It is better to take a smaller percentage of a large pie than a larger percentage of a smaller one
We are preparing to exchange on a property in Durham Terrace later on this week. The property was secured at £980,000, similar properties are on the market, developed and with a share of freehold, at £1.475m. I should say identical, as the property on the market is no. 7 with Marsh & Parsons and ours is only 3 doors down from this one. No. 7 is even on the same side of the road facing south so the sun shines in, an important factor. Sunlight adds a feel good factor to the property, even if people are not consciously aware of it. This property would be better placed than a similar one across the road, because the sun does shine on it.
We have two separate clients pooling their funds to purchase this property, this way for just over £250k in cash they allow themselves to get a deal which individually they would not be able to reach. The rest of the funds will be raised by way of mortgage on the property. This allows them to move into a different league and into Notting Hill territory. This is the power of collaboration, what cannot be achieved individually can be got collectively. We bring our local knowledge to the table and the investors bring their funds. Their combined funds allow them to purchase at a level they couldn’t obtain individually and our input helps to source and execute the purchase efficiently and cheaply. In this scenario we will be arranging all the works and the resale too.
Many of our clients are now grouping together to achieve a more aggressive level of growth by combing their wealth and using our services to achieve more than they could individually.
With buying and holding you can do this with excouncil properties in Central London and about £100k typically. If you want an even more aggressive return by buying and selling in a shorter space of time it is very difficult to achieve this in Central London with this price range.
Ok … so you can argue in that case it’s better to leave London and move to the suburbs. It’s possible there are pockets of strong areas in and around London and other parts of the UK. So why the continual emphasis on Central London? Perhaps you could say because Sow & Reap is based here and this is our mission. That is true, but the reasons are greater than us and we’re only riding on the wave. This has come about simply because we have seen this market hold up and carry on rising whilst the rest of the UK property market and economy has been failing.
We have chosen to focus on Central London precisely because of its aggressive level of growth. It is this which has driven us to stick to this location. And the first mantra of property is location location location, to break this is sacrilegious.
The recent Knight Frank report for September 2012 states Knightsbridge, Hyde Park and Marylebone all outperform with an annual growth of more than 14%. This means month on month prices are continually rising, this has been our experience, prices have risen tangibly even during the months between negotiating them and completing the deal.
Despite the challenge caused by the stamp duty hikes from the government this market has continued to outperform the rest of the UK property market. There seems to be no connection between the Central London market and the rest of the UK.
How has the phenomena occurred? It wasn’t always like this. One time city bonuses drove the property prices. This was the main driver of domestic demand. This has shrunk from once being 50% of prime London demand to now accounting to only 30%. So what’s replaced this and why? Some studies pointed to a weaker pound in 2008 to justify the inflow of money in the prime London property market, this made sense. But why when this currency benefit has been eroded does money continue to flood in? The pound has strengthened against the Euro and yet funds come in from Europe. My humble opinion is, many people do not know what is really going on in the economy and the games being played by both politicians and Central London banks, and no longer trust the experts, they are therefore seeing the London property market as a safe haven.
Two things have always been seen as real forms of wealth, traditionally property and gold. This is the shelter where people go for protection, to prevent their funds being eroded by inflation.
One prominent agent we are in touch with told us he had a call from Greece around the time the crisis was breaking out. He was told to purchase four properties to the value of £2m within a month, the investor did not want to even see the property, he only wished to park his funds in a safe place. The interest in London property has broadened, it now attracts interest from over 60 countries in the world with Indians buying from India holding the 3rd place.
This is why we feel it’s important to invest in the prime London market and sometimes you may find it more profitable to take a smaller percentage of a large pie than a larger percentage of a smaller one.
This weekend I attended a conference where the closing speaker was Donald Trump, a true property heavy weight. Prior to him there was a property speaker who was advocating the no money down property systems, so with no money and just will power one can purchase property. He’s encouraging others to pay for a seminar to learn how to do this. He claims you can buy with no money and you can also get positive cash flow. I believe this too because I have also done this. So where’s the problem?
The problem is you can buy with no money down and with a positive cash flow, but there is no security, the property will be less than what you have paid for it. Say you purchase a property worth £130k for £100k with no money and it produces £500pm. That’s £6k per annum, but what if it decreases by £20k in the same year? Overall you have lost £14k.
The other issue is only lemons are sold this way. Only property which cannot be sold conventionally will be purchased this way. You try to purchase using this method in prime London, I would be bold enough to say it’s virtually impossible. Even doing conventional deals it’s hard enough to secure a property in these locations.
Thirdly to convince a seller to get their heads around these systems is not easy and so you would have to go through a lot of sellers before you get to execute a deal.
I’m sure there are spots around the UK which will hold up in value, or even rise. But none to the degree London will so why waste time looking for them?
Last week we managed to offload our Jimmy Saville flat in Park Crescent, just before the allegations resurfaced this week on the Monday. Actually it was sold to one of our investors who bought it for £350k, we left enough mileage in it for him to make a healthy profit. Currently it’s being developed for around £12k and we reckon it will value up at £425k. The flat never attracted a premium because Jimmy Saville owned the property, therefore it will not attract a reduction with the allegations. So our investor will profit regardless.
Sow & Reap
A Property Investment Company
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