How Much This £180k Investment Property Makes Per Month 🏠

in 2022 we purchased this former 10-bedroom care home for £180,000 and after a lengthy refurbishment it now rents for over £45,000 a year in this video we're going to show you exactly how we did it and also share breakdown of our cash flow spreadsheet so that you can see how much money is left at the end of every [Music] month before we get into the video I'm Leah and I'm AK and if you're new here this is our Channel where we talk about property investing business and working together as a couple so today we are going to walk you through one of our most challenging projects which was a care home to HMO conversion in Grimsby so this is the 10 bed former care home and the plan was that we would purchase it apply for planning permission to change the use and then once we got the green light it would then take 16 weeks to complete the project sounds easy should have been well in reality with the delays that we encountered it ended up taking 12 months to get to the point that it was ready to be rented out yes there were so many roadblocks with this project but let's start with the decision to purchase it and how we analyzed the deal we drove up to Grimsby to meet with the vendor who we were introduced to by a trusted sourcing agent that we work with now if you're wondering more about working with sourcing agents as a property investor or becoming one yourself do check out the video which I will link up in the cards all about sourcing and sourcing agents now the vendor had been running care homes for a long while and was ready to sell up retire and we thought that this care home had huge potential to be a large HMO and for those of you who are unfamiliar HMO stands for houses of multiple occupancy so we spoke to some other investors locally and we did the usual due diligence on Grimsby as an area if you're unfamiliar with how we do area research then you can check out a video which I will also link up in the cards which covers how we decide whether a property is right for us a postcode whether we're going to invest there how we analyze a deal before buying it basically and if you've been following us for a while you'll know that Leah and I bought our first investment property and renovated it in 2020 2021 right in the middle of lockdown and since then we now have a portfolio including 24 HMO units so this project was double the size of anything we had previously done and it was a 3-hour drive from where we live so quite different to our usual hmos which are just 15 to 20 minutes up the road distance was the first obstacle we had to overcome you absolutely can invest and have projects that are not on your doorstep many people ask us that but in our experience it definitely becomes a lot easier when your investment is closer to you now for us this was a 6-hour round trip so we had to rely heavily on managing our build team and our project manager remotely which definitely comes with its own challenges yeah and when things got tough I was finding it really hard not being able to just drive there in 10 15 minutes to deal with a problem one times brings to mind when I was on the phone to the police and we had a squatter living in the property and they were asking me if I could come down I wasn't anywhere nearby so I was having to rely on Builders neighbors and there was just quite a lot of people we had to butter up next time we drove the three-hour trip up to Grimsby and just take a lot of chocolate with us yeah I don't think it helped that we were actually getting married at the time as well so there was a lot of wedding prep and wedding plans going on as well so that just kind of made things a little bit more stressful but let's talk about the purchase price we ended up purchasing this 10 bed property for £180,000 but the vendor wanted £260,000 and remember that this was an off-market deal so there weren't any agents in the middle that would have helped price that property for that area this 260,000 was based purely on what the owner thought that his property was worth it was important for us to do our due diligence and to understand what a fair market value was and we did we did some of our our own research and it was very very hard to find sold prices of similar properties as there were no other 10 bedroom Care Homes nearby only a dentist which had not sold recently so there was no sold data for that other than that it was just residential semidetached and Terrace houses as Leah said it was super hard to find comparable properties and obviously we wanted to make an offer that wasn't way above what the actual value of the property was this is where we took it upon our eles to actually have an official survey and valuation done of the property so we got the valuation done by a surveyor and it's important to note here that this is not a free valuation that's offered from say a local estate agent it's very different one of our upfront costs was 700 for professional survey including a bricks and mortar valuation of the property also important to note that this is not a valuation on his business as an up and running care home because we were not buying the business we were just buying the building bear in mind that we did not own the property at this point so we were taking on some Financial Risk for a property which ultimately was not ours yet but in our experience it was a small price to pay to ensure that we are not buying a property for more than it's worth worth every penny that valuation wasn't it absolutely worth every penny and the valuation came back and it was £180,000 so that's £80,000 less than what the vendor felt it was worth and of course that's not the news he wanted to hear but this was reflecting in our formal offer to him where we also attached the valuation of £180,000 with a lot of these off-market deals it's about working with the vendor directly and building a relationship now this was definitely one of those times where it was super important to create a win-win situation for ourselves as the buyer but also more importantly for the seller as well so he wanted 260 and obviously it was formly valued at 180 so you think he straight away you think he say no so what did we do so what did we do we came to an agreement with the seller that we would give him more money once the property was revalued after the refurbishment yes so we worked on a tiered format where his additional funds were based on the value achieved after the refurbishment as AK said so in this case if we were to achieve a valuation of over £400,000 for the property after we' done all our works to it then the seller would get another £70,000 which is much closer to his initial asking price but if we were to achieve under £400,000 then he would get an additional £45,000 he could have held out but in reality anyone else buying this property would have probably also got a survey done and they would have also seen that the true valuation was £180,000 this was us trying to work with him in order to secure a deal create a win-win situation for both of us where he gets what he wants eventually and we get what we want which is the deal yeah and I think it's there in black and white the valuation has been done you can't argue with that so again I think he would have struggled to really sell it for much more than that now obviously we felt in our analysis that the property would have been worth a lot more because when you have the valuation done you are having a commercial valuation of the business as a whole you know that HMO as an eight-bedroom or a 10 bedream business that's creating and generating an income per year for sure so that's why we could confidently go into this offering him that uplift on the back end the next step was that we had this agreement drawn up legally this was not a spoken agreement between us it was all written out on um a heads of terms which was signed by both parties we then handed those heads of terms to the solicitors and they do their magic thing where they write it all up formally and it was signed sealed and delivered so the purchase was underway and now we can talk you through the planning permission Saga which was a nightmare so we envisioned a 10 bedroom Care Home turned into an 11 bed HMO but we hit a big road block planning only granted us eight bedrooms so even less than what was already existing in the property and this was quite a big hit because this would likely mean around 1,500 Less in rent per month so we went back and forth for months well Colin did our designer and planner negotiating with the environmental agency and they concluded that we could not have any of the planned bedrooms that we wanted on the ground floor even though bedrooms already existed there it was considered a flood risk area and one of the planning terms was that we had to guarantee 1,000 years worth of flood proofing you can see more this in our video we did with Colin that sheds more light on the problem that the council had with our plans this did Force us didn't it to reassess our strategy here before we'd even started building so after working closely with the planning department and revising all of the drawings over and over we finally got planning for an 8-bed HMO conversion however just days after planning permission was granted we had discovered that squatters had taken residents of the property now this whole Saga was documented on our Channel which you can definitely watch after this video it did turn out to be a huge learning curve now I know so much about how to remove squatters their rights and what to do if we ever get them again and somehow even made the news in the US this did throw a bit of a curveball didn't it into our initial plans because we were unable to start stripping out the property and get going with the refurb plus the months we had spent waiting on the council to make their decisions were all adding up in holding costs so we were paying gas electricity council tax water but no income was being generated from the property because it wasn't rented it was just being squatted in unfortunately all of these costs are called holding costs and they should be factored in when doing a renovation project like this and the approximate holding costs on this property in the 12 months of owning it were around £5,000 now as Leah said this includes energy used by the squatter which we were unfortunately not able to get back from the insurance now during the refurbishment phase we had to raise the floor floor levels downstairs you might have seen that by well over a meter so we actually ended up losing out on the beautiful high ceilings that were in the building we also had to ditch all of the bedrooms on the ground floor as mentioned earlier due to the flood risk analysis so the only room we could keep on the downstairs was the one next to the kitchen which was created on top of the newly raised floor everything to the back of the property was not allowed to be used as habitable space it could only be used as say a laundry or storage it just couldn't be space that tenants were living in reducing the number of bedrooms and adapting to the flood risk regulations impacted our projected income as we mentioned but this was a lesson in what property investing is like and plans don't always unfold as expected it's a painful truth really isn't it is the painful truth but we can now look at the numbers and the big question would be did the deal still cash flow as an8 bed rather than an 11 bed because at this point we now own the property we've purchased it we've put the cash in we've raised the money through private investment to buy it to refurbishment so we have to make this work it's actually too late to now back out unfortunately the deal does still work as an8 bed and actually what we're going to do is show you here on the cash flow spreadsheet what the deal now looks like just to note as well with that when we actually originally looked at it because this is an HMO we analyzed this for potential void periods for the rooms as well so we actually did look at it from an8 bed and it still was Cash flowing at the time so we kind of had a small understanding as to you know whether this was still going to work but let's walk through the numbers and I will show you exactly where it is so you can see here that we purchased a property for 18 180,000 now we purchased this in cash using our investors money and so there is no mortgage or interest rates or anything to pay on this left hand side of the calculator there now you'll notice notice the red box here includes all the works and the costs associated with this project now the cost of the refurbishment actually came to about £125,000 now the reason this is £68,000 is because I'm including the tier structure that Leah spoke about earlier where we gave the seller back some additional funds in that £45,000 so on the back end once we' completed this project we actually got a valuation of £395,000 for that property and that business so what does that look like then we took a 75% loan to value mortgage out at 6.19% so the monthly mortgage there comes in at £ 1,528 now the interesting thing with this project is that unlike our other hmos where we pay the bills and we pay the monthly operating expenses we actually looked to work with the local Council on this one that were in Need for housing and in this case it's actually going to be housing Asylum Seekers here in the in the UK now working with the council it's classed as a social housing strategy and often they offer you rent for the room that is much lower than what you'd get in the private sector however all the bills and all the maintenance and all of that stuff is covered so you'll notice here the rent of 3,800 a month but there isn't any monthly operating expenses so you'll see here on the sheet that it's actually at 0% now this makes a huge difference cuz on a property like this the bills would be very expensive we're working with a managing agent as we said it's 3 hours away so we want to make sure that this property is managed correctly so there is a 12% management fee in there but all in all you'll see a cash flow there of £ 1,815 and this is with an8 bed we were really hoping for that 11 but it's still making very good cash flow now the return on investment here is 42% which is still very decent and this property will pay for itself within 2.37 years which is fantastic and this was a mortgage taken out at the end of this year in 2023 so you know people a lot of people say to us does property still work absolutely it still works you got to find the right deals and you got to know what you do it and just to note the yearly cash flow as well is coming in at 2,790 and13 Pence per year which is a pretty impressive yearly cash flow for a hands-off property that is now on a long lease with the council I hope what AK said was clear about the fact that we will not be paying bills on this property like we do with our other hos where we're in charge of the internet the gas the electricity the council tax we are taking a reduced rent in exchange for the tenant which is the local Council looking after all of the bills yeah and actually what's interesting is when you include all the bills and you increase the rent it actually works out to be a better return on investment doing it this way more often than not just with the way things are going so yeah super super cool deal we're really happy to have been able to do it really really pleased with it that is our project Journey from start to finish from purchase to squatters to planning permission Saga to renting it out now that's the whole thing now a lot of people that we talk to love the idea of property but they want to be completely hands off so they don't want to deal with all the issues that we've just explained there and that's completely understandable we're actually in a position to be taking on new partners to work with and if this is something that may interest you please click on the work with us link in the description box below we do hope that this deal has inspired you and that you might have picked up a few gems or takeaways along the way and don't forget if you would like to start or elevate your existing property investing Journey then you can click on the link in our description property couple. atuk our brand new shiny website where there will soon be lots of free resources downloadable PDFs to help you start or Elevate where you are at in your property Journey sharing our best tips and advice about investing and don't forget to like subscribe and hit that notification Bell and we will see you in the next one we'll see you in the next video [Music] bye

Channel: Property Couple

Views: 23,362

Keywords: uk property, uk real estate, uk property investor, how to start investing in property, buy to let, HMO, hmo conversion, property investing, UK real estate, wealth building, property investment tips, real estate entrepreneurship, financial success, property portfolio growth, financial freedom, UK property market, property investment strategies, entrepreneurial journey, real estate partnerships, business and life balance, personal finance UK, property

Id: H97atITndCo

Length: 16min 26sec (986 seconds)

Published: Sun Jan 21 2024