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It’s not just about the numbers

This week we exchanged on a property in Durham Terrace W2 mentioned in last week’s article. This was a property where two independent parties purchased this property jointly for £980,000 with the aim of refurbishing and reselling. This allows them to purchase a property which would otherwise be out of their reach or comfort zone. It is very difficult to find properties in the £300-£500,000 range where one can purchase, refurbish and make a profit. The property market is shaped like a pyramid where as you go up the scale there are fewer buyers and so more of a chance to bag a good opportunity.

Though the primary aim is to refurbish and sell on, there does exist a small window of opportunity to flip this property for £1.05m and make a quick £70,000 prior to completion. If this was to occur the investors would make a 70% return on their funds. This is within a four week period and without getting our hands dirty by getting involved in the building work. Due to the demand of the location there are always a number of different options with a property.

With cases like this interest comes from end users who already live on the same road. The issue which will arise on the buyer’s side in this scenario will be whether the lender will be happy with a sub sale. This means the property will be sold on prior to completion. Not all lenders are happy with a sub sale scenario and the sale could get stuck at this juncture.

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Although the sale can been agreed the lenders may refuse the mortgage later down the line, meaning money and time has been lost on both sides. So it is better to iron this issue out upfront to ensure the sale goes smoothly.

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With any prospective purchaser we will ensure both their lenders and solicitors are happy with this situation. The purpose of this rule is I assume to prevent fraud, where investors buy property and then have the valuer inflate the price and sell on very quickly thereby extracting money from the deal rapidly, and leaving the lender with a toxic asset where the mortgage will not even cover the property price.

The problem is lenders lose business on many genuine cases where traders are selling the property prior to completion. Perhaps given the lack of lending this isn’t a problem for lenders.

In Central London this happens a lot due to the liquid fast moving market. Many property investors only trade, known as ‘flipping’ properties. Lenders who specialise in this area are generally happy to lend given a few questions are answered satisfactorily.

We currently have a property similar to the above one in West Kensington. This property is a Share of Freehold and is a three bedroom in a portered block. In a nutshell the aim will be to spend £100k max on this property and resell it within a 6 month period for £1.2m. The flat is very large at over 1300 sq ft. The price we have secured this property at is £892k fighting off other bids which were higher in the process, this is due to the close relationship we have with the agents. The property belonged to a lady who is going into a nursing home. Often many properties with a margin are those where the owner has passed away or gone to a home.

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The price equates to only £650per sq ft. This is very cheap given the location. The added cherry on the pie with this property will be the completion period.

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As the old lady has all her things in the property accumulated over decades the family want a delayed completion. This suits us fine as it gives us an opportunity to resell the apartment in between for say £1m, leaving some margin in there for another investor or end user. And remember this is Central London so the price will be increasing month on month. Of course we will be gearing up for completion, but this will be our insurance policy if we do not sell on. Often people get caught up in the price of the property and focus on this alone, yet time is a very important factor, in certain situations more important than the price.

The numbers on this property stack up as an investment, on top of this it’s a freehold. This is normally a nightmare for many Indian investors as they wish to keep the property in their family for at least 21 generations. They view a leasehold property as one where their family wealth will be decreasing as the length of the lease is decreasing year on year.

The management is very good on this property, the communal areas are well kept, and the porters do their job, this maintains and up lifts the property price. You will be surprised in how many blocks this is not the case. The building is done in an Art Deco style, this is a style created in 1920s but took hold after the second world war, this adds to the attractiveness of the building.

The above are the fundamentals of what one should look at when considering a property investment. However you should not neglect the feel of the property. It is important the property has a good feel about it. This property has three aspects meaning three different views, three sides of the apartment has windows to it, this means there is plenty of daylight coming into the property.

It is important to recognise this, as purchasers will be guided by this. People are emotional creatures and the buyer of this property, especially if he is an end user, will often be guided by this unseen force. You don’t have to be a Vastu expert to note the importance of daylight and the effect it has on the feel of the property, and the corresponding effect it will have on the potential purchaser.

This property will require £520,000 of investment. Roughly £260,000 per investor, the returns are calculated to be 22% over a six month period. This opportunity allows an investor to purchase a property they cannot purchase individually or where they may not be comfortable sticking the whole amount into one purchase.

The Real Deal

Probably the Cheapest property you’ll find in W2

  • Only £235,000 –1% stamp Duty
  • No this isn’t Ex Council
  • Studio in poplar Art Deco Block in W2
  • Probate Sale
  • Requires quick movement
  • Rental of £300 pw achievable

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

Often people get carried away with terms like Below Market Value; remember this is not the main consideration, the potential for future growth needs to be there. A property may be cheap but that doesn’t mean it will increase in value in the future.

Leveraging equity in your home, or equity from another property investment, can be an effective way to buy an investment property especially from a tax perspective.

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