Case Study – My First Commercial To Residential Project

I thought I would share this with you.

It’s a case study of my first deal. Hopefully you will find great value as I explain what I got right and what I got wrong.

I did my first large deal when I was 21. It was a run-down, boarded-up pub, which I converted into four apartments. I got a bridge on it, bought it, did the work and got development funding.

I was completely out of my depth!

At the time, I didn’t have the experience – I was a full-time university student, doing a bit of painting and decorating on the side, with zero money. If you had to write a list with every reason a bank would say “NO” to you then this was it! But, for whatever reason, I knew in my gut that I could make it happen.

Case Study 1 – Croft House

The Property:

A run down, boarded up former public house, with three ad hoc extensions at the rear on different levels. The soil from the extensions was just dumped in the garden so retaining walls and new opening would be required.

The flat roofs were shot, and the pitched roof required work. It had dry rot infestation along with wet rot. Meaning the floors and walls were compromised in places. The masonry on the front had filed and was blistering off. It needed everything doing to it.

Purchase:

After hearing “No” a lot from banks, due to my lack of experience and lack of any other assets or funds, I was getting pretty frustrated, so I contacted Alan, a guy I used to work for on the Isle of Man. He said, “Go on then, George, do me a business plan, I’ll lend you 100% funding to buy it and develop it”.

That was definitely a life-changing moment for me.

Strategy:

To convert it into 4 flats.

Works include:

●     Full Planning & Building Control Permission

●     Pitched roof to repair & new flat roofs

●     A new extension, then floor and ceiling to raise to marry up the three rear extensions

●     A retaining wall to allow new door openings, bins stores and steps to the garden

●     Fencing walls, levelling and graveling of the garden

●     Replacing a giant wooden 3m long wooden lintel with dry rot

●     Rendering the front and rear of the building

●     Stripping out and clearing out of all junk left there

●     Cutting back all timbers and materials affected by the dry rot, treating and replacing

●     New services mains coming into the building Gas, Electric, Water

●     New draining internally and externally including manholes

●     Taking walls down, putting walls up, boarding, plastering, painting

●     New wiring, plumbing, bathroom suites for four apartments

●     New joinery and kitchens

●     Carpeting and decorating throughout.

I did all the work, with the help of my friend Graham – starting with drawing my own plans and building control submission, stripping-out and knocking doorways through (which was really fun), a little bit of bricking up, plastering (which is so hard), joining and taping and dry-lining walls. The plumbing was very mentally challenging to get it all working correctly. I didn’t do the wiring. I can run a few wires through, but I definitely held back on that, because you only get one chance with electrics. When you’re doing all these hours and you’re really tired, that’s the last thing you want to be getting wrong.

It was an amazing learning curve, but I strongly recommend you don’t do what I did. It’s a lot of hassle and a lot of hard work. I’d recommend sitting back and trusting the experts to do it now.

The Numbers:

Purchase price (incl. all costs): £90,000

Investor loan: £163,000

Refurb cost: £85,000

End value post refurb: £247,000

Loan repayment, legals & 10% interest: £175,000

Profit: £72,000

Remortgage & Sale:

I remortgaged and split the title into four leasehold units and one freehold. I drew the plans for the title split myself as well to save even more money. I retained the leasehold personally and the freehold in a Limited Company. Times have changed now and I would recommend Limited Companies for all.

The plan was to sell the bottom two and keep the top two, but a sale fell through on the bottom one, so I ended up keeping three.

So there you have it. My first deal warts and all! It wasn’t the smoothest ride I’ve ever been on but it made a profit and is still cash flowing today!

Hopefully it will inspire you to take the next step on your property journey!

George Gannon
Property Leverage