You Snooze, You Lose
10th June 2017
I had the perfect property for a newbie investor who had been looking for some time. He fancied the idea of buying ‘off market’ as then he felt he was getting something of value.
This is a buzz word around property, some investors love the idea of getting something ‘off market’ as there is an air of exclusivity around buying a property which no one else supposedly has access too. Firstly, if you analyse this term, it’s not strictly true as when it’s offered it becomes on the market – albeit from one person to another.
Secondly, do you want an ‘off market’ deal or a discounted deal?
We have bought plenty of properties fully on the market, which everyone had access to, and they turned out to be great deals. Notably a property in Shirland Road in Maida Vale, which was purchased in auction for £1.1m and resold for £1.3m just a few days later. This was accessible to everyone, fully on the market, totally transparent as anyone could walk into the auction room and place a bid.
So then off market does not necessarily equate a property to being a deal. However, this purchaser was of this mind set.
The property I had in mind was a two bedroom ex local flat close to Marylebone. It had a little condensation and required a touch up but nothing heavy, probably about £10k worth of work. It was ‘off market’, the service charge was very low at only £600 per annum, it would rent for £350pw and the price was only £375k. This represents a yield of nearly 5%, a very good yield in this part of town. This used to be the normal yield one would expect when purchasing a BTL property, but as prices have gone up strongly, rentals have not kept pace, which means the yield drops. The closer you come into town, the lower the yield.
So, 5% is extremely good given the location is strong as well. Well this newbie investor came to view the property on a Friday and over the weekend he made the decision to purchase.
However, a couple of days later he mentioned he would like to do a damp survey. This means the purchase is subject to a damp survey, and therefore, the deal is not closed. The reason why damp companies give free surveys is so that they can find as much wrong with the property as possible in order to elicit more business.
On a leasehold property if the damp comes from the walls this then becomes the problem of the freeholder, as it affects the whole block. The cost of this will then be borne by the whole block.
Therefore, the deal was not confirmed and we needed to sell this property as soon as possible, on the instruction of the owner.
Whilst this little drama was unfolding I needed to place the deal. It was placed without any difficulty to another party who bought it blind, based on the numbers. About 10 days later, the first buyer called me up and said he was now ready to proceed.
I told him the deal had gone; he had first bite at the apple and he chose not to bite. It would be unfair to the owner to be dependent on a buyer who may not perform. Often during a purchase there are aspects you will need a take a view on. Small issues should be put into perspective and should not break the deal.