CASE STUDY: Two-bed terrance, Chorley

It may sound like a straightforward project but the arrival a new family member, coupled with doing the majority of the work themselves and trying to keep the budget super tight made this a challenging renovation for Ryan and Hannah Pearson

OTH: Tell us a bit about you and your property investing journey so far...

My wife and I live in the North West. We both work full-time with two young children so life is pretty hectic but we are keen to build a property portfolio and this is the first property investment for us. The main objective for us is to build additional revenue streams to enable us to become more financially independent in the future and enjoy more time with family and eventually escape the 9-5! We mainly learnt about property investing through online research and following Facebook groups. I’ve read a lot of personal finance books which also cover property investment. I think the key part is making sure the numbers stack up, and like any investing you need to take the emotion away from it. We were both keen to invest in property and my wife trusted me to make sure the numbers stacked up before we made an offer on the property.

I’m a chartered accountant which really helps me appraise the numbers. As an accountant, I would have to say that the numbers are key to success.

OTH: Please tell us about the project and how it was sourced?

We were looking for a property that needed some TLC so that we could do the work on it ourselves and add as much value as possible. I found the property on RightMove. Our plan was to buy, refurb, rent and eventually refinance when the time is right, for the next investment.

We chose to buy a rental property in our hometown, partly because we know the local market very well and also just for ease. The area is Chorley near Preston, Central Lancashire.

OTH: Why did you feel this property was a good prospect?

The property had been let to a long-term tenant for a number of years and recently had some roof issues that had caused water ingress. The roof issues had been resolved and the property was structurally sound but was in desperate need of refurbishment and modernisation. Given the condition of the property and that fact that the work needed was largely cosmetic, we knew we could add value to the property and that it would achieve much better rent once refurbished.

OTH: How did you decide or manage to finance the deal?

Interest only BTL mortgage. We used a broker who was really helpful and we timed it very well inadvertently, as we secured a BTL mortgage at 1.95% on a 5yr fix just before the rate hikes! To be honest, securing the mortgage was pain-free. Our broker did a great job.

OTH: Talk us through the plans, the process and the end result?

The property is a two-bed terraced property with downstairs bathroom. The condition of the property was very poor. The kitchen and bathroom were probably 30+ years old and barely functional, so we knew these would need replacing. The walls downstairs were in poor condition as there had been damp issues due to previous roofing and draining issues, so we decided to reskim all the way through downstairs as well. Upstairs needed less doing so we replaced the carpet and fittings, and repainted.

OTH: Please provide details of any challenges or unexpected roadblocks that you faced and had to overcome during the renovation process?

We were keen to keep the renovation costs to a minimum so as well as completing all of the work, apart from gas and electric ourselves, with help from family at times, we also looked for the best value in materials. For example we bought a second-hand kitchen off Facebook for £750 including the oven and sink, and we bought inexpensive floor tiles to do the entire downstairs. The flipside to doing it ourselves was time. Almost everything took us twice as long as we expected given we were learning as we went.

OTH: Are you self-managing the property? We are using an agent to fully manage the property for now given it’s our first and we are very time poor at the moment!

OTH: What lessons, key learnings and philosophy will you take with you from this project to future investments?

In future, we would not do all of the work ourselves. Whilst we saved lots of money, it took us far longer than anticipated and I missed out on a lot of time with my family. So next time, we will budget for some of the work to be done by professionals and accept a lower return. That said, we have learnt lots of valuable skills along the way so we are glad we did it ourselves for the first one.

OTH: Oh that’s interesting how did you learn as you go? What sources where you learning from?

YouTube and also with help from family e.g. my father in law taught me how to plaster. We also had our second child during the renovation so we stopped work for a few months, which delayed the process further.

OTH: Wow, so a new-born, lack of sleep, another child and you also had a renovation to finish! Crikey that must have been an exhausting time. How on earth did you manage to juggle that and also we assume a full-time job? It was very tough, both for me doing the work at every spare evening and weekend, and for my wife looking after both kids and taking care of everything else, but you get out what you put in!

OTH: How do you feel about the end result and how it works for you as part of your portfolio or overall investment picture?

We are really pleased with the end result. It was a learning curve so, whilst it consumed a lot of our evenings and weekends and its been physically demanding, we have learnt so much along the way and created a good quality, durable living space. We were lucky to secure a cheap mortgage before the rate hikes so the numbers really stack up and we have built a decent amount of equity with our first project. On to the next!

THE NUMBERS

Purchase price £98K (around market value for its condition)

Fees and Legal £4,000

Renovation estimate £5,000

Renovation actual £7,000

Estimated ARV N/A

Actual ARV £135K

Rental amount PCM £650

Net cashflow PCM £410

Cash left in Deal £35.5K - £28K (available when refinanced leaving about £8K in deal)

ROI 14% (Annual)