A week ago I met a contact of mine outside of a pub in Kensington he was showing me to purchase.
He had an interesting story. He started up in the rag trade; making a good amount of money and a lot of it in cash. He needed to find a place to spend this level of cash so he started to develop an unhealthy habit of going to the Casino. This chap doesn’t do things in halves, and so he really started to go to the Casino.
He would go pretty much daily and over the period of five years he had inevitably lost a lot of money, in fact around six and a half million pounds. He had become a chronic gambler. He enjoyed the buzz and excitement and it became an addiction for him. Nothing else gave him this level of emotional satisfaction.
There came a point where it practically consumed his wealth and nearly him too. Often when people have some kind of addiction, good sense doesn’t come into it; instead they have to hit rock bottom before they decide to change their habits. Unfortunately or fortunately, this point came for him after a period of five years.
At this point he decided to kick this habit, more out of need than choice. He turned away from his vice for once and for all.
Recently he went to the Casino he used to frequent, every one remembered him as he was a generous tipper; it was not unusual for him to give a thousand pound tip on a good night. However he didn’t feel any desire and wanted instead to leave the place as quickly as possible. This is an indication he was truly reformed.
After his episode of gambling he started on the path of property more as a trader buying and selling. Call me a pessimist but once a gambler always a gambler, nature always overrides. However the industry this man turned too was a forgiving industry, so even with his gambling nature over a period of 27 years he had lost no money, twice he made no profit, but he had never lost any money. Given his background this is a testimony to the solid nature of this investment as an asset class.
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There’s a saying, it’s not the size of the step which counts but the direction in which it’s taken. When this man applied himself with the same aggressiveness to property as he did at the Casino he made profits and good ones.
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He had two saving graces, one he was dealing in property and the other it was in London, he would not go outside the location. So even through the highs and the lows he had never lost out.
There is a reason why even in this post credit crunch environment where banks are reluctant to lend on businesses, they are still lending money on the purchase of property.
Indeed there is a great illusion, many people think they are putting their money into a property deal when actually the majority of the time it is not their money which makes up most of the money invested in a property, it is the bank’s money which makes up most of the money invested. In the majority of the cases only 25% of the BTL investment belongs to the investor, the other 75% comes from the bank or lending institution.
Many business people who have had businesses apart from property have wisely taken the decision to diversify away from their main business and into property. When business has gone down, as it does inevitably at times, in the same way autumn follows summer, the property portfolio amassed has helped them stay above water during times of hardship and served to cushion the downturn in cashflow. The thing with property is it never disappears, it is a fixed and tangible asset class, so it actually cannot crash. It merely dips down for a temporary period.
Often the amount of money a property increases by is much more than what the owners could have possibly saved up. Many business owners couldn’t generate this level of income from running their own businesses.
This is the clever attribute regarding property, it needs virtually none if any of your time. This means you can replicate it over and over again without it eating into your life. On the contrary it will allow you to be financially free as opposed to a business which generally traps you in it.
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Imagine trying to replicate your business by double, it will be difficult if not impossible, and the headaches will be multiplied. With property you have the option of doing this potentially an unlimited number of times.
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Many business owners also have no exit plans to their business, they will have to virtually run it till they die or retire. Without them the business will have no value, little thought is given to how to exit. Property is more liquid than most give credit for and there are multiple exits; you can of course resell to release your money. Putting it in an auction will mean you can generally get a guaranteed sale and have your money within 28 days from the auction date. However you can also refinance and release money this way. Refinancing means you do not pay Capital Gains tax, you also get to keep the property thereby benefiting from any future increases in value.
We are having a lot of interest from pharmacists currently, most complain regarding the tight margins in the industry and are looking for a means to substitute their income post retirement. Property seems to be the obvious choice.
The Duke of Westminster is listed the 8th richest according to the Sunday Times Rich list 2013. He made £450m last year, and is currently worth currently £7.8 billion, all from bricks and mortar. But his bricks and mortar are rows of properties in London’s Mayfair and Belgravia which he owns through his property giant Grosvenor Estates.
We have had the privilege of contributing to his considerable wealth by being charged extortionate premiums when negotiating lease extensions with Grosvenor Estates.
Irrespective of the size of the numbers the formula is the same. The clients we have sourced properties for have also seen their wealth rise; a two bedroom property which we had sourced for £315,000 in February had gone to £375,000 in August of the same year. The price of this property has moved up even further currently. This represents a serious rise of 20% over only 7 months. This is an annual equivalent of 34% per annum. Currently we would estimate the value of this property to be around £400k. Rather than reselling to release capital this investor can refinance thereby releasing £300k which is the majority of his investment, and keeping the property so benefiting from future rises, which we feel will happen.
You too can have your wealth rise like the Duke of Westminster. We have a three bedroom in the same location as the above property and for the price of a two bedroom. We believe this property will be valued at £475k after a bit of paint and tidy up.
The Real Deal
Bayswater, London, W2
Purchase Price: £400k
- A very spacious three bedroom flat on the first floor
- Lift
- Long lease of more than 100 years
- Rental income expected to be £500 per week
- We expect the value of the property to be £475k
Call us now to reserve!!
Suresh Vagjiani
Sow & Reap
A Property Investment Company
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!Tips of the Week
Always focus on the capital growth of an investment property – never sacrifice this for yield as the bulk of your money will be made in the rise in property value, rental income is secondary.
With Central London properties you are unlikely to go wrong in terms of demand for rentals and resell; apply the same to other parts of the UK and you might not be so lucky.
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