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Going with the flow

10th February 2018

We are looking to close a few deals in Birmingham.  This move was prompted in part by a client who has only a small sum to invest.  His means are limited, but he has the enthusiasm to do something, and has invested through us for many years.

London currently is an uncertain market, and therefore unless you are buying very cheap, or with an angle, it might be better not to buy at the moment, as capital growth is unlikely for the next two to three years.  If you buy cheap, then money is made on the way in, when closing a deal.

The popular saying ‘don’t wait to buy real estate, buy real estate and wait’ doesn’t quite ring true in this environment, and this locality, at present.  People like simple headlines, to avoid the need to think and discriminate.

Furthermore, the yields in Central London are paltry.  So, you can’t even earn from holding the asset whilst waiting for the capital growth.

The advice then, is to only pick up very cheap pieces; and they are floating to the surface.  My inbox has several emails of properties titled price reduction.

There are two, and only two, ways to make money from property.  Capital growth and yield.  If growth is uncertain, then the obvious thing to do is focus on the other, namely yield.  This is the prompt to move away and shift focus further north.  The deal sizes are a lot more digestible, and the yields justify investing, irrespective of whether the property even goes up in value.  This looks good on the surface, and we are currently scrutinizing the deals we are considering, to ensure there is nothing missed.

Due diligence checks are especially important with these deals, many of the properties we are looking to close will be auction lots. Auctions are a favoured ground for dumping bad property.

There are several reasons why auctions are chosen as the means of sale, not all bad.  Some organisations like the transparency of an auction sale, this is also true in the case of probate.

However, there have been many times when we have come across property where things were not as they first appeared to be.

Some tell-tale signs are when last minute changes are made in the legal documentation as addendums.  This often translates to undisclosed information on purpose, which the seller puts in at the last minute to cover themselves and fool the unwary buyer.  When the seller is a large corporate body, generally speaking this is a good sign, as games like this will not likely be played.  The issues with auction lots is a lot of due diligence needs to be done up front, with no guarantee the lot will be purchased.  This requires time and expense, as well as the right expertise.  On the plus side, a sale will be done on the day and the deal can be wrapped up with little fuss. It’s a gamble.  We are looking forward to our foray next week and will hopefully report a few closed deals.

Suresh Vagjiani

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