My 1st Property Flip - Lessons Learned

Having just completed on the sale of my first property flip, I’d like to share some of the lessons I learned so you don't make the same mistakes that I made.

The property I flipped was a simple 1-bed flat that in Brighton that is very close to the University.

Due Diligence

As property investors, we should all know the importance of due diligence, but what wasn’t apparent to me was the wide-spectrum of due diligence that applies to property investing.

I have various alerts set up on all the property portals.  One of those alerts is for auction properties in the areas that I am targeting.  The area to target is an important part of due diligence and it will depend on what you’re trying to achieve through your investing.  Long term capital growth is more likely in London than Lincoln, right?

I was after the student market so I was sourcing properties close to the University.  This was my first flip, my strategy was if things didn’t go as planned, then at least I’d have no problems renting out the flat.

One day I received an alert for a 1-bed flat going into an auction, close to the University.  On closer inspection, there were actually 2 flats from the same owner in the auction.  I know it was the same owner because I checked the owners' details on Land Registry

This is the place to check property ownership - (https://www.gov.uk/search-property-information-land-registry).  There are other ‘resellers’ of the same information, and they will charge a premium for their identical service.  A Title Plan and Register should cost you ￡6 from the official gov website, or a pumped-up ￡35 from online companies providing the same documents.  I buy numerous of these documents every month as part of my due diligence, so it’s a huge saving.

When the auction alert first came through I wasn’t too interested because the guide price was too high at around ￡160,000.  This is a good price for a 1-bed flat in the area, but this was only the starting price.  But because the flat was at an auction sale, and there were actually 2 flats from the same owner, I tracked the flats closely because they didn’t sell at the 1st auction.  They also didn’t sell at the 2nd and 3rd auction, even with a reduce guide price at ￡120,000-￡125,000.

I knew it was in a good location and now the price was really attractive, so I was ready to strike.

After the auction, I called up to arrange a viewing and the next day I made a cash offer of ￡110,000 for each flat.  They came back and asked to split the difference.  If you’ve not read “Never Split The Difference” by Chris Voss, then I recommend you do.  This book gave me the confidence to stick to my offer and 24-hours later I got a call back saying they’ve decided to accept my offer.

Fast-forward a few months and I’ve completed all the renovation work on the first flat, so I approach a lender to get it valued for a mortgage.  Now at this point, I’ve reconfigured the 1-bed flat that was rented for ￡750 PCM, into a 2-bed student flat for ￡1,350 PCM.  I was very confident getting a mortgage wouldn’t be a problem because of all the improvements I had made, but to my shock, I was told by my broker there were no lenders that would provide a mortgage.  I could not refinance this property and I could only sell to cash buyers.  Shit!  

The plan was to remortgage the finished flat at 75% of ￡190,000 which would give me ￡142,500 back. I paid ￡110,000 for the flat and ￡20,000 in all the purchase, legal and refurbishment costs. So I would have made about ￡10,000 profit from the mortgage and a monthly profit cash flow of ￡750.

I was lucky enough to exit by selling 1 flat to an investor for ￡190,000 which gave him an 8% ROI.  Meanwhile, the other flat remains on the market but at least it has a tenant that signed up for a year. Despite not mortgaging the flat, because I purchased it so cheap, it gives me a 13% ROI until it is sold. Once it does sell, I should make about ￡60,000 profit which is a 46% ROI.

So lesson number 1 is to make sure you can refinance, and now this is a key part of my due diligence process. A basement flat under a commercial building and opposite a pub will be hard to mortgage!

Get Help – Buy Yourself More Time

Being my first flip, I wanted to do as much as I could by myself, being a keen DIYer.  The problem is it took much longer to complete all the work, so by the time the property was ready to rent, it was late July and on a few weeks from the University term start time.

The delay meant I had to drop the price to get the flat tenanted, but if I had paid for professional help to help me work on the flat, there is a good chance I would have achieved a higher rent, sooner.  

It also meant I spent a few months focused on DIY and not enough time on what I would invest in after I’ve finished the flats.

Lesson number 2 is to focus on doing the things that bring the most value. Eat That Frog by Brian Tracy, has helped me do this.

Leasehold Property

I appreciate location and budget will affect what we can afford, however in my experience of leasehold properties, they can contain ‘hidden’ costs I didn’t consider and may put me off buying any more.  The solicitor's buyer of the flat requested a change in the leasehold, which not only nearly lost me the sale, but it also cost over ￡2,000 on fees to the solicitors and freeholder.

Lesson 3 would be to scrutinize leasehold property more closely than freehold.

Refurbishment Budget

I appreciate the quality of material and finishes, so I wasn’t surprised that I ended up spending more then I budgeted on this project.  Now, this isn’t always such a bad thing, because my 1st tenants initially signed a 12-month contract but after a couple of months signed to stay an additional 12-months.  I will save on having no void period, no painting or repairs before finding new tenants.

Fortunately, I had discovered LNPG just before starting this project, so they provided me with damage limitation on the discounts they offer from various suppliers.

LNPG has great discounts with various suppliers of quality products for landlords.  Kitchens, bathrooms, building materials, etc are all available with LNPG.  The problem I had has the discount I received with LNPG I just spent on upgrading on items too high spec for the student tenants.

Looking at LNPG would be lesson 4.

I hope you've found this article useful. Please get in contact if you're interested in property investing in Brighton.

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