Running their own successful electrical contracting company, Joe Lowton and Matthew Davies had always been exposed to property, but they didn’t have the knowledge to get started.
Background
In 2017, wanting to protect themselves against the volatility of the construction industry, they decided to take action. ‘In 2017 we spent the best part of a year informally educating ourselves by reading every book that we could get our hands on and discovering the wonderful world of podcasts,’ Joe says. ‘But we knew that the only way to truly get started would be to pull the trigger and dive right in.’ Then in 2018 they took the plunge and sourced three properties: a four bed mini HMO, a flip project and this buy-to-let.
The property
Joe and Matthew were alerted about the property by the agent who manages their four bed HMO, as another potential mini-mo. It was located one mile out of Wigan town centre, with great transport links and several schools nearby. ‘The transport links will be bolstered by Wigan North Western’s role in the HS2 project, which will see the journey time to Birmingham cut to 35 minutes,’ Joe says.
‘The property was extremely tired and just generally dated, but it was solid fundamentally and we knew that we could pay the vendor a price that they would be happy with and it would still leave us room to make a profit at the other end,’ Joe says.
‘Our intention at the purchase stage was to pursue the HMO strategy again, but during the conveyancing process we noticed a number of rooms had come on to the market within the area and that they were hanging around a bit longer than we felt comfortable with.
‘Having committed to the purchase and not wanting to damage our relationship with the agent, we decided that we would refurbish the property and flip it on to a first time buyer. We ran the numbers and forecasted a healthy margin with this strategy.’
The refurbishment
Joe and Matthew had to completely renovate the outdated property. They gave it an electrical upgrade and replaced and repositioned all the radiators. They also replaced the front and back doors, under-boarded all the ceilings to the first floor. They re-plastered the first floor too. They replaced the kitchen and bathroom and added a shower room to the first floor. New decorations and flooring were installed throughout. Internal doors were replaced, so were the skirting boards and architraves.
Interior inspiration
Although a self-confessed novice when it comes to interiors, Joe approached the design of the property through the eyes of his target market, a young working family. The aim was a quality finish at an affordable price. ‘We used mid-range products that would be functional, attractive and hard wearing. We were mindful not to overspend on areas that won’t see a return, but we were also keen not to scrimp by using really poor fixtures and fittings,’ Joe says.
‘We opted for neutral walls and floor coverings that appeal to the tastes of many people and allow them to move in to a house in walk-in condition, but at the same time offer something more modern and appealing than the magnolia box.’
The challenge of changing strategies
Joe says that the greatest challenge of the project was changing strategies several times throughout, due to factors out of their control. ‘This highlights the importance of having more than one potential exit strategy,’ he says. ‘Having moved from HMO to flip, we sold the property within 2 days of it being listed on Rightmove, but unfortunately we were dealt a blow when the buyer’s mortgage valuer down-valued the property.
‘We refused to sell for that price and put it down to the uncertainty that has recently crept into the market. We decided at that point that we would rather retain the property for our long term investment portfolio.’
Out of these challenging moments, some of Joe’s best achievements emerged. ‘We submitted a buy-to-let mortgage application at the same value as our initially agreed sale price and had the valuation back at the agreed figure,’ he says. ‘We have recycled most of our initial cash and achieved an ROI on the funds left in the deal of 52%.’
Whilst Joe and Matthew never intended to pursue so many strategies at once, they have no regrets about spreading themselves wide. ‘We like having diversity, just so we’re not completely exposed to one area of the market,’ he says. ‘We’re mindful of taking the approach of doing any deal that makes sense.’
Costs
Key costs:
Purchase price £78,000
Stamp duty £2,340
Refurbishment £18,000
Fees £1,700
Other bridging fees £1,695
Broker fee £499
TOTAL COSTS £105,181
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Revaluation £124,000
LTV 80%
Monthly rent £650
ROI 52.38%
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What’s next for them in property?
Whilst Joe’s and Matthew’s initial focus was HMOs for cashflow reasons, they now have a more open-mind approach to future projects. ‘We have realised that cashflow isn’t our number one objective as we love our electrical contracting business and don’t plan to take a back seat from this anytime soon.
‘We aim to complete a minimum of four projects this year which are likely to be another mini HMO, two single-lets and another flip project. Long-term we would like to use our construction and project management skills to move-on to small development projects such as flat conversions.’
Further information
Joe_W_Lowton – Keep up-to-date with the duo’s ongoing projects on Instagram.