Exit Before You Enter

3rd November 2018

Currently, we are trying to close a deal in an area called Barnes.  This is not a location I am familiar with, so in order to get a feel of the area it’s best I enlist the help of local agents. After all, they are local, and a few have been in the area for decades.

We are looking at purchasing a house in this location.  The price is just over £1M.  The resale is expected to be about £1.3M.  Developed houses in this location go for around £1.8M.  This means there is plenty of margin in this deal.

However, there are two points which are of initial concern.  One is the price point, and the second is the resellability.

The idea of the deal is not simply to enter it, that’s easy.  The aim is to exit the deal prior to completion.  In this market, this is something that needs to be looked at very carefully.  The numbers, prima facie, look good.

Transport is always a big consideration.  The train station is only a 6 minute walk away, and then only 22 mins to Waterloo Station.  In my experience recently, trains offer a far better journey than tubes.

The fact it is so close to a station is a strong factor, properties near the station will always sell and rent well.

This is a very up market location, full of wealthy middle class families.  The agents whom I spoke to said categorically this price point is not sticky; not in this location.  They cited examples of deals they had done recently.

Agents are agents at the end of the day, their business is to build confidence in the market and ensure the sales keep rolling in.  However, a sale is set in stone.  You have a price which will appear in the Land Registry very shortly.  Therefore, the wriggle room is very limited.

My research gave me confidence.  This is a deal we are likely to exit, even in current market conditions.

Ideally, we wish to exit this deal after exchange, which means only £120K will be in the deal and the return will be £170K.  This is the best case scenario.  The alternate is the whole amount will need to be put in cash, and the return will be the same £170K; not as attractive.  But still a healthy profit, subject to the time period taken, obviously.  The longer the time, the less the return.

Ordinarily, in the event of completion this deal would attract a stamp duty of £90,650, enough to kill the deal.  However, we are able to engineer this deal so there is zero stamp duty.  This is a key point as the last round of stamp duty changes has crippled developers buying deals such as this.  Profits now go to the government and not the developer.

Do get in touch if you are interested in this, or other property deals.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
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