How to make over 500k | Commercial Conversion | Money Matters | Touchstone Education


– I’m standing in front
of my home in Scotland. It’s been my home for 16/17 years now and it was originally a
commercial conversion. (upbeat music) Okay, so let’s talk about the numbers. By the way, before I do
that, welcome to the hallway. You can see the lovely
views out to the garden, the fountain, the flag, everything else. So we bought this as a nine-bed care home. We reconfigured it to an
eight-bed family home. We bought this property
for 450,000 pounds. We then went on to spend
120,000 pounds on it but 60,000 pounds, as you’ll see, as you walk through the house with me, was actually on the kitchen. And, it was well worth
spending on the kitchen. So, in total, we spent 560,
I think 570,000 pounds, something like that. As soon as we finished, it was immediately
revalued at 1.1 million. What did we then do? We put a mortgage on it of 770,000 pounds, because we could, 70% lines
of value of 1.1 million. So we took out almost 200,000 pounds more than it cost us to do this conversion and that essentially is what we then used to go off and start our
property investing business. So this wasn’t a flip. It could’ve been. But if we’d have flipped this property, so let’s say we’d have,
let’s keep the numbers easy. Let’s say we’d have
bought it and done it up for half a million and
then sold it for a million, made a half-million profit, we’d have had to pay either income tax or capital gains tax on that
half-million-pound profit. Now, if we’d done that, 40%
of half a million is 200,000, you know, say you’re 40% taxpayer. But that’s going to kick you
into 45% taxpayer territory. So, even if you made a profit
of half a million pounds and you sold it straightaway, there are ways that you could manage this. But if you did make that profit
and sold it straightaway, you’d get the half million pounds but you’re going to lose 200,000 in tax. You’ll only end up with 300,000 pounds. So very often, before you
go and sell something, make sure you do the
numbers if you keep it because if you just
release the extra money as an equity release in a mortgage, very often you can take out
the same amount of money, tax free, and you’ve still got the asset. You’ve still got the property. The second thing, huge! Huge mistake! We’d never heard of capital allowances. So we didn’t claim any capital allowances when we converted this
care home to a family home. For most people that do
commercial conversions into residential and sell them, if you don’t claim
capital allowances, bang! Gone! You’re never gettin’ ’em! Never, ever getting them! So the essential numbers here are purchase for 50, conversion
120, revaluation 1.1 million. Fantastic project! But it could’ve been 15,000 pounds better just on VAT and it could’ve been hundreds of thousands of
pounds better at the time, had we known about capital allowances. What is a capital allowance? Well, it’s an amount of money that you’re allowed to earn tax free. How do you qualify for capital allowances? Buying commercial property. So between exchange and completion, make sure you’ve got the property insured. Next lesson, the rebuild
cost on this property. So the current value of this property, well it doesn’t matter. Let’s go with property value
then when did the refurb, 2004. It was valued at 1.1 million. And, the rebuild cost on
the house was 1.8 million. So we’ve got a very
hefty insurance premium. But the extra thing that we didn’t know, that we hadn’t factored in, was the covenants, the deeds, with a covenant is a
promise within the deed, says we got to maintain
a 6-foot-stone wall around the perimeter of the garden. The rebuild cost on that stone wall around the edge of the
garden is 1.2 million. The property insurance,
not the contents insurance. Just the bricks and what the rebuild cost to insure this property every
year is over 3,000 pounds. And, we had other issues
as we went around the house and we started refurbishing it. But rather than stand here
and tell you about them now, I’ll share ’em with you as we go around. Okay, so welcome to the lounge. Or, at least it’s a lounge now. What this used to be is one
of the residence lounges. We’ve kept all the original features, the coving, all of the plaster work. We’ve put back the picture rails. We’ve got the original
parquet flooring here. But when we bought this place, we didn’t actually know
this was under here. There was two/three layers
of carpet on top of it. We’ve got a bay window to the front. And, what we had to do, this
isn’t a list of building, but it’s a conservation area. So if you look at these windows, they are sash and case windows. But they’re special sash and case windows. They are double glazed and they are UPVC. So, why was it so important
for us to get UPVC windows in? Simple. The bottom of our garden is the sea. So if you go and put wooden
windows in to any property, well, you’ve got a maintenance nightmare if you got painting. But we regularly get the
wind bringing salt in to us. So imagine how often we’d
have to repaint those things if they’re all made of wood. But in this house, we replaced 48 window. Our total bill, installed,
not buying them, the total bill, 48
windows was 24,000 pounds. So it’s always worth making sure that the money you’re
spending on the property is adding as much value as possible. And, I’m going to give you a
rule here, really important rule. If we spend one pound, we want to generate three pounds of value. Fine point on this room, the doors into our main reception
areas are enormous. They’re again, they’re nine-foot doors because this was a care home, the main doors were all screwed shut. They were backed with asbestos and they were literally screwed shut. Because in a care home, or many properties where you got to have public access, all of the main reception
areas, the residence lounges, have to be accessed through
fire proof anti-chambers. So all of the rooms into
our main reception rooms, sorry, all of the access into
our main reception rooms, were coming through secondary doors that were created with
fire-proof lobbies on. They looked disgusting! And, the main doors were screwed shut. Now fortunately for us, they were still here because sometimes they get bricked up or, you
know, whatever, removed. So all we had to do was
remove the asbestos, very important point! You shouldn’t be doing
any work on any property without an asbestos survey. So we had the asbestos survey done. We knew where the asbestos was and what kind of asbestos it was. So we took the appropriate measures, we got the asbestos removed, closed over the secondary doors that had been created into our main rooms, and reopened the main doors. Throughout the property, we’ve installed Mains
interlinked smoke detectors. We’ve got fire detection
services so we’ve got, as you go through each of our rooms, you’ll see they’re there. We’ve also interlinked an intruder system. When you’re not here, you’ve got that security and piece of mind. If you got the house in bits to wire-in, Mains interlinked smoke detection, or in the kitchen we’ve
actually got heat detection because you don’t want it getting set off ’cause somebody’s burnt
toast or something, and a burglar alarm, an intruder system. Now all of that is remotely monitored. (upbeat music) So this room was the original
dining room in the house. It’s quite a way from the
kitchen so we’ve chosen to relocate the dining room
to the back of the house. So this is a big public reception room. As with all the other rooms, we’ve maintained all the plaster work, put back picture rails, rebuilt the original skirting
boards where we needed to. And, this is one of the very few fireplaces in the house
that’s actually original. Coming off this room, as
well as going back that way, to the hall, going through here, we’ve got what the previous
owners called a garden room. So it’s kind of a conservatory. What we’ve done with
that is we’ve tiled it. We’ve put in on-the-floor heating and then we’ve put a
nice, big jacuzzi in there for six people, which the kids, well, we love as well, nevermind the kids! So it’s a very nice
addition to a family home. Okay, so very briefly here’s the jacuzzi room I talked about. It’s very light which this
is surrounded by glass. Here’s the jacuzzi. It’s been there for, wow,
17 years I think now, so it’s, this jacuzzi’s actually older than two of my children. I’ve told you how old it is but it still gets
pretty, very regular use. And, yeah, that’s pretty
much it for this room. On to the next room! (upbeat music) Welcome to my room! This is my study. Love this little study! It’s got my favorite chair in it. Do a lot of reading and writing in here. Got my desk. Got a cute little fireplace in the corner. Think we’ve got, yeah, we’ve
got 18 fireplaces in the house. So, in some of them, we’ve kept them open, like this one is open. This is actually a Rennie
Mackintosh fireplace. Charles Rennie Mackintosh
is a big thing in Scotland. He’s a big thing particularly
in this area of Scotland. We’ve got a World Heritage
Site in the local village, it’s called Hill house. So little features consistent
with the local area, giving some histories and
heritage to the house, to the property. But actually, when we moved in here, this shows the importance
of having an open mind, this room was completely out of place for the rest of the house. This was actually a utility room. All right, let’s keep going! This room gets really well used! This room was originally the kitchen. The ceiling in here was comparatively low compared to the rest of the main house because here is where the
servants would have worked. Anyhow, myself, really love
the light in this room. Again, it’s a jewel aspect. We’ve got windows to the side. We’ve got main windows to
the front of the dining room, looking out onto our side gate. So we’re very fortunate
that this big detached house is plunked in the middle of the plot and we’ve got garden on four sides. (upbeat music) The kitchen is one of
the most important rooms in any property. And, we actually made a lot of modifications to this kitchen. Physically, when we moved in, there was a, I haven’t just got shorter, we’ve changed the floor levels in here. So we’ve got a couple of steps in here. There was a big, massive formica. It was gorgeous, not! It was bright orange,
if you can imagine that! So there was a work top
that came all the way out to about here, from the door over there. And, the kitchen was,
I’m going to say 1960s. The wall was decorated with,
wait for it, Hessian wallpaper. How ‘about that? Absolutely horrible! The kitchen itself is a
Clive Christian kitchen. And, for anybody that knows
anything about kitchens, believe it or not,
forget the actual cooker, and the dishwasher, and
the refrigerator for now, just the kitchen, the
carcasses and the work tops, were 60,000 pounds. Now you might be thinking, “Jesus Christ, spending
60,000 pounds on a kitchen!” But if you’ve got a
million-pound-plus house and you don’t have this kind of quality of fixtures and fittings, you’re going to be jeopardizing
the value of your house. Underneath the floor here was
one of the major pieces of, I guess this was about the
nasty surprise that we got. This house is actually
built on rock, on granite. And, the back of the house to the front of the house is about 5’4. So, the ground actually falls away from the back to the front of the house. So the front of the house,
we don’t have a cellar but under the floors, as we’ve got suspended timber
floors throughout the house, I can’t stand up but there’s
about 4’6 of head-height. At the back of the house,
there’s only about 18 inches. Under the floor here, over the years, there’ve been water running in from an underground stream and it completely rotted and perished all of the wood in the kitchen. So that was about the only
nasty surprise we had. When we were taking the kitchen
out, the old kitchen out, we noticed all the floor
levels were sagging, so we had to put more than
10 tons of warp-proof cement under this floor before we
could start building again. And, we had to divert the
underground stream off outside. You know, if we’d have
just put 10 tons of cement under the floor here, what
would the water have done? It would’ve found it’s way around it, and the overwhelming likelihood is, that it would just have started rotting some other part of the house. Hope you like the kitchen! We do and we spend a lot of time here! Let’s go have a look upstairs! (upbeat music) So, here we are up on
the first-floor landing. You can see we’ve carried on the black-and-white tiling throughout and you’ll see it again on
the second-floor landing. And, many people comment on that and it’s not actually original. We put it in. We’ve matched it to the ballistering. Let’s go have a look at one of bedrooms. (upbeat music) So welcome to one of the bedrooms! And, again, you can see
how tall the ceilings are. And, as with all the other rooms, we’ve maintained the original features. You might notice that
in many of our rooms, we don’t have any curtains. You might be, “That’s a bit weird! Why haven’t they got any curtains?” Well, the reason haven’t got curtains is because West Coast Scottish
properties of this age, have got shutters, but
they’re internal shutters. So we’ve put, or we’ve
brought back into use, all of the internal shutters. So they all work like this. And, if I was to close
them both over, they’d go, well, I will close them both over so you can see how dark it gets. So there, you probably
don’t have the doors . Now, you probably can’t see me anymore. This shutter, we had to refurbish. You see this piece of black tape here? This is actually black-out fabric from the Second World War
that we’ve left there. So during the Second World War, we are, or just out here, see
the views that we’ve got. We’ve got the Clyde. And, close to 50% of the
shipping for the world, was actually manufactured
on the Clyde and by export, which meant that during Second World War, the Clyde was a major
target for the Luftwaffe. And, this house, and because
Glasgow was bombed a lot during the Second World War, this house was actually used
during the Second World War and as an evacuation point for children. So during the Second World War, this house was home to 138 children. Apparently, just this room,
used to have bunk beds in it. If you can imagine,
four-high bunk beds in here. So just this room had
more than 20 children sleeping in it during World War II. Okay, let’s go on up to the second floor, really just to show you
how low the ceilings are compared to down here because that’s where the
servants would have been. (upbeat music) Aye, welcome to the second floor! And, you can probably see what I was talking about with the doors. So, while I’m standing still, it’s okay, but while I’m walking,
I’m going up and down, I would crack my head. I’m not super tall, I’m
6-foot-tall, which is kind of, pretty normal for adult males these days. Anyway, there we are! The tour of the house is complete and what I’m going to say to you, in terms of a closing comment, is if you think that, you know, commercial conversions are interesting, if you want to explore the opportunity to make a lot of money
from purchasing something that is not currently residential. So it could be like this house
was, a care home business. It could be a bed and breakfast. It could be small hotel
that’s closed down. It could be some offices, it could be an old counsel building, it could be anything. We’ve done most of those. So take a commercial building, that is not being used for
what it was built for anymore, and turn it into a house or some flats. It’s a commercial conversion. You’re converting a commercial property into a residential property
of much higher value. As always, you’ve been wonderful. I’m Ian Paul. See you next time!

5 thoughts on “How to make over 500k | Commercial Conversion | Money Matters | Touchstone Education”

  1. Hi Paul, I love your house, you must be very proud of it. why should you get insurance between exchange and completion? and what sort of things in your house could you have claimed capital allowances on. Thank you

  2. What a fantastic house 😉
    It just goes to show that you need to know exactly what you are doing, or you could end up with a large tax bill !

    Thanks for the video
    👍

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