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Good Morning All,I have been reading your comments on this forum and found them all to be very informative with great content. I am excited about joining the discussions. I would like to share a current BRRR (Buy Refurbish Refinance Rent) deal I am closing in on, please let me know if this stacks up.
3 Bedroom Mid terrace House in Birmingham that requires modernising (no structural work, just new kitchen, bathroom, replaster and decorating. This is a probate sale where the owner has sadly passed away and his three sons selling, Asking Price: £130,000 Negotiated to £117,000 as I am cash buyer and able to proceed quickly and also I think the Brexit uncertainty has reduced the number of buyers recently. Therefore the figures are:
House price: £117,000
Stamp Duty and Legals: £4,500
Renovation Cost: £15,000
Holding cost for 6 months (Utilities, Council tax, water): £1,500
Total Invested: £138,000
Expected Market Value after Renovation: £160,000 (based on 4 properties with: identical layouts, within 1/2 mile radius) I know I will have to convince a RICS valuator.
Post Renovation Mortgage to 75% LTV, therefore: Mortgage on House: £120,000
Money left in Deal: £18,000
Rent: £750 (based on local comparison and estate agent recommendations for the area)
Mortgage Interest (2.5%rate): £250
Management fee (10%): £75
Maintenance and Insurance: £75
Net Profit (before tax): £350
ROI = 4200/18000 = 23%
Capital appreciation has been approx. 4%/yr and hopefully continues in this area of Birmingham, although might slow down for the short term. I am planning to hold on to the house for 20+ years. Please let me know what your thoughts are. This is the first BRR project I am undertaking and hope it goes well.
I don't know the Birmingham area and do not have time to do any research or comparables, so my comments are only general.I think you have been quite conservative here, which is good. I can't imagine the work you describe taking six months. More like six weeks maximum, although I am no expert so happy to be corrected.You need to include refurb/empty property insurance in your costs and you can contact the team at Alan Boswell Group on 01603 649736 for assistance in arranging this.Otherwise, it sounds like a sensible and reasonable deal.Good luck and perhaps document it here on Property Tribes so that we can follow your progress.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Thanks for your comment Vanessa, im a big fan of the forum and content you provide.
I anticipate the renovation will be done within a month and already have my builder booked in to do it. I was over conservative with the 6 month timescale as you pointed out.
I will document my progress on this forum as I get on with it. I hope to.complete within a couple of weeks a my builder should start second week of April.
I am keen to get the views of other investors that do these kinds of projects. If anyone can give me some pointers that will be greatly appreciated.
Hi Albrahim - your figures look realistic. I would just perhaps add a bit more contingency on costs.
Your gross yield is 5.5% which is workable, but doesnt leave much margin for error. You havent allowed for any voids...lot of people miss this! Capital growth of 4% is possible, but optimistic right now. I would say that the market is peaking & will possibly be flat for next year or so.
Interest-only rate of 2.5% interest only...seems low...is this a discounted deal? Price in lenders SVR (standard rate after discounted deals) & see what happens...although you can always move to a new lender...but more fees. I would always recommend you pay interest & capital...but depends on your strategy. If values drop...you may have less choices for re-mortgaging to a new lender if you are more than 75% LTV.
Loan arrangement fees - cant see any allowance. Also - please note that you may have a period of higher interest rates whilst property is being renovated. Have you spoken to brokers / lenders about this?
No allowance letting / marketing, but 20% for management & running costs not far off, but this will increase the older the property gets.
If you went HMO (multi-room)...yields would increase...but it depends on market demand in your area & planning restrictions eg. Article 4. Also - your running costs & hassle would be higher.
Perhaps allow a 10% increase on renovations...costs everywhere are going up.
On the whole, not a bad deal...mainly because you have negotiated a good purchase price. However, you will need to allow for the additional contingencies above...& if you can still afford to fund it then great!
If you are getting a builder in rather that doing it yourself , £15k is very good going unless its simply case of new bathroom suite & kitchen without tiling / pipework/electrical changes.
What area of Brum is it? We work up to the SW edge of city and consistently see minimum of 4-10% growth on our patch. Demand is incredible at present and 3beds are fetching £750pcm minimum, we have let three recently at £825.
Stewardson Developments Ltd.
Burson Land Ltd. & Jennings & Gilchreaste Ltd.
Follow me on twitter - @philstewardson
Thank you all for your feedback it is greatly appreciated.
Thanks for your advice on the additional costs to consider such as voids. All my buy to let's are let to families on long term agreements and I hope this one will be too, so hopefully minimum void. I have based my numbers on an interest only mortgage but will probably go with a capital repayment, interest only makes it easy for others to analyse deal and clearly see profit. I got the 2.5% interest rate from my broker, there are a few lenders that have less than £300 upfront fees that offer 2.5% rate at 75%LTV.
Thanks for your advice and positive outlook on the Birmingham market. The house is in Castle Vale, which is not the best of areas but the rental demand looks good and the numbers work. What is your opinion of this area for my plan and what kind of capital growth do you envisage we will see in the next few years? I hope this area and all of Birmingham continue to see decent levels of growth.
I have a good builder that has done alot of work for me in the past on my house and my mother's. He has visited the house and costed up the job including materials. It will be a full refurb, plaster, bathroom, kitchen, tiling, electrical sockets and spotlights, flooring and decorating. It's a reasonable amount of work but we have a good agreement and hope to work again soon hence the good rate.
I am very keen to do more projects like this in Birmingham, depending on how I get on with this one. I shall try and document this refurb and specially the valuation I get in the end as Vanessa suggested.
We are the other side of town from you, I dont know Castle Vale. We are confident in our favourite areas we will continue to see a minimum of 5% and possibly even 10% growth......Its been 10% consistently for past 5yrs. This does mean its very difficult to find projects though as owner occupiers are driving the market up and and paying crazy prices for properties needing work, they are so desperate to get into the areas they can only afford by buy wrecks.
Other areas we buy i am sure we also see 3-% increases though too.
Could you not use the new Refurbishment Buy to Let with Precise that way you would know what it would be worth beofre the works as the valuator would tell what they think upfront ?
I am sure you are right and I've read good things about the rental demand for 3+ bedroom houses around Birmingham. Thanks for your thoughts.
I would have considered Precise but as I will be financing the purchase and renovation myself there is no need to, also I think I can get a better rate on the buy to let mortgage than the Precise one. It is good that this kind of product is available and may need it in the future.