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Leaving some meat on the bone

Being a Gujarati from India it causes me a lot of emotional and physical pain to leave money in a property when I’m the one selling it. However it is something I have been almost forced to do. In fairness we have been on the receiving end of good deals many a time. So perhaps I should learn to spread the wealth. However this is a painful lesson for me!

A building we acquired in Earls Court for £4.877m is being resold for £5.5m or perhaps a touch more, if we negotiate well. This equates to only £1,180 per sq ft. The property next door has been agreed at somewhere near the asking price of £1,523 per sq ft. This means our building is worth £7m on a straightforward break up, without any sq ft added or much money spent. What’s more this area is on its way up, being ear marked for one of the most aggressive regeneration programmers in London. It’s not just the numbers, the property also has many aesthetic qualities, the sun shines right into the property throughout the day, you get access to the Square, which is over an acre, which the property faces. It has high ceilings on most of the floors and it has a feel good factor about it. This is something end users will pick up when coming to purchase the property.

Why may you ask are we selling this building knowingly cheap? The answer is the fund we have purchased it in is in the business of flipping properties. The purpose of flipping is to resell prior to completion and not to complete.

Flipping properties it can be argued is not even classed as property investments. As the aim is to increase the percentage of the seed investment, as opposed to completing on assets and holding them or improving them, which is what typical property companies do. We are trading with the option to purchase a property, not the property itself.

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We have done nothing to add value to this property, the value was in there when we purchased it. We have bought this way below market value, hence we are able to leave some meat on the bone on the resell.

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It can be asked why we don’t hold on and realize the full potential. The reason being the completion will add about 4% in stamp duty and 1.25% in finance costs, this means the profit margin will decrease by nearly £300,000. Hence reducing the profit to £1.2m, that is assuming we get the funding in the first place. We will be incurring financing costs every month we hold it and what’s more we will be out of the market for purchasing properties with this fund anyhow.

Trading the properties also means you’re always a buyer in the market, you always have cash in your back pocket. The cash is continuously being recycled.

An agent we have bought some stock from commented to me today that we seem to have very deep pockets, money on tap. The secret is we recycle a lot of our funds. Before we enter a deal we can see the exit in place already. We have been in and out of deals as quick as 3 days. We purchased a block in Maida Vale for £1.1m and three days later we had resold this at £1.3m. This was purchased straight from the auction, it was there for everyone to bid on. However we did have some inside knowledge regarding the property, the property was listed as having unknown tenancies, however through a local agent we knew they were all standard tenancies.

The market is currently on your side for doing these types of activities as its lifting prices upwards month by month. This game can however prove to be a double edged sword. The market can also move downwards and the price agreed can end up being higher than what it’s worth. You need to be able to read the trend, the trend is your friend. When prices went down in 2007 what many investors were caught out on was new build properties, where the exchange would happen prior to the property being built and on physical completion some years later the rest of the money became payable. They had exchanged with 10%, however at the time of completion the prices for these properties went down to way below the price they were purchased at. Most of the investors thought they could simply walk away from the investment and dump their 10%. Not so, in one famous case the developer sued the purchaser into completing the flat and won the case. In all fairness if the purchaser made a gain they would not share it with the developer so why when they make a loss do they put it all on the developer’s head?

We will be closing our deal in Earls Court in a day or two. The way we close is not to entertain the offer and wait several weeks/months for the deal to happen. Our lawyer has the full legal pack ready and the buyer will walk into his office and do the deal within 48 hours of having it agreed. This is the basis with which we offer the deal.

We have other flips already lined up and therefore will need the cash available to be always in the position of a buyer. And cash is always king.

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We have also agreed many deals in the past couple of days, from an ex-council in Queensway for £315k worth £400k, to a beaut iful share of freehold flat in Mayfair for£1.5m worth over £1.8m, with a few bits in between. The price of ex council flats have gone through the roof, two bedroom properties which we sourced for clients for £315k only 2 and a half years ago are now worth £450k, and it looks like they’ re still rising.

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To get discounts on properties in these locations is extremely rare. We are able to do so due to the time we have been in this locality and the contacts we have built up, as well as executing on deals time and time again.

We all get the emails where you are promised a property which is 25 to 40% below market value, most of these are in the North of England, generally with high yields. However, chances are they may never rise and if they do it will be a miserly rise in value. When the prices go down these sorts of properties are often the first to be hit.

Always remember the first mantra of property investment: Location, Location, Location. Keep repeating this mantra – it will liberate you financially.

The Real Deal

Burwood Place, London, W2

Purchase Price: £565k

  • A bright one bedroom apartment in this highly sought after location
  • Excellent buy and hold opportunity
  • Massive capital growth potential in the future
  • Close to the beautiful open spaces of Hyde Park and shopping amenities and Marble Arch tube station
  • Worth £625k and is on its way up!

Call us now to reserve!

Suresh Vagjiani

Sow & Reap

Property Investment Company

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!Tips of the Week

Decision making and speed are two characteristics which separate the investors who make money and those who do not. More people lose money by not making a decision than making the wrong decisions when investing in property.

While renovating a property, try to get multiple quotes. But always be mindful of not just the quotation but the time period as well, as the delay will be costing you in interest and losing you rental income.

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If you want to know more about how investing in Central London property can get you great results, then don't hesitate to give us a call.

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Sow & Reap

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42 Upper Berkeley Street,
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T: 0207 993 0103
info@sowandreap.co.uk


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Sow & Reap

1008, Gala Empire,
Opp. Doordarshan Tower,
Drive-in Road, Thaltej,
Ahmedabad - 380052
Gujarat, India