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Here at DJF Asset Management, investing in small buy-to-let projects is the bread and butter of our work. Not only do we do this while we’re at work, each member of our team also works on projects like these in their spare time. We’re going to be talking about a project that was purchased back in March 2020 that has now been refurbished and tenants have moved in, with a refinance on the way in the next couple of months.
About The Property
This particular property came onto the market earlier on this year and coincidentally is just a couple of doors down from a property we already own. With that in mind, we’re already familiar with the street, the area as well as the potential rental and sales values because we’ve done all the research previously. The previous owners were looking in the region of £90,000, which in the end we settled on £85,000. With my current property a few doors down, the rental value on this one had been around £580 per month or a sale value of £110,000, so there was room for a little refurbishment for the property to rise in value. It was in great condition, but had a dated kitchen that was likely installed in the early 2000s so we’d planned a roughly £10,000 refurbishment overall.
Running Through The Financials
As always in these case studies, we’re going to run through exactly what all the cost implications of the purchase and renovation were, as well as any bumps in the road that cam along. The sale was finalised in March of this year at the very beginning of the coronavirus pandemic. We purchased for £85,000 and had additional fees of £2,650 for stamp duty, £1,200 legal fees and the expectation for the renovation was going to be around £10,000. We replaced the kitchen as this was the main issue, from one with wooden features into something a little more modern. The whole project should ordinarily have taken around 6 weeks, but due to COVID-19 took instead around three months in total. Total costs put together, this came to roughly £98,850 and was mortgageable. We financed the project with an 80% mortgage plan and 20% deposit, this will be refinanced in the next couple of months once the new valuation has been done. We’re looking at arranging this for in the next couple of months, hoping for a £110,000 value at least, but hopefully closer to £115,000. As usual, the plan following this will be to refinance the property at the new value. We’re hoping to get around £19,000 back if we do get the figure we’re aiming for, with a new mortgage at between £88,000 – 92,000.
As we previously mentioned, as soon as the work was finished on the renovation, we had a new tenant move in. The rent is set at £600pcm with a £60 management fee, £60 operating expenses which are set aside and £260 in mortgage fees each month to be paid back. For this kind of deal where the value of the property is the same, you would need roughly about £30,000. This allows for the deposit, all fees and also a renovation budget similar to ours.
This is just one example of the projects we have worked on in our spare time here at DJF Asset Management! If you’d like to learn more, make sure you’re following us on our social channels to keep up with all of our content and any projects we’re currently funding and working on. If you have any specific questions about this deal, about our bridging services we offer or about a project that you are working on, make sure to get in touch with us either through our social channels, through email at info@djfam.co.uk or through one of our website contact forms.