Bungalow Flip

---

Bungalow flips are well known to be very lucrative projects within the property investment world, so when we managed to negotiate a huge discount on a bungalow in our local area we were over the moon, however it would turn out to be our most challenging property to date.

Negotiating the deal

This particular property was actually on the market, a bit different to the usual off market properties we tend to find and buy. However we managed to negotiate a significant discount from the listed £230,000 price. May 2023, we agreed to purchase the property for £185,000.

Bungalows needing a refurbishment tend to only attract investors, as people looking to move into bungalows are not really looking for a project, they want a ready to move into bungalow, and this one was no different. The property had been on the market for quite some time with no doubt the £230,000 price tag putting many people off. We felt there was an opportunity for a discount on the promise of a quick sale. After viewing we discovered the sellers were actually a house builder who had part exchanged with the previous owner and needed the property gone before a certain time frame, which aided our negotiation. Turns out the discount was very much needed and reemphasises the point that you make money by buying at the right price and also factoring in that things can...and often will go wrong, as you will soon find out...

Refurbishment

The refurbishment was managed by us, in house, the first time we have done this, as we usually outsource, but due to the property being local we felt it would be a good experience for us to take forward into future projects and save some of the costs.

We had a fantastic team of trades who worked on the project (and now also work on other projects for us), we went only a couple of weeks over timescale and only ever so slightly over budget, all in all the refurbishment was stress free and went as close to plan as it possibly could, so we were very happy with the end product as you can see from the below images, it turned out beautiful. 

Total spend was just over £45,000 and took a total of 15 weeks start to finish, main reason for going over our initial 12 week plan was due to the project being smack bang in summer with holidays slowing things down slightly.

On first analysing the numbers before purchase, we estimated a resale of £290,000, which would leave us with a profit of £35,000 after paying back our funders plus their interest.

The property was initially listed for resale at £325,000 (no chance of getting that was our initial thinking, but lets give it a go) Day 2 on the market and we received a no chain, cash offer of £325,000!! We could not believe it..Quids in!!

This is when things took a turn, the buyer backed out 8 weeks later, the week of exchanging contracts for no given reason. We were deflated but not concerned, so back on the market it went. The key lesson learned here is to have an early conversation regarding a reservation fee to ensure the buyers commitment and seriousness to  prevent things like this occuring again.

A second buyer soon followed, we reduced the price as we were more than happy with £290,000 and we had future plans for more projects so a quick turn around is of most importance to us. 15 weeks later, again, we came across another sale fall through, our buyers, buyer had pulled out just before exchange of contracts so the chain broke which impacted our sale...another kick in the teeth!!

Relationships with our funders

You will be aware that our business is built on relationships with people. (funders, trades, solicitors, brokers, agents etc)  

We work with private funders who fund our projects for a fixed return, with the term usually 12 months, this project was no different. The 2 sales falling through were now hugely impacting this 12 month time frame. We were at month 11, we usually pay back early so this was new to us and we had to manage the relationship we have with our funders.

The worst thing you could do in this situation is bury your head in the sand (we didn't) 

Early conversations are of most importance. We were always keeping our funders up to date as we always do anyway on the progress or the refurb, the resale, pretty much the whole process so they were aware of what was going on. However, we had never needed to have a conversation about extending the term of the their funding, until now...We could of just let it slide but relationships are the most important aspect of what we do so a conversation needed to be had.

Were we nervous? Yes

Were we worried? Yes

Were we honest? Yes, and that is the most important point! 

The conversations we had were very easy, we had already developed a very good relationship with our funders from past projects so it was simple, nothing to worry about, nothing to be nervous about, they were all absolutely fine with an extension and agreed that we just continue to pay interest until the full amount was returned. This would obviously impact our profit, but from the outset as I have said all along relationships and winning together is of the upmost importance to us, it will always be us that will take the hit if it comes to it.

We accepted another offer pretty much as soon as the second fall through happened, however at a lower price of £274,000 as we now were being impacted mentally and we felt until the property sale completed it was holding us back from growing the business and portfolio more so it was best to just let it go and take the hit profit wise. Month 15 the sale completed so a 3 month extension from the initial 12 month term.

Our funders have since worked with us on other projects and will continue to do so, this just shows the importance of honest, early conversations and maintaining a decent relationship.

Purchase Price: £185,000

Stamp Duty: £5,550

Legals: £1,416.20

Refurb: £45,184.52

Holding Costs: £1,510.85

Total required: £238,661.57

Private Funding: £240,000

Interest Rate: 6% 

Term: 12 months (extended to 15 months)

Private Funding Interest: £18,000

Total all in: £258,000

Resale: £274,000

Selling Costs: £4,000

Profit: £12,000

A lot of work and stress for £12,000, however the lessons learned and experience gained will help us continue to progress within the property investment space, it certainly hasn't stopped us...if anybody knows of any bungalows needing a refurb, please do let us know :)