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A Little Knowledge Can Be A Dangerous Thing

This week we were negotiating a price for a property in West Hampstead, it is a ground floor garden flat spread over the ground and lower ground floors.

It was being sold by a trader, these are people in the industry who buy and sell property contracts, typically they want to cash in quickly and release their funds. In return for a speedy and efficient transaction they let the property go for a good discount from the market value. Whilst we were negotiating the price, we wanted £950k but we were stuck at £980k, the following day we discovered the trader had suffered from a heart attack and was rushed to the Heart hospital in Marylebone and was awaiting an operation.

As soon as we found out one of my guys quickly went over to visit him, whilst there he concluded the deal. Our intention was not to cause him any further stress, but work kept his mind off his problem and he wanted to carry on. So the deal was finalised whilst he was on a hospital bed at £965k.

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Dealing in property sometimes becomes like a drug, the deal must be done at any cost regardless of what is going on. What makes something addictive is certainty and uncertainty of whether a deal actually happens, and the significance one gains from doing a deal. These three means dealing in property is highly addictive.

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In addition the seller was a Muslim, had he been a Hindu he would have had the good fortune of being reincarnated to finish his business off, as a Muslim he didn’t have this option. Therefore it was vital we conclude the deal before he departs!

A client of ours was introduced to the deal on a profit share basis, this means we do the due diligence and all the work to purchase, refurb and sell, he is a passive investor. He however decided to conduct his own personal investigation on the deal despite our assurance that this was a firm deal. The deal being structured in this way means if we get it wrong we don’t get paid!

He went down to the property and made contact with the owner and interrogated him regarding the property. On interrogation he discovered the owner had sold the property for £720k to someone, which he wrongly assumed to be us.

He then called me during Diwali, on New Year’s day actually, asking if we had purchased the property for this price and were selling it on. I explained the property had been sold to traders (I had previously told him this when I had initially presented the property to him) and we were purchasing from them. I had no idea of their purchase price as they do not disclose this to us, and even on the lawyers contracts it is blanked and furthermore it’s not relevant to us doing the deal.

In speaking to the owner directly he could have seriously sabotaged the deal, and the relationship we have with the traders. Frankly it was very annoying and amateurish behaviour.

This is the equivalent of going into a shop and asking the shop owner where and how much he had got a product for and finding out how much profit he was making and speaking to his supplier. Not your business! Your business is to see if it works for you at this price and if so buy it! If not, leave it.

It’s a completely irrelevant point, whether the trader had got it for £350k or £720k, what difference is it to our intention of refurbishing and reselling?

The property is estimated to be worth about £1.39m done up, and we were purchasing it for £965k which allows plenty of margin even after taking on board costs.

It was disclosed to the potential investor from the outset that it was being traded and it is an off market deal. There were plenty of investors behind him who were not concerned with the history and focused on the future potential of the deal, so fortunately we exchanged on the property on our Indian New Year’s day which one of the parties was keen on as it was seen as an auspicious day for such a transaction. On this particular deal we had two parties in line behind Mr Sherlock Holmes.

We will revisit this project in a later article once the project has been completed.

People who are scared to take the plunge will always find a story, however irrelevant, to not do something. That is not to say there aren’t legitimate reasons an investment should not be entered into. But clearly in this situation the reasoning was irrational and irrelevant.

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No one should decide whether or not to purchase a product based on the profit margin of the person who’s selling it. Properties in strong locations can be flipped twice before actual completion takes place, I have seen and been involved in this happening.

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If this property hits the open market as it is, I believe it will go for£1.05m. This of course gives us the option to resell this property prior to completion subject to the owners granting access for viewings, as we have a full two months prior to completion.

When considering this deal, we had the added advantage of local knowledge of the property gained by an estate agent just down the road from it, who had intimate knowledge spread over many years of this area and had no vested interest in the sale of this property. It is by piggybacking on this information and our own due diligence we took the decision to purchase this property. Furthermore I spoke to someone who has lived in Hampstead for many years and he informed us this was a patch where people who couldn’t quite afford St John’s Wood came, but in time it had become a centre of gravity in its own right. The prices have been increasing here month on month.

In addition to the property we also purchased the freehold of the whole block which we managed to have included in the deal. This allows us to retain this and enjoy a small income or resell it in auction for about £30k.

Of course knowing the price and knowing the situation of the seller can, if one wants to play dirty, allow you to ‘chip’ the price off at the last minute. But in this situation they had plenty of time to complete and these were not end users. If we didn’t perform they already had a buyer lined up behind us and would not be phased by such tactics.

The Real Deal

Attractively Priced Studio Flat In Spring Street

  • Purchase price: £215,000
  • Large studio flatl
  • Lift
  • Close to Paddington underground
  • Only 1% stamp duty
  • Good capital growth

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

People are often surprised with how much property they can purchase, £100,000 will buy you £400,000 of property, this is through the principle of gearing.

The speed with which you make decisions and commit to them will ensure you get deals time and time again.

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