Recently we completed refurbishing a small one bedroom flat to a two bedroom flat in Queens Park/Maida Vale. This was picked up in auction in March 2011 for £280,000. 
This was the top limit set for this property- I was actually hoping to get it for less.
One thing I have noticed is when a property comes up for auction the auctioneer puts the more fashionable next door area in the description, rather than the actual location of the property, if a property comes up in Westbourne Park it would be described as in Notting Hill! And Kilburn becomes Maida Vale.
We spent £50,000 doing the property up which included a rear extension and planning fees. I could have got it cheaper if I got my uncle to do it but then I couldn’t tell him off if I didn’t like anything.
The aim was to buy and sell over a six month time period. The total expenses together with purchase costs came to £60k.
As soon as the property came up on the market we got an offer of £390k, this was within days of it being out in the market. I thought this was too quick and it must be worth more, so let’s hold out.
We did and it wasn’t! The original buyer due to the delay moved onto other things and January is not the best time to sell a property.
The flat realistically is worth £380,000 right now, which actually doesn’t leave much margin.
The cost to date is £280K + £60K, which is £340k. Using a 3% + Vat agent’s fee, I know that’s high, but I have gone on the assumption that Foxtons end up selling it, this would leave £26,000, a 10% return on your funds.
A fair return, but not amazing admittedly given the variables involved. If we had purchased with a mortgage it would have increased the percentage to make it much more attractive, as only 25% of the purchase price would have been used. However the return would have been decreased by the arrangement fee and the interest payments which would mean a total decrease of another £14,000. This now would mean £70,000 into the property and a £12,000 return, which gives a 17% return on your funds.
This in my opinion is still not enough given the variables involved in a property deal.
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The lucky thing is this is property and so you always have a fall back position.
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The fallback position is to rent and refinance at the higher value. The great thing with property is you have this realistic and quick option.
This would mean you refinance at £380k which means you can extract 75% of this value out from the property, which comes to £285k. So now you are leaving only £55k in the property.
The rental is £370pw, net of agents fees. The mortgage payments will be £300pw.
This means you have an income of £3,500 pa., which is a 6% net on your deposit. Assuming the price holds and rises you will be making a capital return on the uplift of the property value.
This seems to be the most sensible option. However this real example shows investing in property with a view of buying and selling is no sure thing even though this property was picked up in an auction. The reason? I believe the main culprit is the program Homes Under The Hammer. Programs like these are normalising buying at auctions and so the average person who wants to purchase a property and normally goes to an agent now considers the auction as a viable option.
This means auction rooms which traditionally have been wholesalers for property for investors to purchase and then sell on have now became accessible for the man on the street. This has the effect of increasing property prices bought in the auction.
For prime Lots I have seen the opposite is true, instead of buying them in auction it is better to sell them at the auction.
With a bunch of end users to whom this also becomes an emotional purchase, the price can be driven up way beyond what someone would rationally pay.
This is a reversal of what used to occur, to purchase through an agent and resell at auction now is viable for prime Lots.
So where is the angle this coming year? We believe in the larger Lot size. The size of these Lots divorces most off the street part time investors. The margins are higher and you can add clear value to them. So how do you a get a chunk of this pie? Asians rarely act as individuals, they act in clumps. When selling India properties it’s rare we sell one plot to one person, the likely situation is one investor buys one and so does his cousin.
To really exploit the market this year I feel the method would be to group together and purchase property. We have the right infrastructure in place to make this a hassle free process.
The Real Deal
This week we have two very contrasting deals to offer
One is a 25 year lease property for £40k, this comes with a tenant generating £9k per annum. A good way to view this is to look it at like you’re buying a bond, you will get an annual return of 22.5% per annum for a period of 25 years, but unlike a bond there will be no final payment. Roughly over a 4 year period your funds will be returned to you, the rest will be profit.
The property is a Ground Floor Two Bedroom Maisonette subject to an Assured Shorthold Tenancy producing £9,000 per annum.
The freeholder has quoted £85,000 for a lease extension though you never have to extend, it is still a great deal for £40k in. The property is situated in the south east London residential area of Lower Sydenham close to local shops and amenities and the open spaces of Southend Park are only a short walkaway. Transport links are provided by Lower Sydenham rail station.
The second property is a commercial property, the building is grade two listed in Oldham.
The property is entirely let to HSBC Bankplc for 15 years from 20th June 2008, expiring 20th June 2023, at a current passing rent of £55,000 per annum. The lease benefits from 5 yearly upwards only rent reviews, with the next review being on 20th June 2013. There is a tenant’s break clause on 20th June 2018, exercisable upon six months’ written notice.
The lease contains full repairing and insuring covenants, subject to a schedule of condition. The Tenant has an option to renew the lease for a further 15 years from the end of the term. We understand that part of the mezzanine floor is occupied by the Oldham Town Centre Management Company on an informal basis and no rent is payable.
The price is £825k, giving a yield of 6.7%.
The Victorian House
Heating & Lighting
Coal fires were the main source of heat during the 19th Century, they consumed a staggering amount of fuel. The consumption of fuel went up from 2.3m tons to 10.2m tons in 1861. In urban houses where space was scarce coal was stored in a separate cellar underneath the pavement. A chute would connect the pavement to the celler, this would be covered with a self locking cast iron plate. The coalman would empty sacks of coal down the chute and close the plate. Houses without cellers would either use coal binsin the back yard or the cupboard underneath the stairs as a ‘coal hole’.
Open fires had a catastrophic health effect on London. They left soot both inside and outside of the houses, in the great fog of 1880 700 Londoners died.
Gas supplies were only available from 1860. It was used for lighting and rarely for cooking and heating until the end of the century. Electricity came in 1881 where the first public supply was introduced in Godalming Surrey. It was another 20 years before it became standardised and widespread.
Suresh Vagjiani
Managing Director
Sow & Reap
A Property Investment & Financing company.
