JLH Homes Ltd wanted to enter a new sector of serviced accommodation. We viewed many properties near the coastal town of Lancing until an estate agent introduced us to 2O Ariel Court before it came on the market. The owner was looking to retire to a smaller ground floor flat and wanted a quick and easy cash sale. We viewed the flat the next day and made a cash offer, using some of our own cash and funding from a private investor that had previously been secured for our next deal. This meant we could move quickly without waiting for conventional financing.
We had a vision to create premium short term service accommodation in a market where I felt providers were missing out. Ariel Court was severely undervalued compared to other seafront apartments in Lancing as the block was freehold and was about to be converted to leasehold. The flat was also in need of a complete refurbishment as it had not been updated since it was originally built in the 1960s.
The renovation needed to be completed quickly as we were taking bookings within 2-3 months. We advertised the property through Airbnb, booking.com, etc. with 3D renderings.
During the renovation, we also added an en-suite bathroom to the master bedroom. This reduced the size of that bedroom, but it made a lot of sense if you have serviced accommodation in mind.
During the construction we had many problems that we did not have when we renovated the houses in Huddersfield. When building the en-suite, our plumber had to drill through the floor to create enough fall for the new toilet waste pipe. This resulted in him drilling down into the flat below, damaging the ceiling which had to be repaired.
Ariel Court is a very close knit community of people, some owner occupiers and some tenants. The noise emanating from the refurbishment led to many complaints, although we limited the noise to the allocated working hours.
When we bought 20 Ariel Court we were clear with the board members of the Ariel Court Ltd company that I would be using the flat for short term letting. This was not a problem at the time. As soon as the refurbishment was completed and our guests arrived, the residents started complaining that they didn’t like the ‘IDEA’ of strangers coming in and out of the block. We tried to ensure the safety of the residents by offering to fit cameras and showing them our strict T&C’s for all guests.
As the flats were Freehold, I had no legal obligation to stop letting them as Serviced Accommodation and there were few problems with guests. Although I knew that once the flats were converted to leasehold, there would be a clause to stop using the flats as serviced accommodation.
This finally happened at the end of 2019 and correlated closely with the Covid 19 outbreak, leading to the decision to cease use as Serviced Accommodation and accommodate a full time tenant until further decisions were made. This tenant decided to end their tenancy at the end of 2020 and as the profit was quite low we decided to test the water with a sale.
The flat was on the market for 4 months at £235,000 before we agreed a fully furnished sale for £230,000 in early 2021. The sale was completed in May 2021.
The initial purchase + build costs were estimated at £210,000. Issues encountered meant we had to increase the budget by £3,310. Using our Lancing 1 bedroom serviced flat as a guide we estimated that we would turn over £25,000 PA as a 2 bedroom flat SA. This was on track until we had to change plans due to resident complaints and Covid-19.
During the 2 years that the refurbishment was completed, income averaged £18,000 pa. At full time tenancy the income would have been £11,100 had we continued.
JLH Homes Ltd invested £63,310 of their own capital with no interest charge on the investment as it has full ownership. Taking the Income into account JLH Homes Ltd earned a ROI of 12.5% pa. Private Investor Finance was £150,000 @ 6% pa.
The full Purchase and Investment Costs were £213,310
The sale price was £230,000 – £3000 fees = £227,000
JLH homes ROCI after Sale = 22%
