Deals take time to unfold and bear fruit: Continued from last week…..
Last week I wrote about a building we managed to agree for £5.4m on a sale and lease back basis. This means the current owners will continue to occupy the building as tenants. In this situation it was a charity that was in the process of refurbishing their new office premises and this was the best solution for them.
We managed to outbid all the other bidders and agree the offer at £5.4m.
To agree an offer in one sense is easy, you simply offer the highest amount for the property. It doesn’t necessarily mean you have to pay any money across! We agreed the property price and contracts were sent to our solicitors with a time limit to exchange. We promised them we could deliver on time. We had two investors in the deal, one sent his funds across, the other did not.
We gave revised deadlines as to when we were told the funds would be in by. This date came and went. Again we were threatened by the agent that they would withdraw contracts if we didn’t exchange by the revised deadline. This time they held true to their words and withdrew the contracts, after taking over 6 months to secure this deal we were sure we would lose this deal.
This is not a good way to maintain a relationship with agents, especially if you would like to do future business with them. In this situation the only way to keep some dignity was to be totally upfront and put our cards on the table. The situation was there were two investors who were buying this deal both putting 50% into the deal. One of them had transferred their funds required to exchange into the solicitor’s account, the other had not due to some unforeseen complication. I explained we were still hopeful the other half of the funds will come but I did not want to give them another false deadline and we accepted that the other party, the under bidder, will have a chance for the first bite at this deal.
Whilst they were entertaining the under bidder, we got to know who the under bidder was. The deal was introduced to us again by the under bidder through a colleague, at the reduced price of £5m.
This meant the under bidder didn’t have the funds to complete this deal and wanted to charge commission for delivering the contract for the deal at £200,000.
I like the phrase in The Godfather where Michael Corleone says ‘My father taught me; ‘keep your friends close, but your enemies closer’’.
This was our enemy in the world of property and we needed to know everything about him and be aware of his every move. After some research we identified the individual concerned, his background, where his funds were coming from and his family situation.
Based on the teachings of The Godfather we did keep him close to us, to do this we had to entertain his offer. This would mean he would stop searching elsewhere for funding and we get to discover the terms of his contract. When we got to find out his contract was at £5m, nowhere near the £5.4m we were pushed up to, we were a little annoyed to say the least. However we can’t complain if we don’t have any money on the table. The time period to complete from exchange was however only 4 weeks, possibly six at a push. We on the other hand had a full three months to complete the deal.
The price was only part of the deal, more important to us was the time for completion. We needed this time period and hence it was invaluable to us.
As the other buyer was hunting around for funds, we knew he didn’t have his own. We also realised his tap of money had recently been closed down which was from his family. Now he resorted to pulling in contracts and selling them on in order to maintain his life style which he had got accustomed too.
With two failed purchasers the agents themselves would be in danger of losing the instruction and the client. This is their worst fear.
The other half of our funds finally arrived in our solicitor’s account. So I called the agent and stated we would like to exchange. I told them we were no longer happy with the price as we had heard from the market they had offered the same deal to another party at £5m. I suggested we pay the same amount despite having a longer time line to complete.
The agent admitted to me they had another party, he had to as I even knew the name of the under bidder. I informed them the under bidder did not have the funds to exchange let alone to complete and had approached us for them.
They said they will need to take permission from their client as to what they would like to do and come back to me. The response was that the sellers were outraged, they were told not to deal with us full stop!
I found this response peculiar, as our money was on the table and they are a charity and need to be seen to be doing the best for the charity. Of course this was part of the drama. After a couple of days I suggested we meet half way and close the deal at £5.2m. They came back and said the sellers will agree £5.25m on the basis we exchange by the next afternoon. Of course if they are prepared to take £5.25m they will take the £5.2m. So we agreed and exchanged, not quite according the time line but a couple of days after.
So, due to the investor not transferring his funds on time we managed to save £200,000! I guess everything happens for a reason.
Superb two double bedroom property
Close to the fashionable Portobello Rd
Close to all amenities and transport links
Was recently rented for £450pw, giving a yield of 7.2%
Low service charge and long lease
This is an ideal long term hold property
Sow & Reap
A Property Investment Company
!Tips of the Week
When renting a property tell the agents you’re only prepared to take 12 month contracts, this will reduce void periods and expenses.
When renovating a BTL property always be mindful of not just the quotation but the time period, as the delay will be costing you in lost rent.