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Domino Effect

This week we have completed our development in a large 1,400 sq ft flat in Kensington. It was a probate sale originally and we had to fight off other bidders. We secured the flat at £890k, the original sale price was £825k. Paying way over the asking price is psychologically difficult to digest, however the price we have paid is way below what, in our opinion, the flat is worth. The flat is a share of freehold, and has three aspects, meaning windows in three different directions. This gives the flat a light and airy feel.

It was purchased in January of this year and has taken a lot longer to finish than first anticipated; as with most build projects sometimes unforeseen issues arise.

Firstly the timings you could work in were very strict, loud work could only be done during half the day, which the builder himself wasn’t aware of until after he gave us the quotation and started the job.

Secondly there was an elderly lady in the flat directly below who was partially deaf and needed hearing aids. As soon as the work started she was up in arms about the noise and even more so as she had not been informed the works were due to start by the managing agent. We also had to deal with her family who got involved. This led to accusations of cracks appearing, dust, furniture ruined which all had to be dealt with on an ongoing basis.

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This was further frustrated by her insisting she would only allow people she knew into the flat, therefore was reluctant to let our builders in.

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To top it all off we wanted to put a wooden floor in which required acoustic insulation to the degree it was insane. The flooring cost us £26k in the end! All of which was strictly specified.

Things happen which are sometimes unaccounted for and this is part and parcel of the job.

Luckily we had bought well, and this has been compounded by a rising market over the last twelve months, and so during this period there has been upward pressure on the prices. Our resale forecast for this property was in the region of £1.3m and so we were presently surprised when the agent stated it would be around £1.4m with a hope of achieving £1.5m by creating a bidding war situation.

This actually is the worst possible time in the year to put a property on the market. The longer a property stays on the market and doesn’t sell the worse it looks; it gets ‘stale’. Therefore even though the property is completed, now is not the time to market – at least publicly. We have told the agent to show it to buyers off market so it still retains an air of exclusivity. We aim to market it publicly in the third week of January when the property market starts picking up after its Christmas lull.

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The property, despite the slight hiccups, was finished to a high standard and it was furnished fully including towels and soaps.

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We wanted a show flat as our aim is to make the buyer emotionally attached to the property, to the point where money is a secondary consideration. It is surprising how many developers fall at the last hurdle and fail to show their flat in the best light possible. Dressing the property is as essential as dressing up for an interview or seeing a brand new car well polished and clean. Buying a new car makes no sense economically, but people buy them every day of the year because of the marketing involved.

Despite the issues we had with the flat below, we were helpful to her during the project and helped her overcome the issues downstairs. By the by, we managed to get wind she would possibly be going into a home and so her property will be coming up for sale.

There are distinct advantages to selling to us besides price of the property. Most obviously we do not need to see the property, there will be no buyers coming in to the flat as with a conventional sale, and causing a disturbance. We are very flexible regarding the completion date, our proposal was to exchange straight away and then leave completion for say 8 months or earlier at the seller’s discretion, as the date for her move to the home is not fixed.

Another property in the posh part of Hampstead is also coming on sale this week; this too will be fully dressed and is a lateral first floor flat of similar proportions.

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In this situation the market has also risen and the price we are hoping to attain is in excess of our original forecast.

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Our fund will be closing very shortly, in a week’s time. We have already agreed our first deal; it’s a block of flats in south Kensington which we have agreed at roughly £1,000 per sq ft, which is 25% less than the market price. We feel this should be an easy trade, meaning we are confident of disposing of these properties prior to completion. The fund will be used only to purchase properties where we can see the resell as it is before the completion period, thereby giving investors an aggressive return in a short space of time. We will be avoiding development for the purposes of this fund.

This block of flats will in our opinion be easy to dispose of prior to completion even at full market value, however in the interest of a speedy transaction we will be leaving some margin in the deal. Time is an important factor and therefore we don’t just want the right price but the deal needs to be executed quickly so we are in a position to reinvest again and again. It seems the market will be on an upward trajectory for the next couple of years. I feel the serious rise will begin in January 2014 onwards after the seasonal lull of Christmas when everything practically stops. This rise will be fuelled in part by the Government Help to Buy scheme, which will allow both new buyers and home buyers to potentially purchase property up to £600,000 for a mere £30,000. We are bullish about the property market in London in general over the next couple of years and one good way to really exploit the market is by trading property contracts. This means you sell on the property prior to completion, thereby avoiding all the expenses associated with final completion. This also allows you to always be in a position of a buyer.

  The Real Deal

Rochester Row, London SW1P Purchase Price: £290k

  • A beautiful studio flat in a great location near Victoria Street
  • Long lease
  • Moments away from the upmarket shops, bars and restaurants on Victoria Street
  • Value of the property expected to be around £400k

Call us now to secure the deal!

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

As with any business venture it is always wise to have multiple exit strategies; property has this naturally, instead of reselling you can refinance and rent.

Before you get involved in flipping properties, do your research. Like any other business venture, flipping requires not just money, but time, skill, knowledge and contacts.

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