Client Case Study: £90,000 Profit
Forth Action Invest on July 9, 2024
“This was my first project with the team and I was impressed with their expertise and communication skills. They delivered the project on time and most importantly always responsive to my questions and concerns, and they kept me updated on the progress of the project. A great choice”
In this Article, we unveil the impressive success story of one of our clients, who achieved an astonishing £90,000 profit through a single HMO (House in Multiple Occupation) conversion project. This not only showcases the immense potential of property investment but also serves as a guiding example for landlords, property investors, overseas investors, and business owners seeking to replicate such success.
Our case study commences with an investor who approached us with the vision of generating additional cash flow alongside his business to supplement his lifestyle requirements.
We developed a strategic plan to transform a competitively priced property into a spacious 6-bed HMO, impeccably designed to meet the needs of professional tenants.
Sourcing & Acquisition:
With a strategy in mind we started the acquisition process for a suitable property which turned out to be – a tired 3-bedroom terrace in Manchester brimming with untapped potential. This property boasted a spacious double cellar and loft, presenting an ideal opportunity for conversion into additional bedrooms, thereby maximizing square footage. Leveraging our expansive network of agents, we swiftly secured a pre-market offer of £110,000 , affording us ample time for comprehensive due diligence and site evaluation prior to public viewing.
The HMO Conversion: Maximizing Space, Revenue, and Valuation:
The property’s conversion into a HMO was a calculated move to accommodate a greater number of tenants, thereby increasing the rental revenue potential. This type of conversion has become a popular strategy for property investors due to its ability to significantly boost rental income. However, it is not without its challenges, including regulatory compliance and managing construction overheads.
Our proposal involved converting the property into a 6-bed all en-suite HMO under permitted development. Simultaneously, we applied for sui-generis planning permission for a 7-bed. Fortunately, the planning permission for 7 bedrooms was granted before completion, enabling us to commence renovations without any delays. This streamlined approach ensured efficiency and minimized potential disruptions.
Commercial Valuation: Unlocking True Potential
Upon completion of the conversion, a commercial valuation was sought. This particular practice is a proverbial game-changer within the HMO strategy. Unlike a residential valuation, which takes comparative properties into account, a commercial valuation hinges upon the rental income the property can generate, for example the commercial valuation could be a multiplier of the rental income by anything from 8 -12 x times. The commercial aspect played a crucial role in maximizing the capital extraction from the deal during the refinancing process.
Turn -Key Management
Given their busy schedule and lack of knowledge in HMO strategy and regulation, our client sought a turn-key operation for managing a large HMO conversion.
Throughout the project, we took charge of acquisition, planning, and design, collaborating with the architect, local HMO council team, and project management to oversee construction. This hands-off approach allowed our client to save valuable time while securing a promising future return on investment.
The Outcome:
Upon completion, the rental yield was nothing short of impressive. Our client’s HMO welcomed tenants whose combined rent hit an annual high of £54,660—revenues that substantially exceed the average for traditional, single-dwelling units.
The exciting climax of this property story isn’t just the significant annual rental yields. It’s the whopping £90,000 profit secured once refinanced allowing our investor to withdraw their inital investment with profit from the deal.
Purchase Price: £100,000
Stamp Duty & other costs: £13,250
Renovation Costs: £135,000
Furniture & Fittings: £12,000
Annual Rental Income: £54,660
Total Investment Input: £260,250.00
Gross Development Value: £360,000
Lessons for Property Investors
This case study serves as proof of what’s achievable with the right strategy, guidance, and market conditions. Here are key takeaways for property investors:
- Successful property investment necessitates a blend of foresight, meticulous planning, and a willingness to embrace innovative strategies, such as HMO conversions. Allocating additional capital towards conversions, even if it entails borrowing additional finance, can potentially lead to higher valuations. In this particular scenario, the substantial returns outweighed the added expenses incurred from converting the cellar and loft.
- Securing properties below market value provides a significant advantage, although it is not always necessary for HMO conversion. The most crucial factors to consider are location and building footprints.
- Opting for a commercial property valuation might reveal a property’s higher worth based on its income-generating potential.
- Leveraging the experience of a professional team can save you significant amounts of time and greatly increase the profitability of your property investments.
For further insights, strategies, and opportunities that can help you mirror such achievements, keep up with our blog where we dissect the property market for maximum profitability.
Join your fellow investors on this journey to financial success and perhaps the next case study we share will be yours!
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