A one-bedroom London buy to let flat with potential and why I didn’t buy it.

Although I am currently engaged in a large development project, I am always on the look out for deals - either ready made or where there is potential to add value. This London buy to let opportunity is a little outside my patch, but looked too good not to go and view.

This goes back a few months from time of writing, but the deal probably still could have made sense today - IF it could have worked. So, let’s start with the details:

• A one-bedroom flat in London

• Needs a full refurbishment

• Previous sale fell through (seller keen to do a deal)

• Own front door (bonus for a flat)

• 94 years left on the lease; £400 service charge and £10 ground rent (not bad)

• Looked like an ex-local authority property

• Large for a one-bedroom flat with storage cupboards

• Reduced by a further £10k to £175k

The current owner didn’t keep the flat in the tidiest way and a lot of his stuff being everywhere was masking just how much space there was. The thing I like about ex-local authority flats is that, if you can find one in a location you like, they’re usually larger and built solid. This one was both and it got me thinking about making a (sightly) cheeky offer and seeing if I could reconfigure to a two-bedroom, refinance and end up with cashflow and some money out of the deal. I got my hands on a copy of the lease and there didn’t seem to be any objection to this kind of change,

The floor plan below shows what it currently is:

Excluding stamp and legal fees: The numbers would have looked a little something like this:

Purchase: £175,000 (assuming no cheeky offer)

Estimate value for a 2-bedroom flat: £275,000.

75%: of £275,000: £206,250

Which means I would have had £206,250-£175,000: £31,250 to do a refurb and reconfigure which (all being well) would cover it.

So what put me off?

This had the features of a good deal, but for a crack on the exterior wall, under the window, which I noticed on the way out.

I wasn’t too sure about this and spoke to some structural engineer friends who after some prolonged chin rubbing (rightly) suggested there must be a tree nearby and that a full structural survey would probably be needed. It got me wondering if that was why the last buyer fell through. Okay not great, but not the end of the world. It just needs confirmation that this is not so serious that it will scare a lender off. It was the second point which made me walk away from the deal. Upon considering the reconfiguration options, I was going to have a second bedroom where the current bathroom is and bring the bedroom out to incorporate one of the cupboards - it was handy that the cupboards had a stud wall between them.

That new bedroom would have had a window (the current bathroom window) which was no more than 30cm in height, which is probably okay if you are living in it – as an owner occupier, but as a rental, is a requirement that the window for each bedroom has the potential to be a fire exit. Not many people (I. know) are getting out of a 25cm window - fire or no fire. This would be entirely in the hands of the freeholder and since for this deal, I didn’t want to leave money in, it wasn’t a chance I wanted.

Now in hindsight, seeing how rents have rocketed around this side of town, for anyone with about £45,000 to put into a property and not looking to go through the hassle of re-configuring, it makes sense. I believe at the time rents were pushing on £1,000 and a few interest rate rises later, it’s not uncommon to see rents at £1,200 for one bedroom properties. Two-bedroom flats in zone four, East London are now getting close to £2,000- and one-bedroom flats will be in demand.

So, for cashflow and long term capital growth, these deals as buy and refurbish opportunities can and still do make sense.