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Money Never Sleeps – Part 2

Following on from the article last week, we had an offer on Monday for a property we purchased on the previous Thursday. The property was a freehold building on Shirland Rd, Maida Vale W9. It consisted of six flats rented on terms ‘unknown’.

The offer was for £1.3m, our client had ‘purchased’ for £1.1m from the Allsops auction on the 29th March 2012.

The offer came in on the Monday after negotiations over the weekend. We gave the purchasers the next day to exchange. We took sometime to get the papers to their Solicitors, the papers were sent about 3:30pm, so they requested more time to exchange as the papers were sent late. Our solicitor felt there was no reason why they should not have a little more time, but we decided not to allow this. The purchasers were frightened they would lose the deal if they didn’t do it the same day, so they managed to exchange by 6.30pm on the same day, Tuesday.

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We had put only 10% down for this property, which was £110k on a purchase price of £1.1m and the profit was £200k.

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We had purchased the property blind meaning we didn’t see it, we did not have sight of the full paper work, we took a punt. The purchasers were also buying blind though they had some history with the building. Our understanding is they are investors and they too are looking to resell their investment in the same way we did. It’s crazy to think the property will be sold twice in the space of a month and still the end buyer will make money on it.

This deal was done knowing there was a lack of paper work and going by evidence we got from someone who was in the know whom we had a relationship with prior to the deal. Where a deal is on the table and all the cards are known, it is rare it is a deal. Often it requires an angle or a vision from the purchaser which the others perhaps do not see. This property was on open auction, anyone was free to come and put their hand up and bid. So why didn’t they? We had plenty of interest in this property even if the current purchasers walked away we had been told there were other offers on the table. This is why we could put a strict time limit on the offer we had. It’s a strange thing with property, when the property has a buyer or has been exchanged, for some reason buyers come out of the wood work and all want the same property.

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Sometimes it can be on the open market for months without any movement and then when it has an offer on it everyone wants the same property, rather like a toy which no child wants to play with until one of them decides to play with it, then they all want it!

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I have seen this time and time again with property.

This together with constantly farming for deals allows them to crop up.

It’s interesting to note when someone really needs to exchange they can do so when push comes to shove. When purchases are done at auction they always manage to complete the legal work within 28days, (ok, it does help that the legal pack has been made available). On the other side we have known ransacking to go on for six months with each solicitor pushing paper back and forth raising silly enquiries sometimes outside of the remit bordering on simple nosiness.

Conversely we have done exchanges in a day. If the two solicitors are singing off the same hymn sheet great things can be done otherwise deals may get broken.

There was one deal which was in the pipeline for over six months. It was a one bedroom flat which was converted into a two bedroom and then rented out for £550 per week. The property was purchased for £235k and was being resold for £285k. The solicitor started asking questions as to why this was so and what justifies the price rise and whether we had planning permission etc. Some of the questions were valid but others were intrusive and outside of his remit.

The underlying reason was probably because the seller was making more money from one deal than the solicitor does in the whole year!

Coming back to our current deal, it is likely to be resold again onto another investor shortly. We did let it go cheap, there was more meat on the bone. But on the other hand we have recycled the money out very quickly and now are poised to strike at something else.

Time and structure are also important. The above can be done on deals which have long completion times, and reassignable contracts. This allows the investor to sell the contract on prior to completing on the property. The advantages are big, for one the recent increases in stamp duty will be irrelevant as you will not need to pay as it’s only payable on completion. Secondly,

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most importantly you have only 10% at stake this means if you sell at only 5% higher you make 50% on your funds. In any investment it is wise to prepare for the worst case scenario and not the best, so funds must be allocated to complete if required. Structuring this way and reselling should be a cherry on the pie, but the pie must be a good one. Only then will others want to bite it!

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The Real Deal

22 Park Crescent, London, W1B

Purchase Price: £375,000

A charming studio apartment in this impressive stucco fronted John Nash building. The property requires works and the angle is to refurbish and sell. It’s a brilliant location and expected end value would be at around £430K. The refurbishment is expected to cost around £15k.

Property Details:

Lease: Leasehold 70 Years

Service Charges: £4500 per year

Floor: First

Floor Plan: 350 Sq Ft (Gross Internal Area)

Suresh Vagjiani

Managing Director

Sow & Reap

A Property Investment Company

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! Tips of the Week

* Gone are the days when purchasing in the name of a company will get you around stamp duty. Purchasing in a personal name is now cheaper or use a stamp duty scheme.

* If you purchase a property as a home to live in, and then change your mind and decide to Let it, some lenders will convert to a BTL without changing the rate.

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We offer a Property Sourcing Service, so call us now to see how we can help on 0207 096 1083 or email info@sowandreap.co.uk

Our Address: Westbourne House, 14-16 Westbourne Grove, London, W2 5RH

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