We have all seen the emails from property companies, which offer 25% to 40% off so called RICS valuation. These properties tend to be in places like Manchester, Nottingham, Sunderland… places well away from the Capital. In areas such as these you cannot be sure the prices next year will not be even lower than what you have purchased the property for.
It’s rare and hard work to find deals with any decent margins in Central London or in strong locations; the reason being vendors are not struggling financially in these locations. From my observations it appears that when the market goes down for a time in Central London prices don’t really come down, what happens is sellers simply do not put their properties on the market; purely because generally these aren’t the desperate seller types. Supply is reduced during these times, and the frequency of sales decrease. Only those who really have to sell put their properties on the market, for reasons such as divorce, probate etc.
The owners of properties in this location are generally financially savvy and therefore have not over geared their properties. Many are also overseas business people who have put money in London to keep it in a safe place; away from the radar of their own country’s authorities.
Given the above how do we then find a deal? There are two ways of finding deals in the market place: one is direct and the other is indirect, by indirect I mean you employ the service of a company such as an agent, who looks out for deals for you. There are companies who offer to find deals but most focus through out the UK and not exclusively in Central Locations. In Central London you have many individual dealers who are known as runners, they hear and know about deals, which never hit the open market. Most do not have offices or a company, they simply operate with a mobile phone. Most blag their way through and hope to strike a deal. Often they tell you they have control of a deal until you come to doing it then you find there are 3 links in the chain before you get to the vendor. Some however are worth their salt and do know how to get deals and know what a deal looks like; we have used their service to secure deals in the recent past.
Indirect deals are often offered at property seminars where they source deals for you. Interestingly many of these companies make money not from sourcing deals themselves but by selling property seminars, meaning they do not walk their talk.
I heard this from the horse’s mouth, actually from the accountant of one so called seminar teacher who is popular in the circuit. His income comes from selling courses not from doing the deals he talks about himself. In all fairness this is fueled by the relevant demand as many people don’t actually like biting the bullet and getting on doing deals, rather they like to talk about doing deals and ‘anal-lyzing them’; simply procrastinating on the subject matter rather than actually being serious about doing the deals. Therefore it is difficult to know who to blame, the person giving the seminars or those who attend them?
There are a number of direct routes one can use to identify deals. The first and most obvious is Estate agents. Some agents don’t know what a deal looks like and they have a blinkered vision in simply selling the next property, so much so that they miss deals which slip through their fingers like sand. So at times you can pick these up. These are mispriced stock; sometimes with good reason and sometimes without any reason. These to be fair are not easy to get as most Agents are very savvy and in a property market like London it is difficult to get a deal from an agent unless you have good connections.
If you have a reputation of doing deals quickly when you say you will do so, and have a proven track record, this alone will attract further deal flow. For example if an agent has a couple of deals fallen through he is likely to lose the instruction from the seller totally unless he can pull a serious buyer out of the bag. Or even if the current buyer has taken too long and the agent is getting nervous you may find another contract issued to you. We found ourselves in this position in July this year when we picked up a deal for £2.675m whilst there was a buyer already in place for £2.9m; they were dragging their feet, and therefore we snuck in and done the deal.
Then there are of course auctions which traditionally were the domain of the serious property investor. But the expansion of funding and ease of access to this, as well as documentaries of people snapping up deals in the auction rooms has encouraged the novice investor to come into this hallowed room and purchase property.
This has led to some strange things happening. One is properties often go for higher prices than they would otherwise sell for with Estate agents. The reason for this is many of the purchasers are end users and novice investors. The end user is more likely to purchase with emotion, the price is secondary to them. Their driving force is they may love the feel of the property and therefore they are willing to purchase at almost any cost.
The novice investor may not do their homework in regards to the cost of for example a lease extension or cost of works and therefore end up over paying. You only need two of these in an auction room to drive the price up to an unreasonable level.
The consequence of these two types of investors entering the auction market has been many dealers have been dumping their stock in auctions to achieve higher prices.
Another consequence of this has been many traders have been dumping properties which are unsellable in the open market. These can be properties which are unmortgagable due to, for example, the type of construction, the length of lease or tenancies.
If for example someone has purchased a property and tries to sell it within six months most mortgage providers will not fund this property. So rather than sell this through an agent where buyers will exchange only after they have the mortgage offer the seller dumps it in auction. This way the exchange will happen at the fall of the hammer and the mortgage will be arranged after exchange has occurred.
Does this mean auctions are out completely? – not so. You need to look harder. Look for problem properties which have issues with them, e.g. ones which have unknown tenancies or cannot be readily funded. These types of properties will scare both the end users and the novice investors. Filtering these out will only leave the serious investor to do the deals.
Another way is to look for deals which are not supposed to be in the auctions they are in. What I mean by this is you have some auctions which specialise in certain regions, if you find a property which is of another region within such an auction there is a chance this will go for less money than it should.
I have made money for clients both by purchasing properties which have had unknown tenancies, and also exchanging on a property and simply putting it in another auction for sale! So this is not simply dry theory, which is being preached, it is practical knowledge which can and has been used.
There is also the case of properties being repossessed, where the person from who it has been repossessed has not disclosed information to the receiver regarding the actual situation. It has been put on the market with unknown information. The only person who knows this information is the person from whom it has been repossessed. Therefore this person will find a way to purchase it back from the receiver.
If you’re a wholesale buyer of property you will attract property deals in the same way as if you’re a bulk buyer of any commodity. If you always execute the deal and do it when you say you will, you will find deals coming your way. The reason being most people do not; they simply talk about doing it!
Purchase Price: £305,000
- A bright and spacious one bedroom flat
- Long lease
- Close to the amenities of St John’s Wood
- End value after works expected to be more than £365k
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Sow & Reap
A Property Investment Company
!Tips of the Week
When investing in property you must forget your whims regarding investing where you may want to live or close to where you live, and instead follow the sacred property mantra Location, Location, Location!
When renovating a property always be mindful of not just the quotation but the time period, as the delay will be costing you in interest and losing you rental income.