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Lamenting on the past

14th Jan 2021

It’s always interesting how after a deal has been done, many investors who missed the boat exclaim what a great deal it was and ask me to let them know if anything like that comes up again.  I recently heard this from an investor who lives close to a deal which has just completed in North West London.

The question I ask is, if I had presented that deal to them at the time would they have jumped on it like they claim presently?  Or do people just like looking in the rear view mirror, making statements of what they could have and should have done?

If their statement is true, then a deal which has similar characteristics should be jumped upon.  If the sentiment was correct a deal which ticks all the boxes should be seized.  There is a class of investor who will only invest retrospectively and only in their minds.

They will always look at what could have been and not at what is.  This is demonstrated through the stories they tell each time a deal is presented.  You will find they do not invest for years, as they keep telling themselves a past story.

Life moves forwards not backwards.

The reason this deal was so good is because it has a 5.5% yield and has the potential to increase its value by about 60% through added square foot.  The deal is attractive because there exists the safety of cash flow month on month and a big upside via an uplift in planning, if it is gained.

It is very important, especially in the current environment, to ensure there is immediate cash flow, or a strong prospect of cash flow coming from the property especially if the gain is to be made via planning permission, as planning permission is uncertain and subjective.  If the gain is through permitted development it is not as important, as once you gain the permission under PD the value per square foot would have increased, possibly doubled.  As mentioned previously, PD (permitted development) has certainty, but planning permission does not.

This was demonstrated to us very acutely when we were applying for permission for 92 flats.  It was a hung decision with the chair casting the deciding vote in our favour.  Not once, but twice, due to a technical error by the council.  This was after pre apps and well in excess of six figures being spent on planning.

It is better to go for income producing properties, and where planning is highly probable or even certain under PD.  Over and above this, it is also important to see where the income will be coming from.  Many many people will be feeling the effects of what has gone on in the economy.  There are means and ways of ‘guaranteeing’ the rental income you receive from an investment property.

Suresh Vagjiani

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