Which strategy is best fit for my specific situation?

[Paul M.]

Hi, This is my first post so hopefully it is not the wrong place or out of place. I suspect this question has been asked many times and depends on specifics. In my current situation I don't think either method (flip or BRRRR) is a bad idea, which is why I am unsure what to do. As a first point please note that this is in the UK, just outside London, where the average price is about £300k and up for single family three bedroom houses.

The house I purchased is in a row of streets with terraced houses that are all constructed in the same way, some have sold for £300-350k, the average price is £250k however because many of the houses are in need of modernisation. They were built in 1910 and have high ceilings, brick and tile roof construction.

I purchased the property for £252k with 5% down, in the UK we have first time buyer mortgage with a 5% deposit option and tax exempt for under £500k purchase price. Due to this it made sense to me to not buy a flat (apartment) and wait for it to appreciate but rather buy a house and try capture some value out of the "first time buyer" opportunity. The mortgage is for £240k with £12k down. I planned initially to spend about £25-35k for the renovations. So total cost would be £287k. I underestimated how much things would cost and I will end up spending £45k, this includes £10k on new windows and doors which I didn't plan on spending right away but ended up needing doing due to the state of the windows. 

This is my main residence and i currently rent a low quality two bedroom flat for £895 per month. The mortgage costs £950 per month and the loans for the renovations costs £620 per month. They are over 7 years and the mortgage is a 2 year fixed for 35 years. I can afford the loans and mortgage as I have a decent day job, ideally I would not have the loans of course. 

What I wanted to do was the BRRRR strategy and refinance for hopefully £325k at 10%. This should enabled me to get back £52500. Obviously that depends on getting the after reno valuation of £325k. Then I could either try and cash flow that first property with the loans by renting out rooms at £600 per month, in total I could get 3x600 or £1800 per month (if the downstairs living room was "converted" to a third bedroom (something that is common around london) , then use the £52500 as a deposit on a second property, in the UK a second property requires 20% deposit and at £250k that would be £50k, plus I would need to save up renovation costs if I wanted to do that strategy again and it would be difficult to capture the same level of money out at 20% refinance or 80% LTV. The other benefit is that I get to live in the property and even for a year or two i could have two tenants at £1000-1200 that could assist with paying off the loans. The other option is to pay off half of the loans at £25k and then save up for a longer period for a second property deposit living with lodgers while doing so. 

Now the other option is to just sell it after renovating for £325k. That would be a profit of £28k excluding buying and selling costs. The downside is that I would be without a house and If that is my plan I might as well not leave my rental property, where I would have to add in the cost of the property until it sells. 

I lean towards the BRRR method because it seems the only way that I can save up £50k necessary for a deposit in order to build a portfolio of properties.

Thanks.