Would This Deal Work? Running the numbers on a £185,000 terrace

Every property we look at goes through the same worksheet before we get anywhere near an offer. This is that worksheet, worked through end to end.

One important caveat first: the property below is illustrative. It is not a deal we have completed, and nothing here is a claim about a track record. The figures are realistic for a UK terrace in need of modernisation, and the point is to show how the arithmetic is structured — not to present a result.

The purchase — £185,000. A three-bedroom terrace needing full modernisation: rewire, new kitchen and bathroom, redecoration throughout. Nothing structural, which matters. Structural work is where budgets tend to disappear.

The cost of buying — £11,400. Stamp duty at the additional-property rate, legal fees and a survey. This line is easy to underestimate, and it comes out of your own pocket rather than the mortgage.

The works — £28,000. Priced from actual quotes rather than a rule of thumb per square metre. We price the build before exchange, not after. This is the single biggest source of risk in a value-add deal, and an estimate is not a price.

That puts total capital in at £224,400.

The end value — £265,000 once the works are finished. That figure comes from comparable sales of already-modernised properties on the same street and the streets around it, not from what we would like the finished article to be worth.

The refinance — £198,750. At 75% loan to value, that is what a lender advances against a £265,000 valuation.

Which leaves capital left in of £25,650. That is the number that decides whether we proceed. We put £224,400 in, took £198,750 back out, and roughly £25,650 of our own money stays in the property doing its job.

The income — £1,395 a month, or £16,740 a year. Against total capital in, that is a gross yield on cost of about 7.5%. Gross is the operative word: finance costs, management, maintenance and void periods are all real, and all have to be modelled before this means anything.

Now the part that matters most — where we would walk away. If the post-works valuation came back at £240,000 rather than £265,000, the refinance drops to £180,000 and capital left in jumps to over £44,000. Nearly double, on the same property, with the same works, from one valuation. That is why we stress the end value downwards before making an offer rather than hoping afterwards.

We stress the interest rate too, well above what we expect to pay. A deal that only works at today's rate is not a deal that works.

Every property has its own particulars and none of this is investment advice. But the shape of the question never changes: what goes in, what comes back out, and what stays trapped.