Refurbishment tour Deptford

With works underway at my latest development in Deptford I've been inundated with requests for faces old and new to have a look around at the project in progress. I'm pleased to report that so far several visits have proven very useful and I was able to answer a lot of practical questions. 

Naturally I would like to offer the same value to my readers who may not have reached out to me in the past, so if you are one of the first 5 people responding to this you can join me and a few others on a group walk-around of my project in progress. 

During the walk-around we will cover:

• How to change a layout effectively without compromising rooms and making them useless
• Keep your exit strategy in mind
• Decor and finishing tips at builders merchant pricing, I'll show you where and how to get the prices and create the wow factor for peanuts. Remember it's got to look expensive without being expensive
• And much more of course

So if you want to tag along then send me a quick line to book a spot. I'm limiting this to the first 5 people, midday on 20th May. If you want to join and can make it then let me know and I'll gladly show you the project. Email me at:jeroen@claphampropertyblog.com And hope to see you soon. If you can't make this date then hopefully I'll see you at the launch day in order to showcase the finished product. 

The start of another project to maximise returns in South London

I did a short walk-through video of my latest purchase over in Deptford, I thought you may want to have a look to see how you could add value to your next rental property.

I will be reconfiguring the layout (much like my other project I'm running at the same time), so turning the property from 4 bedrooms to 5, but retaining a good amount of living/kitchen space. Naturally this will be open-plan, but I would say it's not going to feel cramped, the living space will end up being L-shaped, 5 metres in length by 3 metres. So roughly speaking that's 5x3 for the living area and 3x3 for the kitchen, very generous. In fact I also own a studio flat with similar dimensions just to put that into perspective - that whole flat can fit into the living room of this one! I digress however..

Why?

Well to maximise returns for rental you will have to increase a) the quality of the accommodation and b) you will have to increase the number of bedrooms. I can't very well extend beyond the upstairs unless I want to encroach on the neighbours, so by reconfiguring the space I will add a bedroom where the kitchen is currently. Ideal.

How?

Well you need to ensure that the walls aren't load-bearing of course before you go knocking things out. A structural survey is of paramount importance. Once that's out the way and the surveyor confirmed that none of the walls I wanted to move were load-bearing it was green light for the builders to go and turn my artist's impressions into reality.

Have a look at the video here and see what I'm doing: https://youtu.be/SVEINeRMYo4

Numbers?

You would think that simply buying a property and calling a room a bedroom instead of a kitchen or reception room wouldn't really add value. Well, normally it doesn't. In days gone by this trick has been used by many a landlord, taking a standard, two reception, three bedroom house into a 4 bedroom, 1 reception room house. I think we're all past this now, it may get a few quid extra in rent, but there's no value add (no, not even if you put up a partition wall in the once through lounge). So why is this different? Well, for one, I am totally refurbishing the property. My purchase price reflects the seller's situation. He wanted a quick, cash sale and didn't want to do any work. There were in excess of 10 people living there (of dubious immigration status as well I would guess) and he was looking for essentially a cash buyer. I have a great relationship with a bridging finance firm and the cash was ready within 2 days of request. To get there, however, was some task though as the seller, in his infinite wisdom, had not applied for various packs he needed to sell the leasehold interest, so the purchase took over 3 months. "Cash buyers only need apply..."

So for this 4 bedroom, 1100sqft property I paid a grand total of £305,000, plus stamp duty, costs, building work, etc will take me up to about £368,000 or thereabouts. I am planning to refinance the property and by using other 5 bedroom ex local authority properties as comparables I'd imagine the surveyor will agree with my estimate of £450,000, which is conservative. There are currently others on the market, which are of a lower standard of course (as this will be brand new and have 3 bathrooms) but they are unsold so I cannot consider these, really. A 75% mortgage would lend £337,500, therefore repaying most of my costs.

Summary:

£305 Purchase Price

£14 Stamp

£2.5 legals

£16.5 finance over 6 months

£30 building work and furnishing

£368 total

Refinancing on 75% of £450k (conservative) leaving 360-337=£23k in the property. So it's not No Money Down, but certainly Little Money Left In as they like to call it. Not too bad.

On the rental side increasing from 4 to 5 bedrooms means the rent will jump from £2200pcm to £2800pcm, so a healthy return even after mortgage costs (under £1000pcm). The property will cash flow nearly £2000pcm, or £24k per annum. That means that it will pay back the money I left in (23k) in about 1 year. That's nice.

So that's this project - are you looking to invest in a new buy to let? Or perhaps you are interested in co-investing in some of my projects? Whether you are investing, or yet have to start investing in South London get in touch with me via email if you want to see better returns. These projects are not fictitious, the figures are not plucked out of thin air. With nearly 15 years of South London property market experience I buy wisely for myself and my clients. If you are looking to have a chat in person why not come and join us at the Clapham Property Meet, the go-to social property networking event in Clapham. This month's meet is featuring Mark Barrett who will be giving an advanced talk on taxation - not section 24 and the like, you will know about all that I'm sure. So if you are looking to start/continue/advance your property investment come and join us!

Thinking of diversifying into Commercial Property in Clapham?

Adding value is key in property investing. Following this ethos investors are now moving from comparatively expensive residential property to commercial property. There is relative ease in adding value as there is less competition. They can buy cheaper for starters...

Crescent House SW4. This old office block was bought for £4 million in Feb 2012 and resold for OIEO £13 million two years later when PD came into force. 38 units will be built and a quick count on their website tells me phase 1 (13 units) is selling at a total GDVof £12.5million.

But I don't want to rent out an office block, you say? You're right, there's less yield in straightforward buying of an office block and filling it with commercial tenants. There's a lot of uses for commercial property, and a lot of types; let me discuss a few and it may get your juices flowing.

Types of property

A commercial property could be anything, from shops (with flats above) to purpose-built office blocks, gyms, churches, warehouses and so forth. Essentially anything you wouldn't live in.

Why?

There is a big why of course... financial gain. You see, simply the act of getting planning permission to convert something into residential can substantially boost the value. This is known as Commercial to Residential Conversion.

How?

Commercial properties are valued on their rental income. Thus if there is no tenant the value plummets. Time to swoop in. Empty office blocks can actually be converted under "Permitted Development," a simpler form of a planning application which cannot be refused. There are no minimum space requirements, so the developer can increase the margins by building more, smaller units. They don't have to be a minimum of 50sqm like when you apply through the regular process. Same goes for old warehouses, churches, factories, you name it.

Planning?

There are a number of ways to make money out of a development, and actually building it is only one of them. To draw a more common comparison: if you had a house with a corner plot and you employed an architect to submit plans for another house next door you've essentially made a handsome capital gain just for shuffling some papers and a few pounds in fees. You could, theoretically, build it out for the most gain, but if you are good at spotting potential you could make handsome profits without the lengthy building process - let the developer take care of that if it isn't your cup of tea. I used a residential example here because you may very well have seen this locally but the same applies to other buildings. The planning permission increases the value - IF you can get it! Ihave seen some very cheeky plots of land in various auctions with some clever CGI pictures of a "proposed development" but without any actual planning permission (which may never materialise for one reason or another), so be warned!

Rentals

Shops and uppers used to be very popular because they were cheap. The shop was let on an FRI lease (full repairing and insuring) and the commercial tenant would take care of everything. A low yield, but very stable, nearly guaranteed and no management fees. They have come back into demand because clever investors have started reducing the shop floor space and changing the rear of the shop (ground floor) into another residential flat - after all, residential property is more valuable (price psqft). For the sake of little more than a partition wall there are handsome gains to be had. 

Why not?

As with anything there are pitfalls and commercial property is certainly not for uneducated. If the property you are planning to buy is vacant, and you can convert it, great. What if you can't though? You will have to make sure that a commercial tenant is placed; without rent coming in the property is only worth the bricks and mortar it is built with as commercial lenders will often not lend on a vacant property. Commercial tenants are a bit more difficult to come by than your average tenant for a 1 or 2 bedroom flat. If it's empty you will be liable for business rates, which can sometimes be astronomical as it's normally priced by the square foot! Not getting the number of units you thought you would out of it and underpricing the build costs are two other main factors that will influence the end value of the development. 

If you are interested in hearing more about commercial conversions then do stay tuned for more, I have a number of speakers lined up for later in the year at the Clapham Property Meet and we'll certainly be talking more about this subject.

My expertise is, as you may already know, in residential buy to let, specifically in South London. Do you own properties that you think need some tweaking in order to get the best out of them? Perhaps you don't own any yet and don't know where to start? I have built entire portfolios for many of my clients and they are very happy with the returns they have been able to achieve. Residential property lettings gives a stable return and as I invest in South London you will know that the capital appreciation is fairly predictable and resilient in tougher economic times. If you are looking to invest or improve your current portfolio touch base via email and see how I can help you today.

Yields are attractive in South London - if you invest right!

I'm hearing a lot of my investor clients say "I'm thinking of investing my money up North for better yields." I think it's an interesting point of view of course, basing your investing mindset on a gross figure. It is true, of course, that there is an inverse relationship between gross yield and capital growth. Often times investors that are new to me me have been used to very little cash flow and, as often with period property, spates of repairs further eating into their rental profits. So, they've got masses of equity tied up in these properties and no way forward. They think that buying with gross yield in mind is the way forward.

What can I do?

If you, like most of my new clients, are stuck with lots of equity and little option to release it for further investment, then it's time to review your portfolio. What can you do to enhance the cash flow? I had a call from a fellow investor who had several properties geared at only 30%! He was very astute and was on top of his mortgages, but due to the rental stress test he was unable to release any more equity. You see, the annual rent was exactly 145% of his interest payment. That's where the problem lied, the rent was too low. Having judged the current rent vs the market rent I saw it was far below the norm. Dated? Perhaps. After a site visit I saw some improvements that could be made to this particular property in order to increase the rent the landlord could achieve. We are currently drawing up plans in order to reconfigure this property to add another bedroom, adding another 33% to the rent, even if we don't update things as we go along. We will of course. This client, once the project is finished, will end up with an extra bedroom and a 50% rent increase! As a result more money can be released upon refinance for reinvestment.

So rather than taking what (relatively) little money he had up North, where it would be more difficult to manage, would cost hours of travel to even get to purchase stage and would invariably appreciate less than a London property, he is able to raise another £100k and has added another £75k to the value of his current property. This gives him enough money to embark on another project with me. I am currently looking to source him another property where we can add value like we have done with his own property. He will refinance the project once complete, leaving him with a net return after all costs of 10-15%, or a gross yield of around 7%. a London property appreciates say 5% per year on average over the long term, so you are looking at a 12% gross yield, or about 20% return on capital employed if you were to sell the property after say 10-15 years. On your doorstep as opposed to 300 miles away.

How to buck the trend

By sourcing viable projects for my investor clients where we are able to add value - both capital appreciation and rental - they benefit from the long term wealth this brings. They end up with property within zones 2-3 London. This should prove:

1. A more liquid asset should it come time to sell

2. A more desirable asset, commanding a higher price (as a property in London always will)

3. Benefit from high rental demand as London has a bigger and more diverse economy than any other place in the UK. Both price and and the demand from tenants will be high so less voids

4. Closer to home and therefore easier to manage should they choose to self-manage

5. A high yielding property AND the benefit of capital appreciation in London

Would you like to own more property within London? Use the resources available to you? Don't know where to start? Start the conversation today on email or come down to the Clapham Property Meet this month and meet me in person. There is so much I can do for you if you want to get started or help your property investing along. I can source a property for you, manage the refurbishment and help you dress the property for the best rental returns. I have nearly 15 years experience in the South London property market. I invest locally myself, and I'm a firm believer that good, safe, sustainable returns are on your doorstep. Let me show you.

5 helpful tips on getting the best out of your refurbishment in Clapham

Any astute investor will know that one of the ways to make a profit from property is to add value by improving the property. Often times investors will look to significantly improve the property before they offer it back to the market for rent. After all, there should be some "sweat money" factored into the purchase price. So if you are buying right a £400,000 should be worth significantly more than £420,000 if you are looking to spend £20,000 on improvements.

So here's 5 improvements that will add the most value to your next refurbishment (weigh up the costs vs the extra you will achieve in rent though, each project is different):

1. Redecoration - nobody wants a tired looking property. The attraction of shiny new builds is real for tenants. The kitchens, bathrooms and all the finishes are brand new. They however do not present the best investments for landlords. If you are looking for better returns a simple coat of paint with perhaps a feature wall thrown in will work miracles. Go ahead and match some of the soft furnishings too, you'll see what difference it makes in rent. Here's an example of a bedroom I did recently. See how just adding a neutral coat of paint and tying the curtains with a simple touch light gives it a slight edge? 

2. Square footage. Can you add or re-purpose the space? This is key really. An investor client of mine recently purchased a house and by going into the loft he was able to add another two bedrooms and a bathroom (and achieve an extra £20,000 in rent). The result was that the loft alone yielded a 40% return on his money! If the floor space can't be increased can it be repurposed? For example I am creating an open-plan living/kitchen in one of my latest additions. This will add another bedroom to the property and thus increasing the overall rent by roughly 1/3. The kitchen was due to be replaced anyway, so my only additional cost will be plumbing and a letter to the freeholder for permission.

3. Kitchens and bathrooms. These are absolutely crucial for successful letting. With kitchens and bathrooms available at rock bottom prices these days there is absolutely no reason your property should not have nice, modern kitchens and bathrooms. If you would like me to help you get the very best in discounts then do get in touch. Here is a picture of the next kitchen going into one of my properties and I sourced this for under £1000 (add £800 for all the appliances).

4. Flooring. old, tired carpets are a no-no in any property, let alone if you are looking to attract professional tenants to your newly acquired property. Durability is the key of course, but it's got to look good. No point therefore in going for the cheapest, thinnest carpets - this is an investment. Have you considered something more hard wearing for communal areas and limiting carpets to the bedrooms? Wood or tiles work miracles in hallways and living rooms (or tiling that looks like wood, I'm trialling this myself so stay tuned for more on this to see how it works out - I'm optimistic). You should be aiming for £15psqm. Cheap doesn't equal nice though, so beware to choose something nice.

5. Your builder. This is key to your overall success. Having a good relationship with your builder is key. After all, it's him doing all the hard work, not you. Draw up a schedule of works - everything that you want doing. Write it down and even have it to hand to give to him at the quote stage. This will make things easier as nothing can be forgotten! Furthermore payment terms are to be laid down in writing. X% in advance if he is sourcing materials, but labour can be done weekly in arrears. Remember to allow time for him to fix any snagging, and define a time period. For example if you are supplying the materials and it's a 4 week job expect to pay him 25% each week bar the last week where you hold back 10% for a period of say 2 weeks in case of any "snags," or things that come up after he's walked out the door. If there is a particular element you are not happy with, reduce the payment accordingly, but do not withhold all the money - after all 90% of it will be done to satisfaction.

If you are looking to purchase a property with letting in mind and you would like an expert opinion then by all means get in touch. Perhaps there is an angle that you haven't thought of that could yield you better returns. Just start the conversation via email. You can also have a look at some of my recent projects here and here. Are you interested in having me source high yielding investments for you? Manage your refurbishment projects? Help you get the very best trade discounts? It's time you got in touch.