Now that 2025 is over, we have a lot to celebrate. Starting a business, Getting over the embarrassment of posting on social media, and adding 5 properties to our portfolio.
The Beginning
For many, the start is the hardest and that’s a truth that we can relate to. At Daliskir Property, we believe in facing the unknown head on and that’s why we started our business. With Connor facing the mystery of rehabbing a torn ACL and Aidan facing the relentless graduate job search we decided to be proactive and secure our future ourselves. We spent 6 months learning the ins and outs of property and eventually found a deal that looked promising. A two bedroom flat in the outskirts of Glasgow.
After attending 30+ viewings and making connections with real estate agents and sellers over the central belt, we were approached by a seller looking to offload their property. This property fit several of the criteria we were looking for. It was in need of an interior renovation throughout, the floors needed replacing, the kitchen was outdated and over all it was definite fixer-upper. Moreover, the seller was motivated to sell. This meant that the price was under home-report value allowing us to force the property value up through refurbishment. However, there were some aspects of the deal that were slightly off. We visited the property several times during the vetting process to get an insight into the done up value of the flat and estimated that the flat could be worth in the range of £85-90k. However, there were several factors that we failed to consider.
When doing our area analysis we identified that the flat was within 200m of a primary school which would make it attractive to young families looking to rent. Additionally, the flat was within walking distance of a train station for commuters to Glasgow city centre and 5 minutes away from a hospital which allowed the flat to be rented out for hospital workers. Moreover, we spent time on rightmove finding comparables for the flat. We found flats within a ¼ mile that had sold in the last year that were all valued within the range of 85 to 90 thousand pounds. These factors gave us confidence that with the standard of refurbishment that we deliver we could have an end value of £90,000 due the previously stated factors.
The Numbers
Taking this into account we looked into the numbers that we would require to pay back our investors. With an estimated refurb cost of £4000, £750 for legal fees, and £350 for mortgage broker fees, our additional costs added up to £5000. Moreover, as we were using £45000 of investor capital we understood that we would need to pay them back £3000 in 8% A.P.R interest after 8 months. These fees allowed us to negotiate a purchase price of £55,000 with an additional £4,400 in stamp duty to be paid. This brought the total cost of the project to £67500.
As the expected end-value of the flat was £90,000, when we refinanced the property at a 75% loan-to-value we would be able to take out all the money we had put into the deal, including the money for our investors. Moreover, the property could achieve a rental value of £700pcm. With an expected interest only mortgage of 4% costing us £225 as well as additional management and factoring costs this allowed for a profit of £363 a month once the mortgage was secured.
At the time the deal looked like this:
- Purchase Price: £55000
- Refurb Cost: £4000
- Legal Fees: £750
- Mortgage Broker Fees: £350
- Land and Building Transaction Tax: £4400
- Investor Cost for Borrowing for 8 Months: £3000 (8% APR)
- Total Purchasing Cost: £67500
- Expected End Value of the property: £90000
- Money able to be taken out at 75% Loan-to-Value: £67500
- Money left in deal £0
- Rental Income: £700
- Monthly mortgage payments: £225
- Management Fee (8%): £56
- Factor and Insurance Cost: £56
- Net Cash Flow per month: £363
This deal looked great for us. It was an easy refurb and provided strong monthly cash flow on a low purchase price. However, there was some important information that we had failed to look at. When doing our comparable analysis we found 3 properties that had sold within ¼ mile of our property within the last year. However, what we had failed to understand is that these properties were not exactly like for like. Despite only being a maximum of 200m away from our flat and having the same amount of bedrooms, these properties were actually bigger inside. The tenement style they were located in had higher ceilings, larger living rooms and was located on a slightly nicer street. Although it didn’t seem like much, this was crucial for the valuation. It meant that when it came to getting our property revalued our flat didn’t hit the £90000 mark instead it was worth £85000.
The Revised Numbers
- Purchase Price: £55000
- Refurb Cost: £4000
- Legal Fees: £750
- Mortgage Broker Fees: £350
- Land and Building Transaction Tax: £4400
- Investor Cost for Borrowing for 8 Months: £3000 (8% APR)
- Total Purchasing Cost: £67500
- Expected End Value of the property: £85000
- Money able to be taken out at 75% Loan-to-Value: £63750
- Money left in deal: £3750
In the grand scheme of things this figure isn’t a massive amount of money and a lot of people have lost a lot more. Yet for us, it was a wake up call. As we guarantee our returns for our investors this was our own capital that we were losing and not doing due diligence on our area analysis means that we lose money. Because of the strong cashflow of this deal we managed to make our own money back within 6 months however it provided us with a more determined course for the future. To spend more time on property analysis before purchasing. Here are the main things we learned.
Insights
More input into Property Analysis
Since that day we have taken crucial steps to make sure our end property valuation are bulletproof. We have taken these steps to improve the accuracy of our analysis.
- 3rd Party checks – we work closely with estate agents and surveyors to ensure our property can achieve the expected value
- Comparable Visits – we will walk by the comparable properties to ensure the flats are in fact like for like.
- Using EPC certificates to calculate the price per square foot – by downloading the EPC certificates of similar properties in the purchasing area we are able to calculate the going rate of price per square foot of our flats. This allows us to give a confident valuation of the property based on its size.
- Lower the emotion – As this was our first flat our emotions got carried away and we rushed into a deal that was not in our best interest. Now we know that if the deal doesn’t suit us we will walk away
What have you learnt from your first deal?