Confusing Calculations .

[PoalaMCR]

Hi everyone,

I have recently acquired a property which I felt was a brilliant deal at the time. It was a great opportunity and I felt really good about it. The only thing is, the sums don't add up so well.  

I'm definitely not a numbers person and I am very new to this... So I was wondering what your professional opinions are....

My father was selling a property (large 3-bed mid-terrace in Heywood, Greater Manchester) and I purchased it from him for a cost of £75k. I used a mortgage of £71,250 and paid him £3,750 cash. I spent about 2.5k on broker, solicitor etc. (total costs to acquire: £77.5k). 

The unusual bit: Because I was a 'first time buyer' I couldn't get a B2L mortgage on the property outright. I therefore went onto the deeds with my dad for 6 months, before remortgaging with a 2 to 1 transfer, removing him from the deeds in exchange for all the equity released in the mortgage. For that reason I didn't pay a deposit towards the mortgage.

I signed a 5-year contract with the council who pay me £375 per calendar month with a 5-year contract. It's guaranteed rent whether it's rented or not and very hands off. 

What's more, the house was in desperate need of a refurb when I acquired it and the council renovated it free of charge. (new kitchen, bathroom, floors, doors, boiler, etc).

I have it on an interest only mortgage paying about £125 per month. 

Considering the numbers, my gross yield is 5.8%(4500/77500) and my net yield is 3.6% (2800/77500)

Super low.. right? 

Furthermore I'm not even sure how I would calculate my ROI.... I paid my dad 3750 + legal fees of 2500 = 6250. Does that mean that the ROI is 2800/6250? = ROI of 44%.... Really? 

Thanks for your support. 

 

[Matt Hall]

Couldn't agree more with the above. 

The cash flow might not be blowing you away, but in relation to how much you have put in it's a phenomenal guaranteed return for 5 years. 

Even without the Refurb it's a great deal, but factoring that in too you are in a great position in 5 years time too when you take it back over 

 

[PoalaMCR]

Thank you Richard and Matt!