Michelle Kennedy, the borrower, has a 3 year purchase lease option starting from January 2015 on this property which is being converted to a 6 bed HMO (House of Multiple Occupation).
The completion date for this is 22nd December
This means she has the right to purchase the property at the agree price at any time in the 3 year period. However the intention is to purchase it as soon as the refurbishment work has been done.
The agreed purchase price is £180,000. The property is currently a 3 storey mid terraced town house comprising 5 bedrooms. The house requires a full programme of refurbishment works that will cost £30,000 including a new central heating system, 3 en-suites and reconfiguration of kitchen/living area.
According to the RICS valuation once the work is complete the property will be worth £290,OOO on a bricks and mortar basis. However, the property will be let out as a 6 bed licensed HMO with an expected gross annual income of £38,700, which the RICS surveyor has valued as £387,000 on a commercial basis.
On completion of the refurbishment the developer will purchase the property with the help of the loan from CrowdProperty and then refinance it six months later with an HMO mortgage.
The loan will be secured by first charge on the property.
The loan to value will be 70% based on the bricks and mortar valuation but only 53% based on the commercial valuation.
If the property was being refurbished to sell then the profit would be approx £56,083 based on the bricks and mortar value and total project costs of £233,917. However as this is such a profitable HMO the developer will retain the property to benefit from the healthy monthly positive cash flow.
The developer profit is estimated at £66,083.
|Minimum 6 month Loan||Full 8 month loan period|
Michelle Kennedy has been investing in property since 2001 and over the past three years her focus has been on HMOs in the Hemel Hempstead area.
Her first HMO simply needed modernising with a new kitchen and bathroom. Others have required a small change of layout and the addition of a second bathroom.
The borrower has previously project-managed a full refurb into a 6 bed HMO and is currently converting a 4 bed semi-detached property into an 8 bed HMO with 5 en-suites. This property required a full refurbishment including re-wire and new central heating system and a major change of layout.
At CrowdProperty we only work with developers with proven track records. This developer has focused on a particular strategy of refurbishment of HMOs at which she has become very proficient. Buying below market value and then adding further value through refurbishment is a strategy already supported by lenders on this platform. This particular project is in a good area and is very profitable with plenty of equity, which provides even more comfort for our lenders.
* Please see full risk statement here.
† Estimated Sales Value is more formally referred to as GDV - Gross Developed Value
‡ Interest Cover is a measure of the project's ability to cover the interest payments from profits and is calculated by dividing the Projected Return on Costs by the Total Interest incurred throughout the loan period