In the Nick of Time
09th April 2016
One of our clients has just managed to complete a deal, just in the nick of time. Completion for this little studio occurred on the 31st March 2016, thereby saving on the 3% increase in stamp duty.
This was his second attempt at buying a property with us, the first was at an auction where the property was an ex local, first floor apartment in a purpose built block located in Fulham. It was guided at £375k, and ludicrously went for £490k, which was way outside what we were expecting; and I think a record for the block. This is what happens when emotional buyers are allowed into the auction rooms.
The investor was an introduction from another client, and therefore came with recommendation. He had purchased a BTL property previously and therefore was not a complete novice. The property he purchased had increased in price. As part of our turnkey service we advised how best to refinance and use the proceeds for another purchase. He had rightly concluded that investing in the UK property market is probably the best investment one can make. The idea was to set up an investment pot for his children. He was very keen the deal should be done before the stamp duty rise and therefore enlisted our help in order to achieve this.
The property in my opinion was in an ugly block, Park West in W2. Overheated and smelly, and corridors like my primary school. It is however a favourite amongst Arabs, who enjoy the local amenities such as the shisha bars scattered along the whole length of Edgware Road. Interestingly the freehold of the block is owned by Freshwater, a Jewish landlord.
Ugly it may be, but this is the third property we have purchased in this block for clients in the last year. And given the right deal we will carry on purchasing here.
Our original criteria for purchasing property has been the discount we get on the way in, the fact the properties are in such strong locations meant the growth is taken care of by itself. Every single property we have sourced on an individual long term basis has gone up in value with annualised double digit growth every year it’s been held.
The research we conduct now on the properties we source is not just restricted on evaluating the price on the way in, it has been widened in depth and breadth to even include crime figures in the location. We also include previous growth figures, purely for the block or in the case of a period property the precise location the property is in. In this scenario the average growth rate for a studio in this block is 14% per annum, the figures stretch as far back as 2005 and therefore some of the data includes the period of 2007/8 which means even taking into account one of the worst financial crises in decades the growth rate is still on average 14% per annum, which is impressive.
The property which was completed just in time is a studio of 332 sq. ft. on the fifth floor of a portered block, with a long lease. It has a relatively good aspect as it faces the front of the block so it has good light and therefore a good feel to the property. We still went in with a good discount, the property was purchased for £350,000 which equates to £1,050 per sq. ft.; properties on the market on this block averaged £1,262 so this represents a saving of 16% on the average market price.
These figures are attractive, not ugly, this is what needs to be seen and measured when considering property investment. Not one’s own opinions of what is attractive or not, neither should the criteria of ‘it’s close to where I live therefore let me purchase, as I can manage the property easily’, with some vague idea of your offspring living there at some time in the future. This is penny wise and pound foolish, or perhaps even just foolish. Yet this is the precise criteria many use to invest.
When a property first comes on the market there is usually a flurry of activity, this is the time to do a deal. As time moves on the flurry decreases and the property if left long enough starts to become stale. The time to do a deal from the seller’s point of view is right in the beginning when there is high spurt of demand. Buyers attract buyers. On a property this small, it is essential to ensure if you want the property you grab it quickly and agree the deal ideally before it gets any exposure on the market.
This is exactly what occurred in this situation, through our connections in the local area we were able to close this deal without it even touching the open market. There are many buyers at this sort of level in the market, and if this property had hit the market the chances are it would have attracted multiple bids and the price would have been inflated.
By keeping the property off the market we were able to shave potentially 16% off the price (as compared to others on the market) and we made a further saving of 3% on the stamp duty by ensuring the transaction was completed before the 31st March deadline. This represents a saving of £66,500 on the way in. Assuming the average future growth rate is in line with the past the property is expected to rise by 14% per annum which means an annual increase of £49,000.
Interestingly this is about what the client earns; he has just replicated his annual earnings through his investment with us.
Some clients wish to look at properties with their families and then consult others for their opinion on the deal. This client only saw the property after the deal was done. This is probably the best way of doing deals. This means the chances of one’s emotions getting involved with the deal is minimised. The real research is done in the analysis of the past, current and where the future price of the property will go.
The property is currently being refurbished for roughly £2,000 and will be rented for £300 pw giving a decent yield of 4.4%. This is now a very good yield given the location, yields have dropped hugely as the capital values have increased.
The Real Deal
Hampstead, London, NW3 Purchase Price: £700k
- A large one bedroom ground floor flat
- Share of freehold
- Scope to add more square footage to the flat along with another additional bedroom
- Close to the leisure facilities of Finchley Road and Hampstead Heath
- We expect the value of the property after conversion will be around £950k
- Very good long term buy and hold
Call us now to secure this deal!
!Tips of the Week
Focus on long term growth prospects, not just rental income.
Property is a very forgiving asset class, even if you purchase a dud property given time it will rise; the stronger the location the quicker it will rise.