[Case Study]
Creating a third bedroom resulted in achieving over 248% ROI after refinancing.
Located only a few roads back from South Parade Pier on the beautiful stretch of Portsmouth’s Southsea beach. This property was a real find in a desirable area. With Albert Road’s bars and restaurants also just around the corner this property had holiday let written all over it.
We were on the lookout for a property that follows the BRR strategy (Buy, Refurbish and Refinance).
The property needs:
- purchasing below market value. It will often be run down, having not been well maintained.
- Have potential to add value through the refurbishment or creation of additional space.
- Remortgaged allowing you to pull your investment out.
The property value would have risen due to the refurbishment.
The property
This top floor flat sits within a beautiful converted, period building which we believe was a vicarage to the local church – dating back to the 1800s. When we discovered this flat on Rightmove we immediately saw the opportunity to convert the long lounge area and add a third double bedroom. With some features and character charm the initial plan was to simply use the BRR model (buy, refurbish, refinance) and to add value to the flat by creating the additional bedroom. But with the prime location within Southsea and close proximity to shops and restaurants we thought that rather than to rent it as a single let, it would be worth trying to use it as a holiday rental or serviced accommodation property. A new strategy for Realm.
An offer of £117,000 was accepted, some 20% below market value in its current condition. As the seller wanted to move quickly the property was bought using investor finance for the deposit and initial fees and costs and a bridging loan to buy the property, effectively as a cash buyer. We managed to secure a good bridging loan rate, often these are much higher than mortgage rates. As we needed to move quickly and only needed a small amount on top of our investor funds, bridging finance was the best choice for us.
The work
Our builder gave us detailed costs for the creation of a new bedroom. We also decided to convert the bathroom from a bath to a shower. Having worked with the same builder for a long time there’s a great relationship. They were able to give us a realistic work schedule. So that we could complete the renovation, have the flat decorated and furnished as quickly as possible. Minimising the amount of time that the flat is untenanted. Allowing us to refinance the property as soon as possible.
The works, decoration and furnishing were carried out to schedule. Who doesn’t enjoy a full day shopping to fully furnish a flat? We were delighted to invite our first holiday guests to the flat within a month of purchasing the property. As this was Realm’s first holiday rental property we decided to enlist the help of a management service. They are fantastic and deal with all the bookings, any customer enquiries, cleaning, linen and towels.
Outcomes
As we near the end of our first year, the flat has generated over £27,000 GROSS income through holiday bookings or short term rentals. This is over two and a half times that of which we would expect to achieve as a single let. Due to the British weather we did see a decline in holiday stays during the winter. As you would probably expect. We decided to offer the property as a short term let, fully furnished and all utility bills included within the monthly rent. This was ideal for contractors who were working in Portsmouth short term.
Refinancing the property took much longer than we had planned and anticipated. We had hoped to move off the bridging loan within 6 months. However due to other property purchases and difficulty in obtaining the correct documentation to be able to use the property as a holiday let, we decided to remain on the loan for the 12 months. Re-valuing the property at £170,000 made a 45% increase from our initial purchase price.
Leaving just £4,610 of the initial investment in the deal after refinancing. Achieving over 248% ROI (return on investment) shows yet another successful property.
Dipping our toes into holiday letting and serviced accommodation has certainly proved profitable. Though not without its challenges. Our Net annual profit (after all expenses) for the first year trading was £11,460. There is certainly movement available in our margins too which we hope to tighten in year two.
Our Private Investors happily received on average an 8% return on their money, paid monthly.
