Friday the 13th
This is supposed to be an unlucky day; there’s even a cult horror film named after this date made in 2009. This being an unlucky day is so embedded in the psyche there is even a phobia named for this day namely, paraskevidekatriaphobia.
The 13th of this month occurred last week Friday; this was by no means unlucky for us. In fact it was a day wherein three things occurred – all good, as far as I can see.
The first was the closure of our first fund. We closed just shy of raising £4m, at £3.99m. It had a minimum of £2m in order to close, so we were well above the minimum threshold. This is a miniscule amount for a property fund focusing on central London property, but this is our blueprint; a formula which will be replicated.
There were a few obstacles to raising the money, for example the Information Memorandum which consisted of 38 pages, and was a real eyesore. I read this document five times and to be frank didn’t understand all the terms contained in it.
However we had got one of the best lawyers in London to prepare it and therefore trust that it has been constructed properly for all concerned. Of course the salient points were understood. I saw it similarly to when you purchase a property, you do not read all the documents concerned as this is the lawyer’s job.
To the average person, without knowing us, coming in cold this is not easy reading, some of them threw it at their lawyer, where it stayed in a pile. Other investors for example accountants and lawyers read it and asked further questions. Many simply went on their history with us, having signed up and gained confidence from working with us before. Others tested the water with us investing only the minimum amount of £25k.
All in all it was an experience which was important for us and our investors. This kind of money will be spent rapidly in property in London. It will not take long to invest this, as indeed we did.
The purpose of the fund is many fold, one to divorce the investor from the decision making of purchasing a property, this is done to allow us to move on deals quickly and more efficiently. Everyone seems to have an opinion on property and sometimes they offer it to us along with their money. With respect we are on the ground and have Collective experience of 25 years on the same patch, therefore we’re best placed to make decisions and should be given the freedom to do so.
The second reason is to centralised the process so rather than having 5 deals with 10 investors each and having to report individually, the fund provides a centralised way where the reporting is undertaken by a third party firm in a predefined format.
Thirdly the fund provides security, the money can be held in only three places: one being in the fund administrator company’s client account, the second being in the solicitor’s client account and the third being in a property.
Although the fund provides a lot of compliance to follow it is in many ways a necessary evil to protect the investor; and ensures what we do stays within certain pre defined boundaries.
The primary aim of the fund is to trade properties, meaning to buy and sell them prior to completion.
One concern I had in closing on this day is it is too close to Christmas. This is the slowest time of the year for property, and having collected funds I did not want them sitting in a fund administrator company’s client account where the only people benefiting from the funds is the bank, who seem to be the only industry in the world who can loan multiples of something out and make money from thin air.
Many people are of the opinion having money in the bank keeps it safe. I do not share this sentiment in the current environment, money in the bank means it is stale and depreciating. The rate of interest it attracts, compared to what’s actually going on in the economy, ensures it is depreciating in real terms strongly. Therefore it needs to work to simply keep pace with the environment.
Very simply money in the bank means it’s going down and money in property means it’s going up. Therefore the funds needed to be invested in property as soon as possible; having a fund is a pressurised situation.
However luckily we had agreed a contract to purchase a freehold block of 5 flats in Nervern Sq, Earls Court. The price we agreed this at was £1,046 per sq ft. Next door had been sold for £1,400 per sq ft.
The total price of the block we purchased was £4.877m.
Properties deals are lumpy and therefore it is not always easy to synchronize deals. We had to pull a lot of strings to get this deal agreed; and finally we had received the contract. The aim was to exchange on this property on Friday straight after we had closed on this fund.
We knew this was a deal and so did the under bidder. On the Thursday the unthinkable happened, the under bidder woke up again and offered £500,000 more than what we had.
This would scarper the deal. The agents as per the law were obliged to report the offer to the sellers which they duly did.
Hand on my heart if I was the seller and someone offered me £500k more I might have tried to get the first buyer to up his offer. However these vendors gave us a very small window to close at the agreed price, we only had until Friday the following day to exchange.
So the clock was ticking, luckily the fund closed without a hitch in the morning and the property was exchanged on the same afternoon. This is a great deal to kick the fund off with. The fact the under bidder came in again at £500k more than what we were purchasing at is a strong testimony to this.
We now have plenty of time to trade this deal, having agreed a long completion date. Clearly someone is already ready to pay £500k more,but I think this is worth at least £1m more than what we have paid.
Again the art is to try to synchronise the subsequent deals so as soon as we are out of one the cash is recycled straight into another deal.
This is the aggressive way to make money with property; by continually cashing in and moving on. If you buy well you can exit with a good return and move on to the next deal. However this requires constant work and requires one to keep their feet on the ground, it is not an armchair way to invest in property. It makes a small amount of cash go a long way.
So we had two good things happen on a supposedly unlucky day. And to top it all off it was my birthday! So that’s three. A trinity.
Unless of course I am the devil’s spawn and this is devil’s luck at play!
Ealing, London, W5
Purchase Price: £975k
- A large semi detached four bedroom house
- Garden, internal garage and off street parking
- End value after works expected to be around £1.4m
Call us now to reserve!
Sow & Reap
A Property Investment Company
!Tips of the Week
While using mortgages for buy and flip deals, be careful with the arrangement fees, exit fees, and the interest rates. These may eat up the profits in the deal.
The internet has its own limitations for researching properties. We have done deals where the statistics on the internet did not support our decision; but our local knowledge did and clients benefited from this.