Coburn Street Development Case Study

The Property

A two-storey property, the house consisted of two double bedrooms, two large reception rooms and a spacious bathroom. There was also a rear garden, meaning plenty of space to work with.

The mid-terraced house was located in Cathays within close proximity to Cardiff University - a popular area with students.

The Idea

CPS Homes advised the owner, who had bought the vacant property for £150,000 in 2010, that the house had tremendous property redevelopment potential in a densely student occupied area.

Our initial research showed that the property could be redeveloped into an eight-bedroom, mandatory licensable House of Multiple Occupancy (HMO).

Property Assessment

On review of current market conditions and considering the property was bought in the month of July - meaning students had long since sourced their accommodation for the next academic year - it was deemed best to sought tenants to fill the property on an initial short-term basis. This ensured that a rental income was received whilst the pre-development, such as obtaining planning permission and deciding on the new layout, was being carried out in the background with due diligence.

We provided the client with a detailed breakdown of the entire refurbishment process, which included the extent of the building work required, as well as finish and interior decor suggestions. We also supplied two quotes from reputable and trusted contractors that have carried out similar jobs previously.

We also gave the client appraisals for both the sales and rentals values of the property once the works were complete, ahead of the works being completed.

The owner then consulted various Financial Advisors and Accountants who advised him on how best to finance the property redevelopment work. He was quickly able to release the funds to enable the project to go ahead.

The Project

The project was a complete property redevelopment including gutting and emptying the property, designing, supplying and installing a new kihen and bathroom, new flooring throughout, re-decoration and complete furnishing, including appliances, ready for a new batch of tenants. The aim was to create a property that would achieve a rent of at least £2,000 per calendar month. The works were scheduled to take four months.

Results

The project was completed on time and within budget. We also exceeded our investment return targets as follows:

• Rented 2010: £625 PCM   

Redevelopment work commenced in 2011.

• Rented 2011: £2,000 PCM - an increase of £1,375 PCM or £16,500 PA   
• Rented 2012: £2,600 PCM - an increase of £1,975 PCM or £23,700 PA   

Our target was £2,000 per month, which was met in 2011 and exceeded in 2012. Over two years, we produced an additional approximate rental income of £40,200.

At the start of 2012, the client decided that he wished to sell the property. The property was placed on the market at £325,000 with a view to achieve offers in excess of £300,000. Within two weeks of being marketed, we had numerous offers. Final offers were taken and the client eventually sold the property for £310,000.

Therefore in 2 years the value of the property had gone from £150,000 to £310,000 - a total value increase of £160,000!

In total, for an investment of just £50,000, the client made returns of £110,000 - representing a remarkable return of 220% on his investment.

Even if the client had decided to hold onto the property for one more year, the rental increase alone would have paid for the entire refurbishment project.