Gold at the bottom of the pyramid
24th June 2017
Towards the end of last week I went to see a one bedroom property in Kentish Town. I knew nothing about the property, it was sourced by a colleague and I was simply told to go, as often I am.
I knew the area well, I used to attend a martial arts class twice a week in the local area for about 6-7 years 13 years ago. It used to be a real run down ghetto, with social misfits on the streets and predominately occupied by council houses, not the ones which have been bought and then sold in the open market; back then the majority of these were still occupied by the original tenants. This was a place where hashish was sold quite openly on the High Street.
The property is in a purpose built building which has a very clean and modern look to it. It could have been an office conversion, or a new build. Entering the lobby you could immediately tell this was a quality development. The reception is a generous height, and features have been left exposed, which is the case for many developments now. It adds character and gives a rustic, authentic feel to a development. I have seen a look in the warehouse conversions close to Tower Bridge, where the original brick work, vaults and piping had been left exposed and enhanced. This is in stark contrast to many developments where pounds per sq. ft. is the sole dominating consideration, leading to shoe box flat designs.
The location of this block is equidistant from Camden Town Station, Kentish Town Station, and Camden Road Station. I would say no more than five mins walk to each one.
The property in question is a one bedroom on the fifth floor, newly done up and ready to rent. The fifth floor is a good floor to be on as it reduces the sounds from the road, the higher you go the less it is. It is a large, light and at 590 sq. ft. a very spacious one bedroom apartment. The price we have got the contract in for is only £350k. This equates to only £600 per sq. ft. To put this into perspective new builds in less desirable parts of Wembley are now valuing for £650 per sq. ft.
This is extremely cheap, not to mention you could easily turn this into a comfortable two bedroom to enhance the rental return. There is a slight sting in the tail with this deal, the service charge is high at £6,000 per annum, the reasons why I know not. However, when you analyse this it’s not so bad. In a development like this you would expect a £2K – £3k service charge, let’s assume £2k. The ‘extra’ £4k per annum can be turned into a lump sum of £80k assuming an interest rate of 5%. So even at a purchase price of £420k the £ per sq. ft. is only £730. The last property sold in the block was priced at £760 per sq. ft. and sold in March this year. This means the deal we have is 28% below the market value.
It’s better if you’re a high rate tax payer to have the money coming out of the service charge rather than the interest payment, as service charge is one of the expenses deductible from the rental income. The ability to deduct the interest element of the mortgage is being phased out for higher rate tax payers.
This is a cracking deal, in a very strong location and it is harder to find deals this discounted at the bottom end of the market. Not only are you quids in on day one, but the property will rise very well in the coming years.