Commercial to residential - The Year of WTF! A Review of our businesses in 2020 – Part 4
Welcome aboard episode 52 of the Rent to Rent Success Podcast and today we’re talking about our businesses in 2020.
In this Part 4 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’m excited to tell you all about our businesses today.
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Let's dive into today…
I’m explaining what’s happened in our businesses and I want to acknowledge something first. I understand that to some people the businesses or investments we talk about are small and to other people they seem huge and unattainable. And that’s OK, I know it’s all relative. I can only talk for what’s happened for us.
And the reason I continue to talk about, even though I know it gets people’s back up, is that I’m surprised how incredible this short journey has been. And I wish I knew about property investment decades ago. Not just knew about it, but understood it was completely available to people like me without lots of money, or the right contacts and with so much self-doubt.
That’s what makes me passionate about sharing to make sure you know that property can change your life in a short period of time when you go all in.
I do all of this with my sister and business partner, Nicky Taylor. You might be saying ‘who?!’.
Nicky is often behind the scenes so you might not know her. Listen to episode 30 and watch the video if you want to get to know all about Nicky and her journey into property which is very different from mine.
Let me give you an overview to start off with, of our businesses.
We have three parts
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 episodes 48 and 49. I talked about our 4-unit exchange with delayed completion conversion in episode 50 and our 12-unit part-commercial property in episode 51.
Here today I’m talking about another of our owned properties, a commercial to residential conversion.
11GR
We completed on this property in October 2017.
It was a cash purchase. We naively thought we could buy in cash to secure a good price and quick sale for the seller and easily refinance afterwards.
Little did we know...
After purchase, it took us over 12 months to refinance because we don’t have commercial property experience. And lenders like to see ownership experience in the same asset class. Luckily our rent to rent experience did help us as we’d done some pretty impressive refurbishments and were able to supply photos and testimonials from happy landlords.
Although strictly speaking lenders say that property management experience doesn’t count, in practice we’ve found it does. You need a good broker to present your case and tell your story.
I was surprised that story is a part of it. Because trust is a part of it. Lenders are making a judgement about whether you’ll be a good steward of their money and whether they’ll pay it back. Your experience and skills and story come into it as much as the actual financial papers.
We were so excited to buy this property.
It was 18 months since we’d started full-time in rent to rent and it felt like a milestone.
The purchase price was £148,000 which was a good price for the 181m2 property in good condition. And as a cherry on top it had a tenant under contract until 11 months after our purchase paying £10,000 per year.
On completion, a lump sum to cover the remainder of the contract was transferred to us. One of the perks of commercial is that often rents for periods of a year (or more in some cases) are paid in advance.
This is a 3 storey commercial building with D1 planning classification. It had previously been residential, a corner-plot semi-detached house. It was in a street of residential houses with cafes and restaurants in walking distance and the main Newport train station. The real bonus was 3 off-street parking spaces.
Because it had previously been residential and is in a row of houses we were confident we’d be successful in securing planning permission to convert to residential. The only question would be the type of residential.
The property is 181 sqm over 3 floors. Our original thought was to convert it to an 8-bed HMO. Our architect though, came up with a plan for 4 self-contained 1-bed flats. We wouldn’t have seen 4 flats on those plans because it was 3 storeys and common sense said one flat per storey.
However, the architect saw that we could have 4 flats if one of the flats was a duplex (i.e. over 2 floors) and it works beautifully and now seems so obvious. It’s good to have good people in your corner in property and in life.
Don’t be afraid to pay for advice. And always remember to use your own brain before taking it! It’s your business, delegate the advice, not the decision making. You make the decisions in your business.
This worked on two levels
Newport City Council is resistant to new HMOs. And of course, yes it’s still possible to have applications for new HMOs approved on appeal, it all takes time. We knew that an application for self-contained units would stand more likelihood of being approved first time around.
The numbers worked.
It gave us multiple exits as serviced accommodation becomes an option. Title splitting is also an option.
The commercial tenants extended their contract with us after we took ownership, which suited us while we sought planning. We secured planning in May 2019 and talked with the tenant about their plans in order to agree a mutually agreeable date to end the contract.
As it happens coronavirus has meant that much of the work they used to do in person from the office is now from a different office so it suited them to move sooner. It suits us too and our plan now is to start the conversion works in March this year once the tenants have left.
The works will convert the building from offices to 4 self contained flats and include:
Split the utilities with the utility suppliers
Installing sound proofing and a fire suppression/sprinkler system
Upgrade plumbing & electrics including installing new combi boilers and splitting supplies
Installing new stud walls and an external works
Strip out of existing kitchenettes & toilets and replace with new kitchens and shower rooms
Redecoration and lay laminate flooring throughout.
Essentially everything required to have a finished product to go to market with.
We estimate these conversion works will cost £150,000.
Costs
Purchase price
£148,000
No stamp duty & Fees incl completion costs
£729.54
Refurb
Conversion Works
£150,000
£298,729
Income
Annual rent (based on £550 per flat) £2,200 per month
£26,400
Yeild
9%
Valuations
At purchase Oct17
£150,000
Current market value with planning permission, PRE conversion: £300k - Leanne Fuller, Davis & Sons Newport @ 05Aug20
£300,000
Gross development value, POST conversion: £400k, at least £100k per unit - Leanne Fuller, Davis & Sons Newport @ 05Aug20
£400,000
I mentioned in the last episode that we seem to have a thing for almost all studios. And here it’s kinda looking like we have a thing for 4-units because this episode is a conversion to 4 and in episode 50 I talked about another conversion to 4 units we’re doing.
How did we find it?
We found it on Zoopla
If you’re interested in multi-unit developments, also check out episode 52 where I talk about our 12-unit block and some of the opportunities in buying multi-unit blocks.
So how can you do this?
Conversion opportunities are everywhere. And at the moment post-coronavirus commercial property is available much more cheaply in many areas.
Especially B&Bs and care homes offer particular opportunities as they are often low-profit businesses and banks are conservative in their valuations so owners are often more open to creative solutions which mean you can often buy without needing a large deposit and mortgage upfront.
I talk more about the way we bought a property using a creative strategy in episode 50.
This is the final part of our businesses in 2020, there are a few other smaller properties but we’ve covered the bulk of it here. What I want to talk about next episode is my personal experiences in 2020 and goals for the future. Don’t miss episode 53!
We took the first step into rent to rent and that led to so many opportunities for us so that, less than 5 years later we have our own portfolio too which is helping us build assets going forward. We’re just setting up a SSAS pension so we can continue to invest in the most tax efficient way and grow our wealth. It’s crazy how fast it happens.
If you’re ready to Kickstart your property journey, join us in Rent 2 Rent Kickstarter and get your year off to a flying start - find out more and get started here!
It’s your last chance to join us before our prices go up at midnight on 21st January.
It’ll be one of the best decisions you make this year. If you’ve been hesitant in the past and now you’re ready join us and do it this year. Everyone I speak to on Rockstars says they wish they’d known sooner. No one says they wish they’d waited!
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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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