30th June 2020
It’s easy to purchase a property and then sit back, and just keep it as a nest egg. The chances are, given long enough, it will rise nicely over time.
What is more difficult is to purchase and add enough value to enable you to extract the initial investment, so you can carry on.
Currently, we have one investor who is doing just that, on a couple of properties purchased through us a few months ago.
One is a house, which was converted into an HMO, where all the capital should be extracted by way of a remortgage. The property was purchased for £320k, and £150k was spent on the works. The refinance should release £455k, which is most of his capital, bar £15k which will stay in the property. The cost of this refinance is 3.19% fixed for 5 years, the rate is for a licensed HMO which is an important point when sourcing rates.
The monthly cost of this loan will be £1,225 p.m., this is against an anticipated rental income of £4,000 p.m.; giving an income of £2,775 p.m., so £33,300 per annum.
The second property this client purchased is in South West London, in Clapham. This was a probate deal purchased in cash, due to the short lease. The freehold had defaulted back to the Crown. All land is actually owned by the Crown; the highest title one can have is a freehold, which means it’s free from hold. When there is an issue with the freehold its ownership defaults back to the Crown.
This was the situation with this property. For some reason the statutory filing was not being done for the company which owned the freehold, this then led to the loss of the freehold.
It was after many many months of discussing with the fellow leaseholders regarding how to agree on the logistics of how to purchase the freehold from the Crown, we are now at the finishing stages of purchasing the freehold.
With the freehold the property should be worth £700k. We have spent £582k on the property including development costs and purchase of the freehold.
Refinancing this property will allow our client to extract £525k, leaving £60k in the property.
The rental is £2,600 per month, the new mortgage rate will be £887 p.m. month, fixed for 5 years, giving an income of £20k p.a. The benefit of taking a 5 year fixed is lenders tend to be more generous on the rental cover thereby allowing you to borrow more funds.
The above two transactions mean the investor will have refilled his war chest, and will have a passive income of £50k p.a.
It is time to snap up many of the deals which will be floating to the surface.