Case Study: From Accidental Landlord at 20 to Buying a £96,000 Property and Increasing Its Value to £425,000 Amidst Legal Nightmares
Creativity is the most important and overlooked skill when investing in property.Without creativity, I would have never found my ‘best’ deal to date or seen the potential it had: a commercial unit close to the heart of London with the potential for a huge increase in value.This deal, though attractive, was years in the making. Few people believed I could pull it off, and at some points, I even doubted myself!
This is how I turned a £96,000 run-down salon into a luxury flat valued at £425,000. This project took time, stress, and a lengthy legal battle, but in the end, the results were better than I could have ever imagined. I hope that this article gives you some ideas on how to use creativity in your next deal and shows the value of persistence!
An Overview of the Project
This project is a little complex, so I’ll paint a quick picture of how it looked.The building was a 14-bedroom, tenant-in-situ HMO. Part of the building, but on a separate lease, was a hairdresser’s salon, making this deal a mixed-use purchase. Both the salon and the HMO were on the same freehold, though the salon had its own leasehold and was owned by a different individual (more on this later in the article).Located in Greenwich, the building was in the perfect area: a stone’s throw from the tube to central London, and a 15-minute tube ride from Canary Wharf.
The Gold is in The Follow-Up
I found the 14-bed HMO while scrolling through Rightmove. What immediately stood out to me was how low the value was for the area and property size.
When I went to the open house viewing, I felt like the most underprepared and under-experienced person there, but I made an offer anyway, which was rejected. Still, I kept my eyes on the property portal, and soon enough, the deal was back on the market.I think that’s something important to think about.
Around 30% of house sales fall through before completion in the UK. The percentage is even higher for commercial property. If your offer gets rejected, then save that property’s details somewhere and follow up with the vendor or agent regularly. If the sale falls through, it will just make the seller more motivated!
Borrowing One Million Pounds as a 25-Year-Old
When the HMO came back on the market, I offered £1.477 million, which was accepted.I had some capital from a house I inherited and sold in the Middle East, which left me with a million-pound deficit I needed to fund. Unsurprisingly, the banks weren’t willing to lend a million pounds to a 25-year-old, which created the first of many problems.As a solution, I offered everything I had as collateral, including existing investments. Because of this, and the fact I have experience as a landlord, I managed to secure a 25-year mortgage, but the interest rates were excruciatingly high.
If I didn’t have the experience that I have, then it would never have happened, even with security. In the bank’s eyes, even if you can repay the mortgage with the generated rental income, what if you’re a terrible landlord, and all the tenants sue you? To them, it’s about mitigating as much risk as possible.
A Deal That’s Too Good to Be True
I acquired a 15-bed HMO with tenants in situ in Greenwich for £1.4 million. Based on yields, I estimated that its actual value as a commercial property was circa £1.7 million.A property being listed that far below market value was bound to have its problems, especially if other experienced investors had pulled out of the sale before completion.
I waited to see what would come out of the woodwork, dreading the results. So, I wasn’t shocked when, two months in, the vendor asked to sit down with me.What did shock me, however, was the reason why so many sales had fallen through. The owner of the HMO property also owned the freehold for a commercial unit (hairdressing salon) next door and had been renting out the basement next door for the past 10 years, using it as an additional room.
The plot twist was that the owner of the salon was now in prison and was no longer in a position to sue the owner of the HMO. This was something I found out after due diligence. The vendor did not know this and assumed the legal battle was still going ahead, hence the deals falling through, as in English law, whoever inherits the property inherits its legal problems.I realised the commercial property was seized by debt recovery and, as debt recovery agencies go, they generally only care to make money, and this one was no different! I decided I would take the gamble and buy the HMO, then work on purchasing the commercial unit from the debt collectors.
Making a Gambit – Trying to Secure Two Deals in One
The commercial unit was 75 square metres, had 50 years left on the lease, and was in a state of disrepair. I knew that freehold, one-bedroom flats in Greenwich of the same size retail for around half a million pounds. I deciphered a plan to acquire the salon, cancel the leasehold, and convert it into a residential flat. It would be worth close to half a million pounds and achieve upwards of £1,750 per month in rental income.
This deal would not work if the salon was sold to someone else. Both properties were so closely joined they were practically part of each other, sharing entrances and a garden. If someone bought the salon while I had the HMO, then they could make both my life and the life of my tenants very difficult. This deal was only viable if I could secure both the HMO and the salon.
A Tip for Readers: Adverse Possession – A Useful and Frightening Law
The owner of the HMO was trying to claim something called Adverse Possession. Under this law, if land or property is vacant for seven years, but is occupied by someone who is not the owner, with no legal disputes and a defined border, then the property automatically becomes the possession of the person living in that property or on that land.
This law exists to make sure properties are not neglected and are being regenerated into the economy. If you have any empty properties or vacant land, it’s a law you need to look out for.
Securing the HMO & Freehold
I have a law degree, and I have experience working in a law firm. I felt confident I could hold my own on this case and save myself a ton of money in solicitors’ fees.So, unperturbed, I went ahead, making a deal with the vendor that I’d only agree to continue the purchase of the HMO if they agreed to sell me the freehold for free. In return, I offered to take responsibility for all the legal issues (which I’d have to do anyway). The vendor, not realising this, accepted the offer.Now, with the HMO and freehold in my grasp, my next step was to secure the leasehold of the salon, something that would be unviable if the debt collection agency that owned it continued to demand such a high price. The odds weren’t looking good, as my original offer of £100,000 was rejected.
Securing the Salon: A Long Legal Battle
The disrepair of the salon was causing issues with the HMO. Rats were appearing, and the auction company that was selling the salon started showing potential buyers around my garden, which caused a lot of worry among tenants.
Because of this, and my anxiety about the salon being sold to someone else, I began writing multiple letters of claim. I made each claim individually because legally, if the debt collection agency is speaking with a potential buyer, they have to disclose each one separately. I knew this would put buyers off and make the agency more likely to give up and accept my offer.
My letters of claim included things like trespassing, illegal activity taking place in the property, and disrepair. I even contacted the auction company, as they had a legal obligation to put these claims on their website.
The debt collectors ignored my letters and my offer to purchase the property, and they listed the property at auction. I telephoned the auction house and informed them of the history between the two properties and the letters of claim. The auction house had to disclose the information to all potential buyers. I registered to bid and managed to secure the property for £96,000!
My strategy worked and buyers were put off!
I cancelled the lease and converted it into a one-bedroom flat, meaning both it and the HMO were now on the same freehold. I elevated the former commercial unit’s value and the value of my HMO!
Instead of a rat-infested hair salon worth £96,000, the newly refurbished, leasehold-less apartment was revalued at £425,000. This unorthodox deal, the one that so many people tried to talk me out of, was worth every penny and every hour spent writing letters!
The Figures:
Figures for the 14-bed HMOPurchase Price: £1,440,000Mortgage: £1,000,000Refurb costs: None, as it was a tenant-in-situ property. Instead, I did minor works on each room whenever a tenant moved out.Value today (with the additional flat): £2,500,000
Figures for the hair salon/flatPurchase Price: £96,000Refurb costs: £35,000. I saved money on this as I had leftover materials, like tiles and flooring, from a previous project, and I topped up on anything we needed.End Value: £425,000Monthly Rental Income: £1,750
Additional fees across both properties:Legal Fees: £3,000Stamp Duty: £60,000 (when purchased with the hair salon, it was technically a mixed-use property)
Resilience is Key
I know this is a niche deal and one that relied heavily on my experience in law. However, I hope it shows you the power of resilience and how creativity, mixed with the right knowledge, can help you find those highly profitable, unorthodox deals.
If I can help with anything, or if you’d like to see more of my property journey, please contact me using the details below.
LinkedIn: Mariam RadiInstagram: itsmariamradi
