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Don’t judge a book by its cover

10th December 2019

We are in the midst of closing another deal in South East London for a client.  This property is the second one she is purchasing in quick succession.  The first one is also in the same locality, in fact in the same block.  She purchased it blind, i.e. without seeing it, as she will the second.  It would take half a day to go to view a property on the other side of London, and so the client was not too keen on the journey neither did she feel the need, as long as we had viewed it, she was satisfied.

What is there to see anyhow?  A purpose built flat is basically a shoe box.  The condition may make a £10-15K difference.  However, some investors are insistent on viewing a property, and it would be sacrilege to suggest they could purchase blind.

I understand some may have a comfort/emotional attachment to seeing a property.  I do not wish to rob anybody of this aspect of investing, although I do feel there needs to be some framework around it.

The property is an investment.  It is important to understand this is first and foremost an investment.  Examples of questions to consider are: Where does it look like the price is going to go in the next 3/5 years?  How far is it from the station?

We have an in house 18 page report on this location which justifies investing in this area.  We believe it is set to rise over the next 5 years.  The delay in Crossrail has left the window of opportunity open a little wider.  This is good from our perspective, as it allows investors to come in whilst the prices are still subdued.

The property should be seen not first and foremost physically, but through the eyes of our report.  This should be scrutinised; this should be the yard stick for the investment.  I had a situation, many years ago, when an investor came from Southend-on-Sea to view a property in Westbourne Grove, an area next door to the upmarket Notting Hill.  It was an ex-council property, admittedly not in the most attractive block.  He came back from his trip and reported he did not like the property.  I told him he didn’t need to, he needed to like the investment.  What was attractive were the numbers, they stood on their own legs.  The property was a two bedroom which could be converted to a three bedroom.  The price was £275K and the rental at the time, thanks to the generosity of Westminster Council, was £550 pw.  This meant the property was yielding over 10% and at the time one only needed a 15% deposit.  Only £41K would get you into the deal.  The deal was giving a net income of £15K.  What was not to like about the deal?  You would get all your money back in three years, and the property, given the location, would rise strongly in value.

We swiftly matched the property with another investor, who bought it blind.  He still owns the property, and it always rents well.  The current value is probably circa £475K.  Many BTL investors prefer ex-council properties.  The rents are similar to private properties, yet the purchase price is lower.  Also, the service charges and the lease extension costs are substantially lower.  The moral of this article is when investing look first at the location, second at the numbers, and then decide if you must visit the property.

Suresh Vagjiani

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