We have had much interest over the last two properties we covered. One was the heavily discounted property, a one bedroom property on the Edgware Rd at £230,000 which has exchanged.
The other a three bedroom more picturesque property with stunning views over the canal priced at £375,000.
There were admittedly issues regarding the one bedroom property, you simply do not find a property with a 40% discount in this area. This is the level of discount you expect in the North of England and overseas – generally with good reason because nobody else is purchasing.
The reason for the discount on a property in this location is twofold. One the service charge information was not supplied in full. This does not mean it has not been paid, simply it hasn’t been supplied. When service charge is not paid the lender will pay the service charge and then add it to the mortgage. So all the freeholder has to do is notify the lender. This is of course is only applicable if there is a mortgage on the property. As the flat was in a conversion the service charges tend not to be too high. There are no communal areas leading into this particular flat and no lift in the building. Therefore one would expect the charges to be around £1000 max per annum.
As these are unknowns and we are speculating, this lack of information makes novice investors nervous.
The other issue was the property, according to the land registry and lease, comes with a back garden. A much prized bolt on to any London flat. In actual fact access to the garden has been blocked off and the upstairs flat has access to it.
There is nothing on the land registry or on the lease to justify this.
What happens sometimes with repossession is the former owner, who is most bitter at being repossessed finds creative ways to spike the deal by sealing doorways up and mudding information regarding the property to put potential buyers. This then gives the former owner the upper hand allowing him to repurchase or sell on this information. Only he knows there are no issues. The bank consequently will slice a large chunk off the value, in this case the information is valued at perhaps £100,000.
Perhaps it would be better handling this project in two stages. First quickly do the property up inexpensively and rent it, and then tackle the garden issues which may involve litigation. When/if it gets resolved redo the property again making the design more inclusive of the garden. These kinds of issues are a bit like pealing an onion, you can only tackle the next layer once you have removed the one before.
Of course it is always good to get discounted properties, but there’s no such thing as a free lunch and generally discounted properties come with complications. I say generally because time to time you do find diamonds if you keep looking.
Investors often are addicted to words like BMV- meaning Below Market Value and off market. However technically speaking even if one person is selling something it is on the market, not off it. So in one sense this is impossibility. And below market value may come with its own consequences as illustrated with our one bed flat if it is in a good location. If the location is not good then it may be there is simply not enough demand.
We have in the past sourced properties fully on the market which just seemed to cheap to us, a good example is a building in 31 Ivor Place NW1 6DA which we sourced for a client. The building was sold for £700,000 in 2005 and our client resold it for £1m in Feb of this year. The gain was £300,000 on a deposit of £100,000 – at that time 85% was available for BTL properties. This information is on the land registry for anyone to verify. This gain has been achieved in a buyers market not a sellers one.
It is important not to get carried away with BMV and off market deals, and appreciate the ascetics such as the views, the light, the direction it faces and the feel of properties, this will reflect on how quickly a property rent and resells. You cannot measure some things by price as very few apartment in this location have superb views which the three bedroom we advertised last week has. The property is not really discounted much, probably only £20 – £25,000 not much given the price of £375,000. It’s the views and the greenery the flat over looks which will ensure strong future growth.
Suresh Vagjiani
MD Sow & Reap
