How much does it really cost to fully renovate a 3 bedroom semi detached property?
After my first newsletter a couple of weeks ago, a lot of people have been asking me the same 2 questions; “How much money do I need to do my first project” and “How are you able to keep going financially without having any products to sell”. So, I answer those 2 questions in this newsletter.
Here’s a solid business plan in the property world
Buy run down properties in supply constricted areas
Completely rip out and refurbish
Refinance opportunistically to efficiently return tax free capital
Feel skint for 3-5 working years
Wait for the market to increase and cash in on a few investments
Feel anxious about holding cash and re-spend it all on refurbishment projects
Repeat forever
This is what I have been doing since 2018
Eventually it comes good. After a couple of lucky breaks and a couple of opportunistic sales, it becomes cumulative, and that really is the secret to the property game;
Do everything to increase your chances of getting lucky, then play the waiting game. Property is the ultimate game of delayed gratification. So, just wait.
When people ask me where I get the capital from to do these projects, the answer is that anything worth doing (ever) requires the collaboration of other people. I managed to do the first couple projects on my own, but now I rely on raising angel investment from budding property developers or already-wealthy business men and women who want an easy return on their capital. This is the only way to make it in property development. Whoever has access to the most capital, wins.
The project in this newsletter however was completely self funded; here is a breakdown of my initial costs
Financial breakdown
- Purchase price; £130,000
-Refurbishment costs; £50,000
-Re-valuation: £230,000
-Value added; £50,000.
This means that cash I needed to have was;
-25% of the purchase price to obtain a mortgage- £32500
-Stamp duty and other professional fees- £3500
-Renovation cost- £50,000
-Total cash needed for this project- £86,000
For those who don’t know how refinancing work, here goes.
You approach a lender (a bank) and explain that you think the property is now worth, in this case, £230,000, due to the extensive renovations carried out. This requires a fantastic initial purchase price AND a great final product. You can just buy any old property and think this will work, it won’t.
You ask the bank to give you a new 75% loan to value product. After I refinanced the property at the new value of £230,000, I received £172500 back from the mortgage lender for my new mortgage.
After I had paid off the old mortgage of £97500, I was left with £75,000 cash.
So I spent £86,000 in total, and had £75,000 returned to me from the lender after I paid off the old mortgage, meaning my NET amount of money left in this deal is £11,000.
That means I own a £230,000 property for £11,000. This is how people keep going In property with relatively low amounts of capital
My mortgage currently stands at £435 per month and I rent this property out for £1250. After my letting agent fee, this property pays me £678 per month. Not bad for a net investment of £11,000. Thats an ROI of 73% (Do you want to invest with me yet?)
Lets start with some photos of the end product;
Renovation costs
Here’s a breakdown of my total spend
Rip out- free. Done myself
Skips- 4 total at £300 per go. £1200.
Removal of all internal downstairs walls and the inclusion of steels to support the whole house- £3500- PICTURED BELOW. (Shout out to James Hamilton at OBS construction).
Bathroom total- £6000
Howdens kitchen plus installation- £3500 (We got an amazing deal on this)
Plumbing- £2500 (I was able to keep the old boiler and rads)
Full rewire- £4600 including all sockets and switches
Joinery and general trade work- £6000
Plastering- £4500
New windows and doors- £3500 (for the most part I kept the frames and replaced the glass)
Garden- £5200
Demolish and build a new garage- £6000
Flooring including fitting- £3500
Total; £50,000. (It was actually a little under this, all figures rounded up)
Stress management;
Keeping properties in your portfolio ie extremely un-passive and quite stressful. Property works amazingly well at scale, but for the landlords with less than 20 in a portfolio, a couple of big bills can be difficult.
Having a good letting agent helps reduce some of that stress, but nevertheless, it certainly isn’t passive. For complete transparency, and for an actual accurate reflection of owning properties; here’s how the last year has been with this house.
Over the past 6 months after some heavy wind we started seeing some “damp”. In the case of this particular house; the mortar between the bricks externally had started cracking. Its quite common with properties left unheated for multiple years. Its something that wasn’t apparent during the refurb and has since cost around £1200 to fix.
Asbestos; Shortly after buying the property it became apparently the garage was full of it. When left undisturbed it isn’t really a problem, especially in a garage where nobody spends significant amounts of time, but renting out a family home with asbestos in the garage didn’t sit right with me. We decided to get an asbestos expert in to completely demolish the garage. Building a new one was costly, and was a £6000 expense I completely overlooked.
