The magic of multi-unit blocks - The Year of WTF! A Review of our businesses in 2020 - Part 3
Welcome aboard episode 51 of the Rent to Rent Success Podcast and today we’re talking about our businesses in 2020.
In this Part 3 episode I’m going to talk about the businesses where we’re buying properties.
We usually talk about rent to rent here and interview other people about their businesses so I wondered whether you’d be interested in hearing more about our businesses and I have to say the response has been amazing, I’ve had so many messages from you saying how much you’re enjoying this series.
If you’re listening when this episode goes live and it’s before 21st January 2021, then you might be in with a chance…
If you’d love to get started in rent to rent this year.
If you’d love to have certainty about each step to take.
If you’d love to have ongoing support as you implement the Rent 2 Rent Success System, then we’d love to invite you to join us in our Rent 2 Rent Kickstarter Programme.
And now is a great time because you can join us at the current price which is exceptional value. As from 21st January, the price to join will go up significantly.
So, if you want to join us to get your first deal now and get started in property, sign up here!
Let's dive in…
I’m giving my disclaimer again, I’m not trying to say our experience is amazing, I know to some it’s very little and to others it’s very significant. And the reason I love to share it is that I want to let people know what is possible, even for people like me who didn’t know what property was open to them. Who didn’t know about the simple steps to build wealth were open to them. Property is transformational and more people should know that it’s open to everyone who wants it. You can improve your life massively in a year starting from nothing and utterly transform it in 5 years when you go all in.
And I do all of this with my sister and business partner, Nicky Taylor. Nicky is often behind the scenes so you might not know her. If you want to learn more about Nicky, check out episode 30 where Nicky talks about her journey into property which is very different from mine.
Let me give you an overview to start off with, of our businesses before we dive into this part.
We have three parts to our businesses
Our rent to rent HMO management business HMO Heaven
Our rent to rent training company Rent 2 Rent Success
Our portfolio of owned properties owned in a number of limited companies
I talked about HMO Heaven and Rent 2 Rent Success in episode 49, I talked about our 4-flat conversion on exchange with delayed completion in episode 50, so here today I’m talking about another of the properties we’ve bought. It’s all about the magic in multi-unit blocks.
I haven’t talked about this property on the podcast before. It’s an interesting one full of challenges and bursting with opportunity.
103SH
We completed on this property on 11 March 2019.
It was a conventional purchase with a deposit and commercial finance. A family friend helped us fund the deposit by loaning us £50,000. We used profit from our business and savings to make up the remainder of the deposit which was £59,500. The purchase price was £375,500.
This is a 12-unit mixed use property in Newport. It’s made up of
1 x two-bed flat.
10 x almost-studio flats.
1 x small commercial unit.
We seem to have a thing for almost-studios! In episode 50 I talked about the almost-studios in our 4-flat conversion. The almost-studios in this property are different though, each of the 10 almost-studio units have one open-plan room for kitchen/lounge/bedroom and 3 separate shared bath/shower rooms and 4 toilets. An unusual arrangement, and we wondered whether it would work. When we first bought the property, we did have the idea of adding en suites to each unit, which for various reasons didn’t make sense to do.
The biggest challenge with this purchase was securing funding.
Getting commercial finance as a beginner can be protracted and costly. Commercial lenders are rigorous in their assessment process to ascertain your credit worthiness and to test you have a credible and proven track record and experience. I think the only question they didn’t ask was ‘what I had for dinner the night before’!
Our top tip here is get a good broker.
A broker that has previously brokered deals for the type of purchase you are doing, one who has access to the whole market.
A good broker will be able to guide you through the process and ensure you get the best deal and rates for your circumstance.
The property is a Grade II listed building in a conservation area, and we purchased it with 8 sitting tenants. The 10 almost-studio flats were heated by one combination boiler and shared the same gas and water supply. The units had their own individual electric supplies.
A leaking roof, leaking windows, a leaking boiler and a leaking bath and shower topped our list of woes, with the units being in varying states of disrepair, with the empty units being in a particularly poor state of repair.
A full refurb was required including:
Roofing & guttering repairs
Wooden sash & casement window repairs and replacement
Replacing rotten floor joists
Upgrade plumbing & electrics
Upgrade fire detection and protection systems
Installing new stud walls to create a laundry facility
Strip out of existing kitchens & bath and shower rooms and replace with new
Redecoration and lay laminate flooring throughout.
The refurbishment of this property is on-going. We immediately completed the fire and health and safety issues identified and have refurbished 5 of the 10 almost studios, the two-bed flat, the shower rooms and created a new laundry facility. We are working through the rest of the property as tenants move on, or with their agreement around them in situ.
We are on track and have spent £90,000 of our budgeted £157,000 refurbishment budget.
Roof & Windows
£13,424.16
Building
£58,095.95
Electrics
£8,340.30
Plumbing
£8,300.00
Dressing
£2,386.05
£90,546.46
This property is the building that keeps giving!
As we have progressed through the refurbishment, we have discussed a significant amount of ‘botched repairs and works that have increased the time and cost of our planned refurbishment.
An example being taking out the bath to create a shower and laundry room, revealing that the bath waste was leaking, and the floor joists spanning two of the shower rooms were rotten and needed to be replaced. Or discovering the drops on the existing plumbing runs were insufficient and often running backwards, causing regular blockages in the system, as the waste and dirty water couldn’t run away.
Every job became significantly bigger, more stressful and more costly.
Here are the numbers for this deal.
Costs
Purchase £375k
Gross rent £66k
Yield 17%
Net Return
Cash in £100k
Net rent £48k
48% return on capital!
How did we find it?
Being local
Why multi-unit blocks rock as a property strategy for 2021 and beyond
There are so many reasons, let me count the ways. We fell into this strategy by accident. We missed out on a succession of properties because a lot of people want to buy HMOs. What we found in buying this property is very few people want to buy multi-unit blocks. Even fewer people are interested if some of those units are commercial units (even if it’s only one!). And of the few interested, even fewer meet the requirements for commercial funding.
All of this means that
Per unit prices are lower
Competition is lower
Sellers are more likely to be interested in a creative strategy which gives them certainty as so many deals fall out of bed when lenders ‘down val’. A down val or down valuation is where a lender values a property at less than the purchase price agreed between the buyer and seller.
And multi-unit blocks just keep on giving
Save on conversion costs as property is already converted. Therefore you don’t have cost of implementing building regs such as soundproofing and stringent fire safety that you’d do in a conversion
Economies of scale all of your costs lower. We talked about the unit cost already. The cost of buying a 12 unit property is usually substantially lower than buying 12 equivalent separate properties. For example, £375,500 is under £32,000 per unit for units with rental incomes of between £400 and £600 per month, or £4,800 and £7,200 per year. A property offering £400-£600 rental income per month is likely to cost from £70,000 so you can see it’s an over 50% ‘discount’.
More likely to significantly increase in value in a short time. The reason is that when lenders value multi-unit blocks, they’ll account for rental income in their valuation. Therefore, when you increase the rent for the property, you increase the value of a property. And that link is much stronger than it is for residential buy to let property.
Title splitting bonus. When you buy multi-units on one title there are lots of ways to add value and one is to split the titles so you can sell the units individually. What I mean here is that if you buy a multi-unit block of 6 flats on one title you can only sell it to someone who is willing and able to buy 6 flats on one title. If you split the titles so each flat has its own title you can sell the flats individually. And as we discussed earlier, when you sell one flat the price per flat is more than when you buy 6 in one transaction.
There are so many cherries on the multi-unit block cake!
So how can you do this?
Look for multi-unit blocks. Already converted. On one title.
Depending on your experience and risk appetite you choose the number of units you go for.
I actually talked about this on a podcast I love recently and how beginners can start in multi-unit blocks on the Wealth Talk Podcast. It’s a podcast I love, run by two guys I admire, Christian Rodwell and Kevin Whelan.
It’s a fantastic guide and a fast-track to building long-term wealth.
You can listen to Stephanie’s Multi-Unit Block episode on the Wealth Talk Podcast here
At the beginning, I’d never have had the confidence to think I could buy a 12-unit property, attract private finance and succeed in securing traditional commercial lending finance.
It’s been amazing what’s happened for us since we’ve started in rent to rent. Even though I was nervous to take the first step, I was confident we could manage a property with care. So many people were doing it in a careless and shoddy way that I thought simply adding care would make all the difference. And it did.
If you’d like to start your property journey and join us in Kickstarter and get your year off to a flying start , then It’s your last chance to join us before our prices go up at midnight on 21st January.
Find our more and sign up here.
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Until next time, have a great rest of the week.
And remember,
Believe Bigger, Be Bolder and Be a Gamechanger!
See you soon!
Stephanie & Nicky
xx
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