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Baking the deal

5th May 2021

Predictably, the property I mentioned last week was snapped up, it went to the first investor who agreed the deal there and then.

We will be working with the lawyer closely this week for a swift exchange, as the deal is not secured until you have exchanged on it; and there’s many a slip between a lip and a cup.  We have been on the other side of the fence with many deals, where initially we were the under bidders, and the front runner was taking too long on doing the exchange; typically the lawyers could not take a commercial decision on certain unknown factors.  The agent then approached us to see if we would be comfortable with being issued another contract whilst another party was still in the game.  I actually prefer this situation, as the lawyers are then forced to move fast and take decisions.  They could take months to exchange a deal or do it within a few days.

It’s one thing to close a deal, it’s another to structure it correctly.  Both aspects are necessary, as you do not enjoy the gross income the property produces but the net income which actually goes into your pocket.  Ensuring this is maximised is often overlooked by developers, who tend to focus purely on the development, and not necessarily on the net profit.  There are tools you can learn but these are honed and sharpened through experience, as there is no one size which fits all situations and personal circumstances.

As the shape of the property is a clean rectangle, the conversion should be relatively simple and straight forward.

The first phase permission will be applied for on exchange of contracts, with the aim of having the permission in place at the point of completion.  What this means is the deal we will have exchanged on will not be the same in terms of value as the one which we will complete on; meaning the value will have been enhanced.

If you consider this point from a return on cash deployed perspective, the return is extremely high, as you only use 10% as exchange monies; in this case £100K.  If you add £200K of planning gain you have trebled your return in a couple of months.  I’m not talking pie in the sky planning; I’m talking about a particular planning permission, applicable to this particular property, that is certain to be granted as long as the criteria is met.

This is all academic, however, as the aim is to keep this asset on a long term basis.  It’s vicinity to the station will ensure it attracts a continual stream of renters; and if and when it comes to selling it will attract a premium to the incoming investor who will appreciate the location of the asset.

We have a few more deals baking in the oven, but not quite ready to be taken out; these should be ready in the coming weeks or months.

Suresh Vagjiani

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