We have a client who wishes to purchase another BTL property. She currently has one which she is generating an income on via Air BnB. The property happens to be close to the Harry Potter studio, it generates higher than normal rental income. I was not aware Harry Potter would have this level of pulling power.
This does come with an extra layer of hassle; as you’re pretty much running a hotel.
Anyhow, this has inspired her to replicate this model again.
With the market this heated, this is easier said than done. Any property which is reasonably priced and hits the market soon attracts multiple bids and often goes above the asking price.
One property which had a garden and a parking space with share of freehold priced at £220K, went under offer without her even getting a chance to visit the property. She then went online and discovered two things, one is you can guzump a deal, this means offer above the asking price, the second being that any offer presented to the agent legally obliges the agent to pass this to the owner.
On this basis, on a Sunday night, she offered £8K above the asking price. She still never got the property. This is indicative of the market at the moment.
One of the issues is most of the purchase money is coming from a mortgage. This means it comes with a lot of administration and time, and uncertainty. Therefore, the first step is to put the client in a position of strength and not weakness. This would allow her to have a stronger position when dealing with agents, and open another door up, namely the auction market would be in her reach.
We looked at her two other properties, both on fixed rates; it did not make sense to break these deals. However, one can get a further advance from the same lender, without disturbing the underlying deal.
As the existing properties are quite lowly geared, floating at around 40-50%, by asking this question and doing this exercise the client will have six figures in her arsenal.
This allows her a far stronger negotiating position when dealing with agents; and allows her to go for properties which are in a dilapidated condition which cannot be rented out immediately. These properties cannot be put on to a conventional BTL mortgage, because the properties are not rentable in that condition.
However, this is where you’re likely to pick up a property with some margin on it.
This can then be tidied up and then refinanced when completed. And instead of paying over the odds, this hopefully allows the client to pay under the market level.
What changed? The ingredients were exactly the same, meaning we didn’t add anything external. We merely showed her a different method, where she was more empowered and will hopefully attract a good deal – soon.