Kill Two Deals With One Deposit
Last week Friday we exchanged (as sellers) on a property in Hampstead, a two bedroom purpose built flat in a block. Being in a block means it is generally easy to value the property as the comparables are plentiful, frequent and homogeneous.
It is more difficult to value a property in a street where every property is unique. This may add to the character of the road but from an investment perspective it’s more difficult to value.
We had purchased this property on 17th May 2013 for £790,000, thereby putting £79,000 as the exchange amount. We only had 24hrs to do the deal. The seller was very stubborn and refused to send out a contract, this meant our solicitor had to go over to the seller’s solicitor’s office and do the deal. We had to take a view on certain matters but we managed to exchange before the deadline which we were given.
The property was resold with a £60,000 gain within four weeks.
We paired together a couple of clients to do this deal; one of them was an accountant who had approached us in January this year. He had a lump sum of £50,000 that he wanted to invest. We sourced him a small deal for £240,000, Hillsborough Court NW6 which we exchanged on on 15th March 2013. We agreed a long completion date and decided to put it in auction confident it would sell for around £275,000. However we had a lot of interest prior to the auction so ended up selling the flat for £260,000, which was less than what we could have got, but as they say a bird in hand is worth two in the bush. From his original investment of £24,000 he had made £16,400 net over two months. This profit and principle of £40,000 was then rolled over to the next deal.
It’s rare deals are timed in this manner but the exact amount went from one solicitor’s account to another, to exchange straight away on another deal.
The current lawyer he was using thought they were a bank and so kept the money for an extra week rather than returning it as they were supposed to. But in the end it helped us to time the next deal better.
The client gave authority for his funds to be transferred into another solicitor’s account so these along with another client’s investment of £40,000 could be used to exchange on a property worth £790,000.
From the resale of this property our client has made approximately £24,000. This means from his original seed capital of £24,000 the client has now turned this into a tidy sum of £52,280 within a three and a half month period, so about 14 weeks.
Bored with his career in a ‘big four’ accountancy firm and seeking a new challenge he had applied for an MBA at London Business School, one of the top business schools in the world, as he felt it will give him the skills and network to set up his own business. He is pleased to have been accepted on the programme to start in August 2013, but such a course is expensive, with tuition fees alone in excess of £60k. While he had some savings, he needed to invest and grow his money wisely to ensure he could afford his course without taking out a loan. The proceeds from this transaction has helped him do that and allowed him to begin a new chapter in his career.
His aim for using the money this way was a smart one, by growing the deposit this money will be used to fund a large chunk of his MBA. His employer has agreed for him to take some time out to get this done. No doubt having done two back to back deals with us he is now geared up to do one or two more before his MBA starts.
Education in the UK is getting more and more expensive, so it’s no longer a free ride with excess grant money to spend.
University applications have dropped 20% since the fees have been introduced. This means if you wish to educate your children you will need to make sure your money is working very hard for you to meet the added cost involved.
The timing of these particular deals was set up perfectly for this client, however the fact of the matter is this rarely happens in such a synchronised way. At times with the best will in the world properties may not sell before completion, it’s the nature of the beast.
Recently we purchased a property in Shepherd’s Bush for £715,000; the aim was to resell this property for £800k plus, before the six week completion period. Though we had an offer of £800k the purchaser was an end user and a novice, he did not have a clue his mortgage would not be appropriate for this deal. Most lenders do not lend on properties which have been resold within a six month period; beware many properties like this are dumped in the auctions where buyers are blissfully unaware their lenders will not finance the purchase. Until late in the purchase, many buyers will not have the recourse to get the funds from elsewhere and will be in danger of losing the 10% paid on exchange.
As a consequence the deal fell through and we completed on the transaction. However last week we managed to exchange on this property at £875,000, well in excess of the price offered pre completion. Of course hitting completion means there are other costs to pay such as stamp duty and arrangement fees. Even after taking this into account we made more money by completing the deal.
When aiming to trade property we always ensure the deal stacks up, should we have to complete the deal and resell.
50 Palmerston Road, Kilburn, London, NW6
Purchase Price: £1.69m
- A modern block of five self-contained flats
- A studio flat, a one bed flat, 2 two bed flats and a three bed flat
- Studio flat benefits from a rear garden
- Gross internal area of all five flats is 3854 sq ft
- The property is priced at £439 / sq ft and comes at almost 30% below the market price of £625 / sq ft
- Only 1% Stamp Duty
- Off Market opportunity exclusively through Sow & Reap
Call us now to reserve!
Sow & Reap
A Property Investment Company
!Tips of the Week
Before you get involved in flipping properties, do your research. Like any other business venture, flipping requires not just money, but time and skill too. So it’s better to team up with people who have sufficient knowledge and experience in this job rather than change yours!
It’s not good to have a quick sale as your only option; in today’s market, you should always have an alternative strategy should things not go to plan.