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  • Buy-to-Let

    Buying Blocks of Converted Flats - pitfalls

    Hi all,

    Hope you're having a great day!

    I was wondering if I could call on your experience and knowledge.

    Buying single houses as BTL investments is a well understood market.  However what are the considerations to be aware of when buying properties that have been converted into flats?

    I was looking at a well converted semi detached house with 6 flats in it a while back and I was very attracted to the yield (in region of 9.5%) based on the asking price and the current rents being payed by the tenants in situ.

    However, when I took out an independant survey, he valued the property at close to £300K when the price agreed was £380K!  This led me to believe that my lender would be unlikely to value it at the asking price, which effectively made me pull out of the deal.

    The surveyor (local and well experienced) defended his valuation as follows (summarised);

    • It would be risky to just look at the income alone, must consider comparables.
    • It is safer to think of the property as appealing only to other investors, which is a limited market and they tend to drive a hard bargain. Unless this area dramatically gentrified which I think is unlikely, I cant see it appealing to owner occupiers wishing to convert it back into a family home.
    • Future value growth is very much dependent on the investment market and this is risky - its not necessarily going to mirror any general increases in the local property market for owner occupied properties.

    This experience has led me to believe that financing blocks of converted flats is 'difficult' and you can't bank on the lenders valuation supporting the asking price.  Have others had a similar experience or is my experience an anomaly?

    What are the other pitfalls in purchasing converted blocks of flats?

    Thanks in advance for your thoughts.

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    What areas were you looking at? £380k is quite a high price point for 6 flats, £63k per rental unit. I've been looking at towns where the flats are around £30k-35k per unit. I wonder if the lender's valuation would be less pessimistic at this lower price point which is closer to the B&M non converted value.

    I've been in contact with someone that just secured lending on a 7 unit block, so it is possible.

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