The truth about property price increases, making £20k to £40 in one go and how I break every rule in the book – legally!
If you go to a property seminar these days you know what you’re going to hear – Buy BMV, at least 25% discount, only buy if it’s going to make you £1000 net income a month and make sure you get all your money back out.
How many of these properties are you finding?
If you want to know how I do this with:
- NO BMV
- NO discount
- Leaving all the money in
- More than £1000 per month net income
- Or £20k to £40k or more back on a refurb without spending my money
then you’d better read on – if you still want to buy 25% BMV and get all your money back out, then don’t bother reading this as it will break all the rules you’ve been following.
From the mid 1990’s until 2007 jumping on the band wagon of refurb and sell was an easy win and made lots of money. The TV programs revolved around renovating and selling to build up to a £1m property and it felt like prices would rise forever. We doubled our money on 7 properties and increased a £1,000 deposit to £100,000 deposit in that time. Then things started to change, and the bubble burst, which meant that investors needed to find other ways of making money from property and casual investors backed off.
Now we are breaking through the dip in the economy and prices are beginning to rise in London, the home counties, and a few pockets around the country so refurbs are back on the agenda so if you aren’t ready then you need to get your tools sharpened as this will be the strategy to add lump sums of £20,000 to £40,000 to your pocket and experience to your portfolio in the next few years.
One way to ensure that you buy a property at a value that is below its potential value is to find those run down, tired properties and to bring them back to life, and you need to be adding value not just through updating the property but by adding rooms, adding living space and sometimes splitting the property into flats or smaller units. The reason I say ‘below potential value’ is that currently prices are so low already that it can be very difficult to find huge discounts, so I’m going to show you how you don’t even need to bargain on your properties.
Let me tell you a secret. For the last 3 years I haven’t had to make a BMV offer, I’ve renovated one property every 6 weeks and turned them into HMO’s that return over 20% Net ROCI. They churn over £1,000 net profit per month and I don’t even have to take any of the money out of the property and I don’t have to put any money in either – would you like to know how to do this too? Read on and I’ll share my secrets with you.
The Power of the Bedroom
If you know without doubt the value added to a property in your area by adding a bedroom, then you are well positioned to find the style of property that will take an extra bedroom and bring you significant profit.
In Peterborough, where I live, the bedroom price is about £10k. That means that:
- a 2 bed flat/house will cost about £75k,
- a 3 bed house will cost about £85k and
- a 4 bed house will be about £95k.
So the bedroom price is £10k. If I need to spend more than this to add a bedroom then it isn’t worth doing if my intention is to sell the property.
Down the road in Cambridge however the bedroom price is about £40k to £50k, so the same renovation in which I add a bedroom would net me a significant profit. That is why at the moment, when considering a flip (buy, renovate and sell) you need to find more expensive areas.
You can also extend a property to add rooms, and in the more expensive areas this will significantly increase the value of your property.
Get to know how much an added bedroom increases the price of a property in your area – there will be cheaper areas and more expensive areas – the flips always work best where the bedroom price is higher. Zoopla will show you the breakdown of average prices for each number of bedrooms.
Windows are a dead giveaway
Look around your area and find houses where the windows are still in the old style and haven’t had UPVC put in yet. You can pretty much guarantee that inside you will find swirly carpet and old fashioned wall paper – probably an old kitchen and bathroom too. These types of properties are great for a make-over, enabling you to sell at a profit. Try sending letters or leafleting them to see if you can get a response. To find details of the owners names so you can make it personal you can use www.landregistry.gov and £3 will secure the current owner details, including the mortgage outstanding.
The other quick way to info on potential refurbs is through www.renovatealerts.com.
Feel the fear and do it anyway
There are several major factors that stop people refurbishing, so make sure you’re not using any of these excuses.
- Going over budget
- Taking too long
- Finding major problems that weren’t spotted at the beginning
- Underestimating the refurb cost and running out of money
- Concern about not being able to sell
- Tax on profit
Let me dispel some of these fears for you.
We are refurbishing one 5/6 bed property every 6 weeks and we spend about £10k to £20k including all the regulations required for licensed HMO’s (Houses in Multiple Occupancy). This will include replacing the kitchen, adding an en-suite, updating the bathroom, decoration throughout, carpets and even furnishing (about £4k). That means that most refurbs for 3 to 4 bed properties will cost less than this amount if you are refurbishing for rental purposes.
If you are refurbishing for sale, then there might be some elements you will spend more money on, though it is unlikely most of the properties will have so many rooms, or floors. The trick is to keep costs down where you can and to add the small finishing touches that make all the difference and WOW the potential owners.
Put in a contingency figure which gives you some leeway in your project. This will help you make sure you don’t go over budget. There will always be things that come up to change your figures, but you’ll also find you have overestimated on some areas, and it gets easier as you do more of these to bring things in on budget.
Every kitchen we put in costs less than £1,000 for the units – it’s unbelievable how cheap the units can be if you use the largest bases you can. As an example, a 1,000mm base unit (without discounts) is about £48.00. Two 500mm base units are £40 each, so £80 the pair. If you repeat this process round the kitchen you’ll make great savings. There is very little difference between the prices of base units and wall units, but you can put more in if your costs are lower.
Unless you are doing a very high level refurb you also need to avoid putting pretty looking drawers at the top of the base units – they don’t add to clean lines and will cost significantly more than units without drawers.
Flips for Free
Some of the biggest blockers to taking on refurbs are the cost of the works, raising the deposit and selling quickly enough to make money on the project.
If you can identify the property that needs work doing on it, and preferably a person or family who are ready to move elsewhere, or who have already vacated the property then you will be able to use this process to create a Win: Win: Win: situation for all involved.
The owner of the property – they want the best possible price for their property, and are probably already getting fed up with below market offers that are lower than they would like to accept. You know you can make money from selling the property when you have renovated it, so how about you actually offer them more than they are asking for the property? That sounds a bit daft doesn’t it? Or maybe it’s just about sharing the bonus and making sure you get the deal you want.
Traditionally the Flip would work like this:
- For Sale Price £150,000
- Deposit £37,500 (25%)
- Refurb costs £10,000
- Potential re-sale cost £195,000
- 8 weeks to purchase
- Then 6 weeks to refurb
- Then 3 to 6 months to sell
- Total cash tied up £47,500
- Total time 6 to 9 months.
My Flips for Free process allows you to create a Win for the owner, a Win for the Estate Agent and a Win for you.
I’m going to be going through this process in great detail with an opportunity to ask me questions directly on Wednesday 9th October at 7pm if you’d like to join me and get all the info on Flips for Free.
All you need to do is register here and I’ll look forward to sharing all my secrets with you then.
The beauty of this process is that it also gets round that annoying 6 month rule which prevents people from buying your property if you haven’t owned it for 6 months. Now, that alone allows me to repeat the process as often as I can without having to wait for up to 9 months between projects.
The biggest challenges come from the stumbling blocks that get in the way and it’s your job to get rid of them, so here are some of the tips most people won’t tell you so that you can get the best deals and the best properties:
Learn to do your Due Diligence thoroughly so that you know what the property could be worth when you have refurbished it. If you haven’t got the tools to do your due diligence quickly here’s a link so you can get this e-book now.
- Look up the ownership of the property on www.landregistry.gov to ensure you are speaking to all of the owners.
- Help the owner to get over their concerns by offering to pay the legals, the extra agent’s fees and the mortgage whilst you are working on the property. Write yourself a list of questions to ask them and put together a pack which explains what you would like to offer them – just talking about it doesn’t give them time to think about it fully and in their own time.
- If you see a property that is run down and you would love to have a chance to refurbish it then write to the owner at the address – if they don’t live there the letter might well get re-directed.
- Ask the Empty Homes Officer in your council about the opportunity of being introduced to the owner – there will be more about this in the article next month.
- Have a quick system to establish how much work needs doing on the property – we renovate one property a month and transform derelict properties into 6 bed HMO’s – we spend about £10k to £15k on the refurb with basic amenities that look great. Add another £5k to these figures as you will be renovating to sell.
Don’t miss out on this exciting opportunity
The last time the prices started to rise there weren’t any property networking events, or courses to go on – so make sure you get yourself educated and get yourself ready for this superb opportunity to create great properties and flip your way to freedom.
Next month I’ll be explaining how we find opportunities to work with empty homes and how we have a whole charity which houses vulnerable adults based on the 2+2 system we use with people who claim benefits, and allows the charity to earn a profit from the properties as well as helping to get people back into society.
Don’t forget to join me on the webinar on Wednesday 9th October at 7pm where I will be going over the Flips for Free process in detail. Just follow this link to register now.