Week 27: Numbers Numbers Numbers....
Hey everyone! Just want to give a big shout-out to all you lovely people who will be stepping into their business premises after a long time. Wishing you success every step of the way…
I for one am back at work (2 days) before finally going full time at the end of the month. Will be interesting to see how things pan out in terms of balancing one's business with the demands of employment. I have been working extra hard this previous month as I knew time will be of essence once I go back into work. There have been some highs and lows but probably the most progress to date. The low side was definitely number crunching! Myself and the good half have been doing sums to see which deals stack up. You see, if these numbers are not right you just can't proceed. First we went on all the major portals (property) to get a feel for what's happening in the market as things are still very delicate and extremely unpredictable. We had a purchase budget of 150k in mind (which by the way does not work) then a 100k in Birmingham for both a flip and BRRR strategy. Why two strategies? Because it's better to lower your risks by spreading your investments into one or more strategies. Not too many though as you can lose focus then. My target is to keep the house for long-term but I am not ruling out a good flip as it adds coins to your cash-flow.
Eg:1 Buying via Bridging finance Eg:2 Two Investors (50/50 split)
Purchase Price: £85k Purchase Price: 85k
Bridge: 75% LTV: 63,750k Refurb: 15k
Personal finance: 21,250k Legals: 5k
Refurb: 15k Sub Total: 105k
Legals: 5k Investor loan: 5% interest (£2,625 each)
Interest on loan @ 1% monthly 637.5k 5250 combined
(X6) 3,825k Total: 110,250
Total Expense: 108,825 25% Equity: 27,562.50
25% Equity @ 27,206.25 End Value: £137,812.50
End value: £136,031.25
The problem that I am having is that everything seems fine until I get to the point where you have to leave 25% equity in the house. This really puts a spanner into things. Take a look at some of the examples above to get an idea. The problem I am facing is finding those ‘below-market-value’ purchases (BMV), which state it's going cheap but it really isn't when you do your due diligence and factor in all the associated costs that go into reviving that house. Please property people don't get angry as I always hear you say ‘deals are everywhere’. Yes this is true to a certain extent in that the best buys where the numbers work are often in the worst areas which would no doubt affect rental demand. So I am trying to buy wisely, no point getting a great deal if I can't rent out my rooms. Then when I look into mid-range (nicer suburbs) with great rental yield the numbers just don't make sense!
Even with my flips I'm trying to buy with the end in mind. Given the current climate in the market a lot of people have lost their jobs and are not in any position to purchase a house. So my exit strategy was if the worse comes to worse and I can't sell the house then I will rent it out instead. As a flip the numbers work but as soon as I try to keep the deal as a rental it just goes to pot with the whole ‘leave 25% equity’ thing. After a refinance, I can extract the funds for the legals, refurbishments, lenders, investors etc but then no money is left in the pot to fulfill the minimum equity criteria. So the deal doesn't work! Is there something I am missing? Have I overlooked a critical element? Would love to hear your thoughts and what you have done differently? Please feel free to leave a comment in the box below.