27th May 2017
There are three categories, which if a seller is in, you are likely to get a good deal done: death, divorce and distress.
Only yesterday I met a couple of vendors, one after the other, who are desperate to sell and get out of a hole they are in. One is desperate financially, the other is desperate following a divorce. Divorce and distress, are close friends and usually go together.
One of them was honest about his situation, the other was not. The one who was not, made a point of telling me he lived in a £20m house and drove a Ferrari. It was so thick you could smell it. It was obvious from his demeanor, and talk, he needed to sell.
He was equity rich, meaning he was in a fortunate position of owning several freeholds in a very strong location. However, there are only two ways to get money out, either sell or refinance.
Nowadays, loans from high street banks are hard to come by if your paper work is not in order. The only option is to approach a non-status lender, in other words a bridger, which can mean you’re digging yourself into an even deeper hole. The purpose of a bridge is to take you from one place to another, to help you cross a rough terrain; it starts to get dangerous if you do not get off in time.
In short he needs to sell, despite his cheap charade.
It seems he wants to start selling in small chunks. Starting with a flat, which is a duplex, and I would estimate it is about 1,000 sq. ft. The interesting chink in the deal is there is no proper planning, it’s a cross between an office and a residential. This is good, this means he will need to sell this cheap, as it will require 100% cash as no main stream lender will lend and there are not many buyers who will be able to get their head around this deal. All these factors can be used to drive the price down. So we will be monitoring this situation very carefully. When it’s ready to drop, it needs to come into our lap. It’s rare to get a deal land in your lap, which is ready made. Often there are variables which need to be worked on.
A deal we did a while ago, a property consisting of 23 flats, on Kilburn Road, had a similar scenario, where there was illegal planning, injunctions against the property; issues which meant the only form of finance was a bridge. However, the investors came away with a 40% net return per annum over a two year period.
The other vendor was honest, not totally, as everyone is under the illusion that their property is worth more than it is; and they seek flimsy evidence to support this construct. But he appeared to be honest about what he owed, there are three charges on the property which means he is leveraged up to the hilt. There is barely any equity left in the deal.
A deal might even be carved up in this situation, perhaps by coming to an agreement with the second and third charge holder; they may even be willing to be paid say 25pence in the pound or less, as their position ranks after the first charge holder, and if the property is repossessed they may end up getting nothing. This one may take longer to work through. We have had our finger on this deal for about a year. It’s worth keeping a watch as you never know when the deal will pop.
Suresh Vagjiani
