As a firm we are concentrating on “Joint Ventures” more now, than sourcing properties. This decision has come about purely driven by profits, for both the clients and us.
Very simply the higher up you go in the price of the property the less people there are to purchase them. It’s like a pyramid, at the base there are more buyers. Typically this would be in the range of £300k to £500k, so at this level it’s difficult to get a bargain in the Central London property market; even in auctions where one would expect to find bargains, finding one at these levels has become a rarity.
The main reason is decades ago the owner-occupier would not purchase at auctions. Auction houses were the place for professional property traders and investors. Now the line between investors and owner-occupiers has blurred. At times when you look at the prices some properties have been sold for in auctions they are even higher than what agents are able to achieve in the locality. When this happens you know this was not an investment purchase but an emotional one, there by indicating this is an end use purchase.
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However the basic principle is the higher you go in property value there are less people to purchase, and the amount of discounts on the properties increase.
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So in short, the more money you have to invest the easier it is to get a deal, though it goes against many novice investors’ sentiments – they would like to try a small amount first to test the market. The fact is it’s easier to make money with a bigger lump than a smaller one and in Central London the lump needs to be bigger than in other parts in the UK, due the stronger demand in this region your funds will be more secure here. The way we make this happen is by working with people who want to pool their funds together to achieve this common aim, this could be with their friends, colleagues or family members.
Nonetheless, there still exist clients whose only aim is to purchase a property to provide a steady stream of income from day one.
Buying and selling means your gain is bigger but lumpy in nature, therefore you may not earn for six months and then get a lump sum in month seven.
This suits some people, however remember you also you have to fund any mortgage payments and other expenses from your own pocket during the period of refurbishment. Some will find this an added strain on their current cash flow. Another reason for purchasing income producing property could be that they wish to utilise their partner’s lack of income, for someone who has zero income purchasing a property in their name means they could have an income of over £10,000 tax free.
If you’re about to retire and require a monthly amount then a property like this would be more suitable. There exist a variety of reasons as to why some clients would prefer to have a steady income from a BTL property despite the greater percentage gain from a lumpier investment.
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So buying to hold for income still makes sense for certain individuals dependent on their circumstances. It is important to identify the type of property investment which will suit your situation. Many people have a vague idea that they wish to invest in property but often have not thought about exactly what shape this should be in. Part of our role is to help you to identify this.
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Last week we agreed a couple of deals for our buy and hold clients.
One was a couple purchasing for long term growth, the income from day one was just an added bonus which will serve them well post retirement.
The second client was much younger, he didn’t need the income but wanted to develop another source of income besides his, whilst doing a job that he doesn’t really like but ended up in because he thought it was a good career and he spent several years in university studying for it!
Regarding the couple, they were concerned about their lack of savings for retirement, they knew they should be doing something about this and had been toying with the idea for a long while. Finally they were prompted into action and signed up to our sourcing service, a couple of weeks later we were able to agree a deal for them. The property is a two bedroom on the Little Venice canal, a very pretty part of London which is more reminiscent of Rome, hence the name Little Venice.
The primary aim is not to purchase an income producing asset, in this scenario the location and condition of the property will ensure it increases in value more strongly than properties in a similar price bracket.
Here we were able to secure the property for £310k from an original asking price of £350k, the reason being the sellers were buying another property and needed quick movement. We were positioned by the agent as strong buyers and therefore the preferred choice for a quick and guaranteed sale buy the vendor. The property was owner occupied for several years, this means the property has been lived in as a home rather than a BTL property being traded on. Often properties which have been used as BTL properties have cheap laminate or thin carpet sand have been done up very poorly, as the aim is to spend the least amount of money required for the property to be rentable. Consequently many of them are in poor condition and will continue to have small niggling problems in the future. This property having been used as a home has meant it has been beautifully maintained and done with quality. The property has a homely feel and requires no refurbishment at all, it is ready to rent straight away and my opinion is it will go very quickly.
With Christmas around the corner it is important to ensure completion does not take place around the holiday period, as this would mean the property will stay vacant and the purchaser is liable for the mortgage. This may suit the seller, but perhaps not the buyer!
The other deal that we agreed is a studio which was a bank probate sale which we secured for £211,000. This property took us about three months to secure, often we have to track bank sales for months. Sometimes they are put on and off the market during the period of sale, any offers received have to be advertised and require multiple sign offs from the bank’s end. Getting an offer agreed means you have to know everything going on with the sale from having a good relationship with the agent to the politics within their own office.
Suresh Vagjiani
Sow & Reap
A Property Investment Company
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!Tips of the Week
When investing in property one needs to take a few things into account: income, growth, rentability & sale-ability, and all these depend upon LOCATION, LOCATION & LOCATION!
Central London property prices are higher than the rest of the country, however they’re always in high demand and price drops are a rare occurrence. So if your intention is to flip a property at a higher price, Central London will help serve this. There is always a strong demand and liquid market.
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