We’ve finally tallied up the costs for Churchgate, our 9 bedroom commercial to residential HMO conversion so I thought I’d share some of the details on where our money was spent.
This project was about more than money to us, as some of the biggest issues we faced were non-financial – particularly around the planning process and the delays that caused us.
But 18 months after completing on the purchase and with a fully tenanted house, it’s funny how the success or otherwise of any project has a way of bringing the conversation back to how much we spent and how much money we left in the deal.
If you want a PDF with every line of our project costs, you can access it here along with the rest of our free HMO resources.
Different Cost Categories
For the sake of making it easy to see where we were spending money, we set up our chart of accounts to replicate the way we’d budgeted the project with accounts like ‘cellar conversion’, ‘plastering’, ‘electrical work’ and so on.
It may not be the typical chart of accounts used in our end of year accounting, but it makes it a lot easier throughout the project to see how your actual spending tallies up with your original budget.
We also split the costs between proper renovation costs like those mentioned above, and other non-renovation costs associated with the property but nothing to do with the conversion to residential, like business rates, legal expenses and so on.
Let’s start with the non-renovation costs as there are significantly fewer of these, but you’re still likely to incur most, if not all of them in the process of converting a commercial property into residential.
The main cost was obviously the purchase of the building, which in this case was £210,000. At a little over 200 square metres, this is roughly in line with the £100 per square metre average we see for unoccupied commercial property in our area of the North West.
Included in the Buildings account here are also the stamp duty costs. Many eagle eyed investors will notice the stamp duty looks a little high for a commercial property with a purchase price of £210,000. Well this project was a little interesting as we paid stamp duty twice – once at the start by the investor when buying it in his own name, and then again when we transferred it to a limited company.
Obviously Clause 24 played a part in this decision along with an element of uncertainty about the best way to structure the deal, and whilst the result was several thousand pounds being added to the non-renovation costs, in the long run moving it to the limited company ownership should save us a chunk of money. Time will tell!
Business rates are another big part of your project costs to factor in when converting commercial property to residential. This might not always be the case in the future as legal cases like Newbigin v Monk provide some potential rates relief to residential developers, but the recommendation is always to pay the rates bill until you get written confirmation that your building now qualifies for council tax.
We found a way to reduce our bill from £12,000 to £7,000 which we explain in detail in this post.
Then we had insurance and legal costs (fairly standard on a project like this), and a small amount for Xero accounting software to keep track of all these costs (£20 per month).
All in then, purchase and non-renovation costs for a £210,000 property were a total of £232,455.22, before we even started thinking about converting it to residential.
The really interesting stuff starts when we look at the actual cost of renovating the property though – taking it from an office which had sat abandoned for 7 years and transforming it into the most luxurious young professional co-living house in the area.
Don’t get me wrong, there are a host of lessons we learnt from this project that will ensure the next one runs quicker, smoother, and at a (slightly) lower cost, but the end result is still untouchable by anything else in the local market.
There are a few ways we can look at the different costs incurred, but I figure alphabetic is as logical an approach as any. We bundled all of the costs into 18 broad categories so there’s not a huge amount to go through, and not all of them require a great deal of explanation.
Cellar Works – £21,935.99
The building in question was spread over 3 roughly equal floors, meaning each was around 70 square metres. The cellar conversion then was actually one of the more reasonably priced jobs.
We used a single contractor to do the tanking, drainage channels, sump, studding and plastering, to ensure there were no disputes about the system used for damp proofing or how it was installed.
Our other trades (electrics, plumbing etc) worked to first and second fix the cellar around the team responsible for damp proofing, as I didn’t want our M&E installations completed by multiple teams.
We did consider using the cellar team for other work on the project, but whilst their price for the damp proofing was good, their quotes for other work was significantly higher than others, for example a quote of £18,000 for plastering which cost us around £8,000 in the end.
Decoration – £9,269.00
Decoration isn’t the most interesting item from a price perspective (although probably deserves a post on some of our interior design choices), I just wanted to mention that in our project this price actually covers a lot more than painting.
The Polish team who do our strip outs are actually decorators by trade and are the hardest working team we ever have on site. So much so that they’ll do virtually anything we ask of them, including in this case helping out with the tiling, removing the railings from the external windows, clearing the site in time for carpet fitters and so on.
In fact a total of 829 man hour were put in by this team at a cost of £10 per hour (basically a squad of 5 for the best part of a month). The rest of the costs here were for decorating materials and supplies, costing around £1,000.
Electrical Work – £10,489.17
The electrical work is split broadly 70/30 between the rewire of the house by our main electrician, and the installation of a Grade A fire alarm system. The £7,000 for the main electrician included our standard spec in each bedroom (4 x double sockets, single pendant light, extractor fan, LED bathroom light, TV point), full rewire of the rest of the building (we had a 3 phase supply so the consumer unit was pricey), security lighting, CCTV around the exterior, and CAT-6 cables to the communal areas for WiFi boosters.
Due to the size of the building (under LACORS, our building was classed as a ‘Bedsit-type HMO of three or four storeys’), we had to install a grade A LD2 system which is a step up from the Grade D system required in HMOs of no more than two storeys.
We tend to see the price of the Grade A fire alarm system pretty fixed around £2,500 – £3,000, whereas obviously the electrics vary a lot more depending on the size of the building and the extras like CCTV.
External Works – £12,923.75
Outside the property there were only a few areas that needed work, but they weren’t cheap. The whole roof was knackered after being left to rot for almost a decade, so one of the first jobs we instructed was for a whole new roof. Including scaffolding and around £1,000 of slate that needed replaced, the total cost for the roof was £8,650.
On top of that, we needed to replace a lot of the brickwork above 10 of the windows with new lintels, at a cost of £350 per window.
We then had some smaller costs for bricking up one of the back doors and hiring a tower to take of the metal rails over the windows.
Flooring – £8,207.57
We went for 3 different flooring options throughout the house. In the new cellar conversion where all our communal space is we had to ply line and screed the subfloor before laying a highly durable vinyl plank throughout. This was done by professionals as it was a massive area and will take a lot of abuse.
We put a similar but lower cost vinyl down in the bathrooms, and saved on fitting costs by using my sweat equity. We were over budget by this point so I was doing what I could to keep us roughly on track.
Then in the hall, stairs and landing and the bedrooms we fitted carpets. We went for a neutral grey in the bedrooms to fit with the colour scheme, and a coarser grey stripe in the hall, stairs and landing as again these areas will take a lot of abuse and the stripe hides dirt a lot better so it won’t look tired as quickly.
Furniture etc. – £6,336.08
Our furniture costs were basically split between Fusion Furniture Solutions and Ikea. The bulk of the bedroom furniture came from Fusion, at a cost of less than £500 per bedroom for a double bed, mattress, chest of drawers, bedside table and wardrobe, delivered, installed and all rubbish removed. I know they sponsor the podcast, but I think that’s an amazing deal!
Then we got a few extras from Ikea including sofas for the communal spaces, a dressing table for one of the bedrooms and some furniture for the kitchen.
The rest of the expense was for dressing items and accessories that we leave in the house including crockery, cutlery, small appliances, light shades and so on.
We saved a fortune on a dining table because Victoria talked me into making one from scaffold boards. That doesn’t have much bearing on this, but I just wanted to brag about it!
General Expenses – £2,551.72
This was a bit of a catch-all for things that didn’t really fit into another category, and all the random receipts we collected for things like sandpaper, polyfilla etc.
The biggest expense in this group though was for portaloo hire which we had on site for about 7 months and cost us around £100 per month including a weekly clean and service.
Internal Structural Work – £3,270
There was very little in the way of building work required in the property. One structural wall came out in the cellar which was included in the price of the cellar works, and then we took a chimney out to give us more space in two of the bedrooms, which is where the bulk of these costs come from.
Joinery – £11,590.96
Despite not needing much structural work, there was a lot of internal joinery required to divide the space up into a 9 bedroom HMO. Stud walls for all of the en-suites, and dividing the larger rooms into multiple bedrooms; casings for all the new fire doors; second fix doors, skirtings, architraves etc all added up over the project to a little less than 10% of the total costs.
Kitchen/Utility – £6,938.23
We spent a little over £3,000 on the units for our kitchen and utility room using Magnet and the LNPG discount. This provided plenty of storage for the 9 tenants’ food, all of the cooking and cleaning stuff we provide, plus a big island unit for casual dining, extra storage and food prep. We then bought the worktops separately which cost around £700.
On top of that were around £2,500 for appliances – 3 fridge freezers, 3 washing machines, 2 ovens and 2 hobs.
Planning Application – £5,593.35
The bulk of the cost here was to the architect for site surveys, drawings and managing the planning application process, then we had additional costs for the council application fees, and we put out costs for our private building regulations inspector in here as well.
Plastering – £7,644
I mentioned earlier that we were quoted almost £18,000 at one stage for the plastering of the building. Whilst there was a lot to do we thought this was crazy so went back to our usual guy who came in significantly cheaper.
The correct price was probably somewhere in the middle as the guy we went with walked off the job towards the end after realising he’d priced it too low. We managed to get him back after agreeing an additional payment, but the quality of finish was pretty terrible and a chunk of our decorating costs were incurring in the process of making good some really rough walls.
Plumbing/Bathrooms – £24,895.77
Our plumbing costs for bathrooms and heating was the biggest single expense incurred on the project, but when you look at our plant room it’s not really a surprise.
There were 8 bathrooms installed in total which needed first and second fixing and a lot of new soil pipes, as well as the cost of buying all the bathrooms suites.
We then had 2 unvented cylinders, a large expansion vessel and 2 x Vaillant boilers installed for the central heating, plus all the pipework for that and the roughly 25 radiators/towel rails throughout the building.
Skip Hire/Waste Removal – £1,758
Our waste removal costs are pretty self-explanatory given the amount of materials and rubbish that came out of here. In reality this was probably closer to £3,000 but a lot of skip companies only deal in cash and I’m terrible at keeping track of cash receipts.
Strip Out/Labour – £1,575
This was another cost for our Polish dream team, and basically involved removing all wallpaper, flooring, stud walls that weren’t staying, wet ceilings caused by the leaking roof, and all the old plasterboard, flooring and tanking from the cellar ready for the builders to start.
Tiles/Tiling – £2,235.58
With a lot of bathrooms came a lot of tiling. We found some great deals on tiles from Wickes and B&Q at around £10 per meter for both subway tiles and larger grey concrete style 300 x 600 wall tiles.
Part of the tiling costs are included in our decorating category as they never split out the costs, so again this cost would in reality be a little higher, but those extra costs have been included elsewhere so will be reflected in the total.
As a rule of thumb, we tend to pay around £25 per meter for tiling, including materials, or £20 per meter plus materials.
Utilities – £496.27
Thankfully the gas supply had been capped in the property so there was no charge for gas during the build, but the electric was still connected and as a commercial property there was a standing charge every month regardless of whether we actually used any electricity.
We also included the cost of the TV license for 12 months here (£147), which is really an ongoing cost but was paid for towards the end of the renovation so is included here.
Windows/Doors – £8,203.16
Another big chunk of our expenses was spent restoring/replacing the single glazed sash windows at the front of the building. The building is in a conservation area, so replacing them with uPVC wasn’t an option but we couldn’t leave them single glazed for obvious sound/thermal insulation reasons.
Around £6,500 was spent on the front windows to bring them up to a good standard, and a further £1,000 was spent replacing the back door with a secure composite door, and making one of the cellar windows a fire escape window.
We also spent the best part of £500 on a master key system to add to our existing suite so that we can access every room in every one of our properties with a single key.
We learnt a hell of a lot from this project, but when it comes specifically to the costs there are a couple of things I wanted to call out:
First would be that everything will always cost more than you expect on commercial to residential conversions. There are so many uncertainties and unknowns with these projects that you need to be prepared for costs increasing from your initial projections. When you add in all of the renovation costs, plus insurance, business rates etc, the conversion cost per square meter on this project was a little over £700.
In a best case project I’d say this could be done for £500 per square meter, but it could easily go up to £1,000 per square meter, comparable with building something from scratch!
The second thing is that as the size of your project scales up, so do the ancillary costs. We spent as much on planning, business rates, stamp duty etc. as we’ve spent on entire projects in the past.
So when you’re budgeting your renovation costs you need to make sure you take all of these costs into consideration as well otherwise you’ll be in for a shock (we picked up on some of them at the start, but were definitely shocked at the total cost incurred for them).
Finally, and this goes for any project, not just commercial to residential conversions, finding good trades is the most important part of delivering a successful project. We had a few nightmares with dodgy plasterers and AWOL tilers which added costs in terms of additional time on the project, costs to put their work right, and a general headache from a project management point of view.
Ultimately though I’d say this project is a massive success. We battled through the stubborn local councilors for 12 months, then completed the renovation in around 7 months, resulting in a project with a total cost of just under £380,000, and a valuation of £450,000.
If you want a PDF with every line of our project costs, you can access it here:
Many thanks for sharing this Mike. The details you have put in your worksheet/PDF is astonishing!
Thanks PD! Just trying to share as many of our project details as possible to help other investors understand the reality.
tried to get breakdown emailed, nothing came through?