Listen to this episode below:
Hey Property Insiders, and welcome back to the end of another month. The one downside to taking a break from our regular interviews in order to do these monthly property updates is that it makes me very aware of how quickly the days, week and months are passing by.
On the positive side though it gives me real motivation to make sure I’m pushing our own property investing forward so that I have something interesting and hopefully valuable to share with you.
It’s why we decided to do these updates after all. It’s not to try and show off about the houses we’re buying or the income we’re generating, because let’s be honest, I interview a dozen other investors every month who put our own portfolio to shame. The reason we decided to do them is to give some real world insight into what progress can be made by a couple with a reasonable income, some free time, and a lot of determination. I’ve taken so many direct lessons from our guests that have shaped our strategy and allowed us to make leaps forward in our investing, and we’ve also invested in growing our network and educating ourselves.
It all seems to be moving us in the right direction. Prior to 2015 we’d bought an average of about 1 property per year which gave us some great additional income as a side business, but since I started taking it more seriously we’ve bought 3 properties in the first 6 months of the year and will hopefully do another 3 by the end of the year.
Simon joined us again this month, and will continue to for the next few months to answer our property tax questions.
As you’ll all know, Simon is the founder of the UK’s premier accountancy firm specialising in the UK property market. You can learn more about his own property journey back in episode 18 of the Inside Property Investing podcast, but during this episode he gave great tips on how to reduce VAT expenses on property projects.
He also answered a number of questions from our guests, so if you need a tax or accountancy question answered, get in touch with the show and we’ll make sure it gets answered in our next monthly update.
This Month’s Audience Questions
1) When buying rental properties as a couple, if they’re in different tax brackets can all of the renal income be attributed to the lower earner?
2) When buying property using loans from friends and family, what’s the best way to structure these deals when the lender is getting a fixed return on their money?
3) If flipping properties through a limited company and you want to add some of them to your personal portfolio, what’s the best way to sell or transfer them into your own name?
Find out the answers to all of these questions during the show.
An Overview of June
A lot of our time has been focussed on our own house which is really close to completion now, but in addition to that we’ve got the repossession project on the go, we’ve had an offer accepted from one of the motivated sellers I mentioned at the end of last month, our single let is now ticking over nicely and giving us a reasonable income, and we’re really excited about a commercial to residential development we’re doing our due diligence on at the moment as well. Before we get too much into the details of these though, let’s take a minute to thank our sponsors.
Want to join my Mastermind Group?
So one thing I’m really passionate about changing over the next month or so is the people I spend my time with. Not that there’s anything wrong with my friends, family and colleagues, but one thing I hear time and time again from our guests is that a huge part of their success is down to spending more of their time surrounded by people striving for the same levels of success they are and even ideally those who have already achieved massive successes.
I’ve heard it cited as one of the main reasons for peoples success enough times now that I’m ready to do something about it, which is why I’m going to be starting a very small, very focussed property mastermind ground where half a dozen of us get together twice a month to help each other with our biggest problems and make sure we’re moving in the right direction to achieve our goals. So I’m looking for 5 other people who love property and are ready to make a real commitment towards it changing their lives. If you have some experience with property investing and are already taking action but want to be part of an amazing group of people to brainstorm solutions, share knowledge, and hold each other accountable then we should probably have a chat to see if this makes sense for you.
There’s only room for a small number of people as I want the group to really get to know each other over the coming months, but if you’re interested in fortnightly sessions to share progress, get solutions to your obstacles, and make sure you’re achieving your goals, along with ongoing support via an online forum, face-to-face meet ups a couple of times a year and exclusive trainings from some of our best guests, then go to insidepropertyinvesting.com/mastermind to find out more about what I’m planning and to get in touch.
But getting back to our specific progress over the last month, the biggest success was getting an offer accepted on a property from a motivated seller that’ll get us another HMO to add to the portfolio. I can’t go in to too much detail until we’re closer to completing on it, but if you remember from the update at the end of May I mentioned two leads that we came across. One was from a sourcer who had a conflict of interest and passed it over to us, but the property didn’t suit what we were looking for and within a few days they’d accepted another offer through the estate agent it was on with anyway. They can’t all be winners, and we at least got a bit more experience speaking direct with vendors and trying to understand their situation.
The second lead was through a family friend who had been posting about their house for sale on Facebook for months. It wasn’t until we got back from a networking event and Victoria was scrolling through her news feed that the ball dropped with her and she turned to me and said “you know these motivated sellers? I think I’ve found one”. It’s funny and just goes to show that unless you know what you’re looking for they can pass you by without even realising, but as soon as you open your eyes you start to find them everywhere.
So we got in touch and went to see the house, which is a 3 bed end-terrace with 2 large reception rooms. The owner was keen to get rid of it as he’d already moved house and didn’t really want to be a landlord. It made sense to us as a small 4 bedroom multi-let so we made and offer of £82,000 which will cover his mortgage and give us a good addition to our growing long term portfolio. It needs £10,000 spent on it but it’s generally in pretty good condition so assuming we can complete by the end of July and get the work done by the end of August, it should be fully tenanted in September and generating £1,500 monthly rent.
After our costs it’ll net over £600 a month, £100 of which we’ll put through the letting agency as a management fee leaving us £500 a month profit. We should also be able to refinance it after 6 months to get most of our money back out of it, making it a very decent return on investment.
Our first step to recurring income
The tenant moved in to the little 2 bed terrace we couldn’t sell on time as well, just after the last update. We went to visit her a few weeks after she moved in when the remortgage valuation was getting done and she’s transformed the place into a really nice home so it seems she’ll be happy there for a few years at least. The valuation came back at £115,000 which is exactly what we hoped for, and it’ll give us around £15,000 back out of it to put into the next project. It means we’ll only have £10,000 left in the property, and I mentioned last month that would give us about a 24% ROI but now we know the exact figures the ROI is actually over 30%.
The rent is £600 a month, and our costs break down as follows:
£58 for the management fee
£30 for landlords insurance
And £248 for the monthly mortgage payments giving total monthly expenses of £336 and a total monthly net profit of £264.
Obviously some of this will be eaten in to in future for voids and maintenance, but we’re happy with that level of income on a house like this. We should have had that £15,000 from the refinance already, but the conveyancing seems to be dragging on so it’ll probably be another week or so before the cash is in the bank.
We’d obviously just completed on the repossession last month as well. To be honest not much has happened with that since we got the keys. We’re waiting on the architects getting back to us with the drawings for the new layout as it needs some creative thinking to get the 5 bedrooms and two bathrooms into the space.
I’ve been to the house several times with the architect, builders and our investors to show them round and everyone is excited about the project. We’ll get in to start the strip out in the next few weeks and again hopefully have this one fully tenanted by the end of September, giving us another £500 per month net profit.
Cashflow can be a killer!
The other reason not much has happened with that one is that Victoria and I are working every hour of the day to get our own house finished. We were originally supposed to be in by the end of June, then pushed it back to mid-July, and have finally settled on July 18th for the big move. It’s really coming together now but cashflow has been a major issue this month as contractors are wanting paid and we’ve got two big sums of money waiting to come in from the refinance of the terraced property and the bridging loan on the repossession HMO which both seem to be taking forever.
It’s definitely not the right way to do things, but interest free credit cards and overdrafts are invaluable when you’re trying to juggle as much as I am, and at the end of the day, if the banks are happy to give us free credit then who am I to say no?! It’s a calculated risk and I wouldn’t openly recommend others to use debt to fund properties, but I know plenty of people who do it and we’ve done it very successfully in the past before as well. Just be very careful to know you can pay off the balances before interest becomes payable otherwise it’ll be a very quick downward spiral into more debt and all the troubles that can bring.
The next deal?
The final thing worth mentioning is the commercial to residential deal we’re just starting to explore. We’ve been looking for one for a while and even had a few offers accepted but they’ve fallen through for various reasons. I think we’re on to a winner with this one though – it’s a big old office building that’s ideal for conversion into an 11 bedroom HMO. The total cash investment will be in the region of £180,000 but working through the calculations from Lisa Orme’s episode on how to value licensed HMOs, we should comfortably be able to pull back out all of our cash and based on the GDV of the building, and it should generate in excess of £2,000 net profit per month if we can pull it off.
Obviously financing a deal like this is going to be the main challenge, so we’re currently in talks with our existing investors to see what interest there is from them to get involved, but we’re also talking to Bethan Jenkin’s company Crowd Lords to look at crowdfunding as an option to raise the capital. If any of you are interested in finding out more about this specific deal or any of the others, then we can have a chat as well to see if we could work together on it.
So the focus for the next month is to get our own home finished and move in. That’ll take a lot of pressure of us. We’ll get started on the works for the repossession HMO and hopefully complete or at least be close to completing on the smaller HMO deal as well. Then it’s a case of completing our due diligence on this large commercial deal and investigating the different options we have to finance it, and finally I’m going to be speaking to all of the people interested in the mastermind group I’m excited about setting up.
Again, if you want to find out more about that if you think it might be good for you to get involved with, then you can find out more info at insidepropertyinvest.com/mastermind. And if you’re interested in more info on the commercial deal then you can send me an email.
Even just talking through that makes me excited about everything we’ve got going on now. Things are definitely going in the right direction for us and I hope they’re doing the same for you. Good luck with everything you’ve got going on in July and we’ll see you next time Property Insiders.
That’s it for another month. I wish you all huge success in whatever strategies you’re following and if I can be of any help you know you can reach me on our facebook page, in the comments on this page for this episode, or email me through our contact page.
See you next time property insiders!