Case Study

| Edgeworth House

 London NW8 

Acquisition Cost

Purchase price

£ 400,000

Company SDLT

£ 24,000

Legal, Valuation, Other

£ 4,000

Borrowing fees (1.5%)

£ 4,500

Refurbishment, Conversion from 3 to 4 beds

£ 20,000

Furniture, fixtures & fittings

£ 2,000

Acqn + Devment cost

£ 454,500

Financing

Bank finance

£ 275,000

Equity finance

£ 182,500

Aggregate purchase cost (ex fees)

£ 454,500

Fees (added to loan)

£ 4,500

Aggregate bank finance

£ 279,500

Income & Profitability p.a

Rent / week (Avg £150 per room)

£ 31,200

Letting commission (@ 7%)

£ (2,184)

Service charges

£ (1,500)

Maintenance

£ (1,000)

Bank interest (@ 3.5%)

£ (9,782)

Net rental income

£ 16,734

Return on Equity

Before refinancing or Capital appreciation

9.2% p.a

Post-refinancing (@70%*£520k); Pre-cap app'n

18.2% p.a

Anticipated capital growth: 1 unit, 3 years

0% growth per year

£ 520,000

3% growth per year

£ 566,800

5% growth per year

£ 598,000

7.5% growth per year

£ 637,000

Target Return on Equity ("RoE")

With "bridge-to-term" refinancing post-refurbishment, and >3% annual growth, RoE could exceed 30% p.a.

CRITICAL SUCCESS FACTORS

  • Identify areas earmarked for regeneration, improvements to public transport infrastructure 
  • Identify mispriced / distressed properties in high growth areas
  • Redesign/ reconfigure property to maximise rental/ capital value
  • Access to cost-efficient mortgage finance
  • Maximise loan to value to release/ redeploy equity capital in new projects
  • Teams of experienced, effective, professional builders/ subcontractors for refurbishment and ongoing maintenance 
  • Wholesale suppliers: Obtain quality fixtures and fittings at trade discounts
  • Cost-effective tenant search & resale. Specialist conveyancing solicitors & accountants (minimise overhead costs)