By March, they will be finishing their third new-build home in eight years, which they hope will be worth £1.4m. They have climbed a long way up the property ladder from where they started 10 years ago with a two-bedroom flat in west London, but the path to property riches hasn’t always been easy.
“We’ve made a few mistakes over the years, and we once lost £50,000 on two buy-to-lets that went wrong,” says Holmes, presenter of the Discovery Channel’s Build, Buy or Restore?. “But I learn from my mistakes. We should invest more to make the most of it — not everybody has that attitude to risk but it’s essential if you are going to succeed.”
Holmes and Kirby, an interior designer, are prepared to pay whatever short-term costs will help them achieve their mortgage-free goal. They have been willing to repeatedly put their young family — Freddie, 8, George, 6, and Lily, 3 — in rented accommodation while their next house is being built.
“People hold back from building or renovating because they don’t want to lose security,” says Holmes. “Renting is perceived as a backwards step and they also don’t want the inconvenience of a second move. Worse still, they may have fallen in love with a property and emotion always compromises profits.
“But I think it’s very important to stick to a strategy. Not having to repay a huge loan can liberate your lifestyle — clearing your mortgage is the most tax-efficient investment you can make and in our case we have been able to privately educate our kids from property profits.”
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In 1993, Holmes, who is now also editor-in-chief of Homebuilding & Renovating magazine, was renting a two-bedroom, ground-floor flat in Maida Vale, in west London, with Kirby. When their landlady decided to sell, they scraped together a £10,000 deposit and bought it for £110,000, borrowing the rest on a mortgage. Over the next two years they used every spare bit of cash to improve the flat, spending another £10,000 on damp-proofing, a new kitchen, new flooring, a fireplace and redecorating. When they sold it for £156,000 in 1996 they pocketed £36,000, which they considered a fortune.
They put the profit to work straight away and bought a 0.14 acre plot in Yarnton, near Oxford, for £91,000 for their first new-build project in 1997.
Holmes had become convinced that new-build was the best way to make large profits in property development — and proved it when he made £435,000 in just two years.
The key to their success was using their imagination when it came to obtaining planning permission. The plot came with an adjacent field and outline permission for a small two-bedroom house facing the road. By turning the design of the house around by 90 degrees Holmes was able to maximise the size of the property and apply for use of the field as a back garden.
“They gave us permission as long as we signed an agreement never to build on the garden,” says Holmes. “We doubled the value of the plot straight away — even before we laid a brick — and then made sure we built with top-quality materials, real gravel stone for an old farmhouse look, expensive roof tiles and a quality, handmade kitchen. If we had compromised we would have sold the house for a lot less.”
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They spent £230,000 on the building project and put it on the market when it was finished and decorated in early 1999. Estate agents valued it variously at between £500,000 (for a quick sale) and £750,000 (which they found hard to believe). They put it on at £625,000, but within days they had started a bidding war. Two weeks later the house sold for £756,000.
“We were over the moon, but we really needed the money because we were absolutely skint,” laughs Holmes. “We’d gone from two incomes and no kids to one income and two kids. The bank was bouncing my cheques because we were overdrawn, and American Express took my cards away. Emma had been selling sandwiches to local businesses so we could afford to eat.”
They could have financed their next project entirely from their profits, but they decided to invest £95,000 in buying five terraced houses in Sheffield to renovate and let. Holmes felt the north of England was going to see big rises, but within a few years the police stopped patrolling the area where he had bought, vandals moved in, roof tiles were stolen, weather got in and the houses started to deteriorate.
“They send you enforcement notices to repair them, but you know it’s going to happen again,” Holmes explains. “We’ve invested again since then, but researched the areas ourselves more thoroughly. And we didn’t take any advice this time — you can’t trust other people to do it for you.”
They had to sell three of the properties for £30,000, less than half what they had paid for them, but two out of the five turned out well and having spent £10,000 on basic renovations these are now valued at £60,000 each. True to his philosophy of learning from his mistakes, Michael bought 12 more houses to let in Sheffield in 2004, and his rental portfolio is now worth £760,000, with a loan to value ratio of 60%.
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Having run into problems as landlords, they didn’t do quite as well from their next build project in Oxfordshire. In 2000 the couple bought a 1960s chalet bungalow for £200,000 and spent £230,000 converting it into a large arts and crafts-style house more suited to the period houses in the road. They sold for £675,000 in 2004, pocketing only half the profit of their first project in twice the length of time.
“The biggest problem was that we bought against Michael’s better judgement,” says Kirby, who admits the project was her choice because she wanted to live in the centre of the village. “As a renovation project we couldn’t play with the shape or the orientation of the property like you can with new-build, and the garden was too small. If we could have moved the house to make it larger, we could have got a lot more for it.”
The couple have now returned to new-build for their next home in Longworth. Holmes bought a large plot for £500,000 and has so far stuck to his budget to spend £475,000 on building costs. If it sells for £1.4m they will again have proved their strategy works. Having ploughed in everything they made from their previous project they have borrowed £500,000 and stand to recoup nearly £1m.
Holmes is convinced more people should consider new-build. This time he has avoided using an architect, employing an architectural technologist to draw out their own design ideas. Their first project suffered when they realised the architect had failed to design a way to get past the stairs from one side to the other in the attic. Luckily, the mistake was spotted early enough to avoid an impact on costs, but Holmes has not used professional architects since. He recommends the use of 3D-design software to get a good impression of what a house will look like.
“We have also learned it is worth investing in underfloor heating and whole-house ventilation,” he says. “Initially we were both suspicious that these are just gimmicks, but it’s great not having to worry about positioning radiators, and the ventilation extracts stale air quietly, unlike individual extractor fans.”
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Holmes already has his eyes on his next project and is going to join forces with his builder to buy a plot for five new houses before the couple decide where they would like to build their own dream home.
“I believe we are going to see another big rise in property values in the long term,” he says. “The interest-rate cycle has peaked and is starting to turn the corner. We’re building far too few houses in this country — there is a massive demand outstripping supply so house prices are a one-way bet in the long term.”
Build, Buy or Restore? is on Discovery Real Time, Mondays, 9.30pm