need to keep a 20% contingency fund, over the quoted build price, as a buffer - particularly as you can never predict British weather!
| Investment | |
|---|---|
| Purchase price | £158,000 |
| Stamp duty, conveyancing & loan fees | £6,000 |
| Total purchase price | £164,000 |
| Development costs | £70,000 |
| Total spend | £234,000 |
| Return | |
|---|---|
| Current value | £250,0001 |
| Rental income | £1,700 pcm gross, £805 pcm net |
| Ongoing costs | £900 pcm2 |
| Rental yield | 8.2% gross, 3.9% net |
| Return on capital (ROC) | Approx. 20.6%3 |
1 Remortgaged at 75% Loan to Value ratio (LTV) (£187,500)
2£550 mortgage payment, £15 insurance, £140 letting agent fees and £150 contingency (for repair/maintenance etc.) plus council tax for four months during refurbishment averaged over the course of 12 months (£480)
3 Net rental return of £9,600 per annum on £46,500 capital
To book an appointment for a financial health check-up, please click the button below.
Book an appointment