Today we're going through our first property deal. We share how we found the deal, how we funded the deal, what challenges we had, how we overcame them and how the property is performing today.
Here's a video version of this post, if you prefer:
Nowadays we're mainly doing house conversions into shared houses but this is the deal that got us started.
How did we find this property?
We have gone on to 100+ viewings, a lot of smelly houses, rundown, walk-in conditions. We have been driving around the streets in that area, so we knew the area fairly well. We have done numbers on several other property deals as well and we know how a good deal will look like.
How did we know that this was a good deal?
In this area, properties in a good condition were selling at around £60,000. This property was on the market for £45,000. We knew that there was a difference of around £15,000 between what the seller is asking for and what a good condition property looks like. When we went to view the property, we realised there was more work to do and we are also looking for a bit of a profit margin. You always make money when you buy, not when you sell. Our maximum offer was £39,500 for this property. We didn't think that he would jump at that offer but it has been on the market for quite some time. They originally asked for more for that property but it looks like no one was interested, it's just not moving. It wasn't worth as much as they were asking for so we came in with our offer at the right time. The vendor accepted the offer after we put in the offer and we're on to our first deal. We also realised that the price was secondary for the vendor which at the beginning we didn't really think of that. The vendor reduced the price and that showed us they really just want to get rid of the property. It
wasn't suitable for a first-time buyer because it's not walk-in condition.
What are the challenges?
First of all, we don't have a refurb experience at all. We were estimating our refurb based on what we can see. We put in a ballpark figures, and also went in with a builder that was recommended within our network. We also saw a couple of projects from them, that's where we knew what they have spent on other jobs. We were fairly confident in how much the refurbishment will cost although we haven't carried out a refurbishment. They were way more experienced than us at that point so we managed to get them in to quote on the job. It's fairly similar to our estimate and we got them in to do the works afterwards.
We learned a lot from them, by leveraging on the experience and knowledge on how to refurb. That was really needed, luckily we had a really experienced team for the refurbishment. There were a lot of details that we didn't think about. We thought it's all about knowing your figures but you need to know the details. You need to be able to tell the builder what you want because it's your property, it's not the builder's property. Make sure you leverage on other people's experience. There are people out there that who know way more than you but your job is to assemble all the knowledge and bring it together to your project.
The next big challenge that we had back then was we didn't have the funds to do the deal. Although we know that buying a property for investment is a good form of investment, we don't have enough funds. We approached our friends and families to fund the deal as well as a bridging lender. For our friends and families, we offered them a fixed return on their funds and we will return them their money after refinancing the property. When it comes to the bridging lender, it's our first first time using bridging as a form of lending. Many people have said that it's so expensive, be careful, do your numbers well.
We did a video on "What to look out for when using bridging loan", do check it out!
The related blog post is here if you prefer the written version.
If you are thinking about using bridging loan at one point, I have a neat calculator that I could share with you here.
What did that property mean to us?
This meant we were in business. This was our first property in our property investment career and we haven't even bought our own residential. That is a mental block for a lot of people who say that you have to first buy your own residential property before you can buy a buy-to-let property. It's just not true. We bought a buy-to-let property first before we got our own residential mortgage. You need to have a good broker who can arrange that for you but it's certainly possible. We were feeling a bit anxious and also worried, "Are we doing the right thing? Is this the right property?"
At that time we are also working with mentors at that time and they pushed us to go ahead with this deal. We needed to start our clock ticking for doing deals. You will learn as you go and you have to start doing the first one. We have viewed so many properties, offered on so many of them. We have actually got offers accepted before this first deal and we had to let them go because we were so worried. It was so important for us to get started, also kind of a mindset shift for us to gain confidence in doing deals.
How is this property performing today?
We bought this property in the end at £39,500. We've invested around £12,000 in refurbishment to bring the property up to legislation. In the end, we got a revaluation on the property of £63,000. We were estimating a value of £60,000 but the market has picked up while we were buying it. That means on that remortgage, we could pull up most of our funds and now it's renting at £450 per calendar month. There are tenants living in there and it's bread and butter buy-to-let. We would do this type of deal every day of the week.
What are the learnings from this first property deal?
It's very important that you have a strategy. Before you buy, you need to think,"Am I going to do an income strategy? What is the demand in the area? Are you going to rent out to singles or couples or families or students? You probably need to view a hundred properties before you buy your first one. That for us was very important because we got to know the area and the agents so well. We knew the type of property that we're going for and it's all about finding the right property. You definitely have to get your ducks in a row, for example finances, solicitors, builders. Get everything prepared when you have an offer accepted so you are ready to go. You need to surround yourself with people who are more experienced. There are people out there who are way more qualified when it comes to building refurbishment, legals, mortgages. Leverage on their experience and their skills. It's also important to understand you make money when you buy. We always make sure that we have a buffer, even when properties values might go down. Because we have built in a buffer that makes sure when property values drop then we are not losing immediately. Add value to the properties, carry out some refurbishment works, make sure you've run your numbers properly and stress tested. Now are the times where you see if your stress test was big enough and you will be thankful when you do that next time something like this happens.
We have put together a checklist of things that you need to take note of before you start investing in UK properties. Check it out!
ELSIE AND MARKUS