Strategy: Refurb Nearly Finished, Can’t Sell Yet!

Richard Greenland

The refurb is nearly finished but we can’t yet sell to a mortgage buyer as there still is no management co. in place. I love buying leasehold flats as I can get great deals because they are far more prone to title issues than freehold houses. But then I have to resolve the issues and sometimes that’s not as easy as expected. You need at least 50% of the flats in a block to set up a Right to Manage co. (RtM co.) and there are four in the block, so we need two minimum.

In this case the landlord of the two flats upstairs doesn’t want a RtM co as he’s hoping to buy out Madelaine, owner-occupier of the other downstairs flat. Having no RtM co. means she could only sell to cash buyers and he wants to pick it up cheap. I don’t think he’s allowed for human nature though… being difficult over this and other issues means she’s unlikely to sell to him at any price!

Madelaine wants a RtM co, but not yet due to ongoing divorce settlement negotiations, if her flat to shows an increase in value that might the outcome.

We need to sell for at least £55K to break even and that’s about the most we could hope for from a cash buyer so why sell now? The figures (approximated as I haven’t finished the refurb yet) look like this:

Purchase price £36.5K

Spend on materials and other trades approx. £6K

My hours approx. £5K.

Notional value of business partner’s finance £5K.

Estate agent fees £1K

Legal fees and other misc. costs £1.5K

Total £55K

The full market value when the RTM co. is in place is probably £60 – £65K. It’s amazing how what looked like a 30% BMV deal suddenly looks less appealing when you add everything in. Amateur investors and some property ‘gurus’ are inclined to overlook many of the costs above and claim much higher profits than they really make. Finance can be the killer when using bridging or a light refurb mortgage with high setup fees. Also it’s unrealistic not to cost your own time.

I wouldn’t have done this deal except my new business partner suggested it would be more profitable to do many deals for small profit, than just one or two deals a year with massive profit. It makes sense – but only if you actually make a profit! The refurb has gone over-budget from £8K to £11k, partly because we did extra work soundproofing the ceilings and partly because my original guesstimate was a touch optimistic.

The other disadvantage of more marginal deals is they are more risky. The smaller the profit margin, the easier it is to make a loss. The old truism that high profit = high risk is wrong. The reality is high profit = low risk and low profit = high risk, unless you work in sufficient volume to play the averages and can afford to make a loss on the odd deal.

Another part of my strategy is always to buy properties that stack for both selling and letting. I’ve learnt this from observing the mistakes of others. I know several landlords with portfolios of over 100 units who were buying with no-money-down (NMD) finance before the credit crunch and a primarily buy-to-sell (BTS) strategy. After 2007 suddenly the value of their stock fell off a cliff so they couldn’t sell to get their money out. Since much of their stock was low-yielding it was no good for letting either and they were stuck with a massive monthly spend servicing their loans and insufficient funds coming in from sales and rents. Some went to the wall, some of the cleverer ones adopted strategies like selling lease-options to tenant-buyers to increase cashflow and are now doing well. All have been helped by low interest rates. The lesson for me was never to buy low-yielding units even if I intended to sell them, as you never know what the future holds and you might get stuck with unsellable units on your hands.

So on Friday I put an ad in Gumtree for a tenant at full market rent of £425 and got a reply the same day! A working tenant which we want as everyone else in the building is working, and she’s viewing tomorrow. A newly refurbed flat is a bit of a USP and she sounds perfect on the phone, but it’s unusual to get the right tenant first try. We’ll see.

Tags: BTL, BTS, management company, refurbishment, rich, RtM co, strategy, weston-super-mare
Posted in Repair Free Rentals on March 20th, 2012 | 2 Comments »

Our Highly Unusual Neighbour

Richard Greenland

I mentioned a couple of weeks back I was going to talk about the highly unusual neighbour next door to the flat we are refurbishing in Weston SM.

The first time I saw Madelaine she towered over me in skyscraper heels, wearing a tight black dress displaying a large and prominent bosom, butterfly-lashes and very big hair. I’m used to seeing such creatures-of-the-night in Bristol nightclubs, but not mid-morning in Weston super Mare! Over the following few weeks we had a couple more encounters in the communal hallway, but the next really memorable one was with her maid, Lucy.

I was busy working in the flat but hearing noises in the hallway took a look outside. There was a woman Hoovering in a black pinafore dress and black tights. I was worried I’d made a mess and Madelaine or the people upstairs had hired a cleaner. Feeling guilty I asked the woman who she was, or who had sent her. She indicated Madelaine’s flat, “The lady in there”. Then I noticed how tall this woman was, and that her hair was a black wig, and that she had an unusually deep voice… Madelaine later told me he sees her for one day every month to become ‘Lucy’ her ‘maid’.

Mistress Madelaine

When Lucy had gone home I asked Madelaine about him. She also talked more generally about other men, one of whom likes to be made to wear women’s clothing and sent on a mission into town to buy condoms etc. She also showed me her garage, which has been converted to a ‘dungeon’. There are all manner of devices in there, some of which look extremely uncomfortable. We spent about an hour chatting about what she does, it’s fascinating and slightly disturbing because it’s so strange to me. She’s been doing it nearly 12 years, she thinks the reason she’s kept going so long is that she’s very professional, treats it as a performance, is perceptive enough to realise when someone is too wrong and send them away, and has clear boundaries.

Personally I find it very hard to understand why a man would pay quite a lot of money to dress in a maid’s outfit and clean floors and toilets, or to be restrained and have pain inflicted upon them. My business partner was also concerned it might be an issue with tenants or buyers of our flat. It would probably be unsuitable for anyone with children, but it’s small, just 28 square metres, so children probably aren’t an issue. It’s more suited to single people or a couple. There are two sets of tenants living upstairs, they are so unperturbed about it all we’ve had some quite long conversations but the subject has never even come up.

Madelaine is at http://madelainedom1.com/

Tags: dominatrix, dungeon, refurbishment, rich, weston-super-mare, WSM
Posted in Repair Free Rentals on March 13th, 2012 | No Comments »

Refurbishing a Flat with Too Much Kitchen!

Richard Greenland

The last blog was about fitting the bathroom and the kitchen. I normally decorate before fitting the kitchen as it’s

Too much kitchen!

easier and less messy that way, but I fitted the kitchen carcasses and worktops first this time as the new plaster was still wet. I’m onto the finishing-off stages now, I’ve left the doors and end panels off the kitchen to make the painting easier, and I’ve done most of the tiling.

I did make one silly error in that I fitted too much kitchen! My other flats have all been two-beds or large one-beds with separate kitchens, so I’ve got used to them needing a decent number of units for storage etc. This is a small one-bed with a kitchenette in the lounge. Kitchenette being the operative word – not kitchen! Too many units take up too much space and can restrict the living area. In the first photo the kitchen carcasses cover two walls. However when I got estate agents in, they both said the same thing – the kitchen is too big, where are they going to put sofas and chairs or a TV? So three of my carcasses and the worktop that I’d just jig-jointed had to come out. Several of the electrical sockets also had to be moved. So a lesson learned for me.

Less kitchen

The second photo shows the left hand carcasses removed and the worktop re-fitted, three electrical sockets in the corner where there was only one, the tiling progressing and a length of white flex to supply the immersion tank. This is installed in the brown cupboard in the corner, which slots into a hole in the wall between the kitchen and bathroom. I did this because there are few other places to put it in such a small flat, and it needs to be high to generate enough water pressure. The 4” x 2” timber stud wall is strong enough to support the weight and lift it clear of the worktop space. I’ve been doing all my own plumbing up to now, but I got a plumber in to connect the immersion tank. There were four pipes coming out of it and no instructions. My usual position is that if any job is likely to involve a lot of chin-scratching or more than one attempt, I delegate it elsewhere.

I’ve also plumbed in the electric shower and done most of the tiling in the bathroom.

Tags: decorating, immersion tank, Kitchens, painting, rich, weston-super-mare
Posted in Repair Free Rentals on March 6th, 2012 | 1 Comment »

HELP

CATEGORIES

Archives

Strategy: Refurb Nearly Finished, Can’t Sell Yet!

Our Highly Unusual Neighbour

Refurbishing a Flat with Too Much Kitchen!

Click to Join Forum

VACANCIES

Pick a Topic

LATEST ARTICLES

Meta