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See invest No.1 here - our full strategy
See invest No.2 here - our plans to build a portfolio.
See invest No.3 here - what we look for.
Excited to share our latest property purchase - a 2 bed, semi detached house in the North East. Visually this is possibly my favourite to date. It ticks all the boxes for what we look for (explained here).
This property was purchase direct to vendor and was actually the second property we agreed to (back in November last year), but it took so long to complete due to the report on title coming back with clauses in it that needed to be removed (outdated permissions that the developer put in).
This property will need:
A full re-wire
Replacement heating system
New bathroom
New kitchen
Plaster skims on walls where needed
New internal doors
New flooring throughout
New back external door
Decoration throughout
The numbers in theory (with explanation below)
I thought it could be useful to go down line by line and break down the costs. *Skip to pictures unless you want to learn about the numbers.
If this is useful, comment on my post, interested to know your thoughts.
Purchase Price - £74,000 - price we agreed to pay.
Monthly Rent - £650 - from comparables, this is the rent we hope to achieve.
Money In to Buy - these costs below are everything we pay out to purchase, refurb and rent the property.
Purchase Price - £74,000
Refurb - £21,141 - this is the initial quote from the build team.
Our solicitor fees - £1,000 - this is what our solicitor charged to process the purchase.
Stamp Duty - £2,200 - Tax paid for purchasing a property Disbursements - £5 - small fee from the solicitor (can vary)
Land Registry fee - £20 - solicitor's fee to get the docs from land registry
Tenant Finder's fee - £780 - this is 10% of Rent+VAT that's paid to our letting agent for finding the tenant once the property is refurbed. We include it now, as it affects the 'real' return.
Fees - £7,864 - these are the fees we pay to a team to help make the project happen. For us it's money well spent as we don't have the time or resources to do this ourselves. If you had the time and knowledge, you could cut these costs out. However I recommend working with people who know what they are doing. You could easily lose a lot more if you bought the wrong house. Total to buy, refurb, tenant - £107,030 - this is the all-in cost if we never refinanced. If we didn't add leverage (a mortgage), this property would return 5.4% after cost.
Remortgage costs bank - estimates - I won't go through each line on this section as that would be long, but they are all the smaller costs involved when adding a mortgage on the property once the refurb happens.
Our solicitor refinance fees - these are more fees that we get charged by the solicitor for carrying out the refinance process. Total refinance costs - £2,225 - the total cost of the 'remortgage costs bank' and 'our solicitor refinance fees' added up.
Money left in - this section is how we work out what money we will leave in the property. That way we can calculate the return on investment (ROI)
Re-valuation post refurb - £115,000 - this is the value we hope the house will be worth after the refurb. This is worked out by looking at comparables.
New mortgage amount -£86,250 - based on us getting a 75% loan to value mortgage, this is the amount we'd get given back from the bank (£115,000 * 0.75 = £86,250).
Money left in - £23,005 - once a mortgage is on the property paying us back £86,250, this is the money we've left in the property (£107,030 + £2225 - £86,250)
Monthly Expenditure - these are the monthly costs we have to pay out in order to maintain and rent out the property.
Mortgage Payments - £240 - this is the money we pay the bank for borrowing the money. This changes from property to property depending on what's on offer at the time. But at the moment they are low at around 3%-3.5% fixed for 5 years, interest only. Beware this could increase dramatically in 5 years' time.
Management fees - £78 - this is 10% of the rent cost +VAT, that gets paid to the letting agent we use, to manage the property.
Maintenance and voids - £65 - this is 10% of rent that we save in case anything needs fixing or to cover void periods. 10% is considered standard, however I think it could end up being slightly more than this as one tenant change every 12 months would cost more than the £780 saved up (that's if nothing needed replacing). This should probably be 15% but time will tell.
LL insurance - £22.50 - this is the cost of the insurance we get on the property. This cost changes from property to property but is always around £20-£25.
Total Expenditure - £405.50 - this is the total amount paid out each month.
Annual Rent - £7,800 - this is the rent at £650 x 12 = £7,800.
Annual Expenditure - £4,866 - this is the total annual outgoings (in theory) = £405.50 x 12 = £4,866.
Annual Profit - £2,934 - this is the Annual Rent - Annual Expenditure = £2,934.
Monthly Cash Flow - £244 - this is the amount we keep each month.
Returns - this is the section we work out our return
Return On Capital Employed - 12.75% - this is the return we get back on our money in theory if everything goes to plan. A small tweak in any of these numbers and it can have a big impact. It's worked out by dividing the annual profit by money left in = £2,934/£23,005=0.127. It is then multiplied by 100 to get the percentage = 12.7%.
Possible Appreciation - this is how much we hope the house will increase in value per year on average. As these houses are North East, it's hard to know if this will happen or not. But if it does, it will increase the return to 12.75% + 5% =17.75% which would be amazing for such a 'safe' asset. Very very unlikely it goes 100% to plan though. If we can clear a 'real return' over 20 years of 10%, we will be happy.
Purchase condition photos
If the above didn't make you fall asleep, well done! Head over to our property Instagram to see the work being carried out with weekly updates.
Rip out photos
Mid refurb
Ready to be rented out
To be see our current project, follow on our Moss Developments Insta Page here.
I hope these transparent blog posts are useful and welcome any feedback. To learn more about me, check out my about page here. To keep up to date on our latest project follow me on my social channels Instagram, LinkedIn, Facebook.
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