This past Friday we exchanged on a beautiful three bedroom property in St John’s Wood. The property is on the second floor of a purpose built block called Abbey Court. Unlike many buildings in Central London, the communal parts in this one are exceptionally well maintained. As soon as you step on the red carpets and you start to sink, you know they are of good quality. The bottom half of the walls are made of hard wood, and the stairs have polished brass handrails.
The communal areas of a property are important as it is the first impression of the property a potential buyer or tenant will get. Regardless of how nice you make a flat you generally have no say regarding the communal areas. It is better for you to have a dilapidated flat with great communal areas, than having a great flat with poorly kept communal areas.
The service charge is around £3000 per annum, very reasonable considering there is a lift on the block. Having a lift in the block increases the charges due to the added maintenance involved. Not all blocks in London where service charges are this high are this well maintained. Many investors are from overseas and so do not get involved with any leaseholder meetings.
The property is on Abbey Road, made famous by the studio where the Beatles recorded their albums; you will see tourists there daily taking pictures of the studio walls and to this day it boasts world-class recording artists, most recently Kylie Minogue.
The property came to us off market and due to our close contacts, we got a window to purchase this property for £825,000. If this hits the open market it would achieve at least £950,000. The closest comparable we found was on the fifth floor on the same block which sold for £1m in April 2012. The lease on this property was 5 years less than ours and it did not have the benefit of bay windows or balcony. Given this deal completed in April, the deal probably would have been negotiated in Jan/Feb 2012. Since then month on month the prices have only been rising. The lease on this property was 57 years. We were getting the property with the benefit of a Section 42 notice, this means we have the right to extend the lease for an additional 90 years without having to wait for the statutory two year period. Although 57 years may seem a short period, in the Central London market it is not unusual to find blocks for sale with only 12 year leases.
This purchase can be funded without an issue; lenders are comfortable with this security due to the location. With the help of our surveyor we have estimated the lease extension cost at £100,000. The cost to refurbish this property has been put at £100,000, which is an over estimation in my opinion. The flat can then be resold at £1.3m conservatively, after refurbishment and with a lease of 146 years. Opposite this block, flats have achieved £1,700 per square foot.
This property originally was a probate sale where the last occupant had passed away and her executers had sold the property. It was purchased by traders whose sole aim was to turn the contract and make a quick profit. These are investors who buy and sell properties very quickly without completing. Cash flow is important to them. They look for a quick sale and hence sell the property on fast rather than holding on and realising the full potential of it. Due to our contact, we were able to keep it off the radar whilst we closed the sale.
Following a viewing on Wednesday, we were given until Thursday to get the contract to our solicitor and Friday to exchange. If things did not happen by then the property would go on the open market.
We presented the property to a few of our investors on Wednesday night and told them this was a great deal and for one reason or another none of them felt ready to press the trigger and move on it, at such short notice.
On Thursday I spoke to a client who has worked with us before. He previously had purchased an ex-local authority property from us and refurbished the property to a high standard and rented it. The lease when we sold the property to him was over 90 years, he felt this was short and therefore had it extended for a further 90 years at a cost of £1,000!! This was unbelievable. This property was a ground floor flat facing Little Venice canal. Flats with views of water ways always go very quickly either for resell or rentals.
This property was purchased in cash. This cash was raised from the client’s main residential home, this was done to reduce the interest rate payable. Many investors have the illusion that if they raise the money on a BTL property rather than their own home, their main residential home will not be at risk. This is not the reality. Despite us informing clients of this factor they still insist on raising funds on a BTL property and not their own home. This is a false sense of security. You will personally be liable for any shortfall if the lender cannot cover their loan from the sale of the property in question.
Fundamentally this investor saw the sense in what we proposed and raised the funds on his home. Therefore his BTL property has been paid for in cash. With the lease extension and the refurbishment the property will have risen substantially in value.
The purchase of Abbey Court can be done with a level of confidence, not only can money be raised on the property being purchased but also on the property which is unencumbered. This puts him in a strong position to raise the required funds in the short time he has to do so, he knows he has plenty of back up to complete this deal rain or shine.
This is one of the juiciest deals we have come across recently and often the best deals are time sensitive.
A share of freehold property
Prime Notting Hill
Over 1700 Sq Ft
A rarity to find this much lateral space
Excellent deal at £1.15m
Sow & Reap
A Property Investment Company
!Tips of the Week
Always focus on the capital growth of an investment property – never sacrifice this as this is how the bulk of your money will be made in property, rental income is secondary.
Always check the service charges and ground rents in new build flats, these have the tendency to dampen your rental yield.