Counting The Pennies – Part 2
13th January 2018
Continued from last week…
There was another deal I was offered, back during the pre credit crunch era in 2003, this was ten properties in West End Key in Paddington. These were new build properties valued at £350k each, and the actual purchase price was £275k. In those days one could get a mortgage based on 85% of the valuation, which came to nearly £300k. If we had proceeded, the difference would have been used to pay for the sourcing fee (as these were packaged by a property sourcer) and the stamp duty, which means this was a cash free deal. You did not need to put any money into the deal.
What’s more is that they came with two year tenancies, rented out to a Swiss Bank. The deal scared me at the time, as if the flats became vacant I would not be in a position to even cover the service charge, which being new build flats were heavy. These same flats are now worth £650k.
However, life moves forward, and there is little point in looking in the rear view mirror, especially in regards to property. You could spend the rest of your life lamenting at deals you missed.
The focus needs to be on the present terrain, and currently we are in a very different scenario; one which is scaring most people away from property. Primarily, the tax environment has changed, along with the lending criteria. Compounded with a massive uplift in property prices, London has now become a tougher place to invest in property for the average Joe Blogs, earning an average wage.
Therefore, one needs to change the strategy to suit the current terrain. For one London is out. Two, the property needs to be generating a strong yield, as the capital gains probably will not be substantial, as compared with London.
One thing I learnt from observing a Jewish money lender, is that the property deals they do are not dependent on market conditions. They make money rain or shine every month. Their focus is primarily on yield. They are mindful of capital growth, but money needs to come in every month. Office to resi conversions, and large buildings which can be split to very small rentable rooms is their focus. This ensures the yield is high.
So, there are a couple of ways to go, one is to purchase a HMO, which means a House Of Multiple Occupation, and the other is to seek areas outside of London where there exists a strong pool of renters. This will keep the yields high.
An added bonus would be to ensure the property can be developed, so the initial funds are extracted after work has been done, assuming there is equity to extract.
Ideally, the above should be all be done in an area where there is likely to be growth in the underlying property price.
This is a challenge which I plan to execute, in the coming year, and it will be interesting to see how to make money from ground zero up.