On Tuesday I went to see a building in Shirland Rd. It was a rundown commercial property with flats above, owned by an elderly couple who wanted out and move to the country. Whilst looking at the property I recognised that opposite it there was a block which coincidently was to come in to auction on Thursday 2 days away, which was 92 Shirland Rd W9.

It was a large freehold conversion with bay windows. The auctioneers advertised it as 6 self contained flats with tenancies unknown. The property was being sold by a mortgagee in possession. I knew with the tenancies being unknown this building would not fetch a very good price.

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Humans weigh a down side much more heavily than an upside. This means losing £10 will be much more devastating than gaining £10. This means we are more strongly controlled by fear than our need to seek pleasure. This also translates into property buying, when something is unknown the chances are the property will go for disproportionately less than it should.

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I have come across this type of scenario before, when a building gets repossessed from someone the person who it has been repossessed from isn’t always so forthcoming to the bank with the paper work. If the property is on AST they would say they don’t know where the contract is and tenants have been there for ages, they would also prevent access to the property. Or they would try and create some planning issue, or if the flats were empty stick someone in there and claim they were a sitting tenant. This would severely dent the price the property would fetch.

In some cases there would be a plan of action: The next step would be to find an investor, tell them they can get this property for roughly half the price and resolve all the problems and for this they charge a big fee! In this way they are able to perhaps gain even more than they would have from the building ordinarily. In effect the investor and the original owner could make, in some cases, up to 50% of the building value in a few months.

So, coming back to this Shirland Rd Property, when I read that the tenancies were stated as unknown I suspected there was more to it. So I decided to knock and see if I could find out anything further. In going to the building I was hoping to speak to the tenants and get an idea of the tenancies.

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If they are AST there will be no issues, if they are sitting tenants, the properties may only be worth 50-70% of the value.

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The chances there would be sitting tenants in all the flats would be slim. I didn’t have any joy in discovering who the occupants were. I would imagine I had not been the first to try and they were probably fed up of random people disturbing them and asking questions.

So I left it and carried on investigating the deal in hand which has great potential. This building is 3700 sq ft and consists of an element of commercial and most of it is residential.

The next day I came back with a colleague, he had dealings with a nearby agent. We got speaking and she being Russian coincidently knew the owner of no 92 Shirland Rd, who was also a Russian lady. The story was that there were some financial issues, and the property was put into the auction without the lady’s knowledge by her husband and as he didn’t know the tenancy detail he told the auctioneer it was unknown. We were informed by our Russian contact they were all on AST’s. According to her though the property would not be appearing in the auction the following day, as the lady had apparently paid her outstanding debt.

About 8pm the same night I got a call from the agent who told us the owner was too late in clearing the debt and the building was going for auction the following day.

Though we didn’t have sight of the ASTs, we have had previous experience in dealing with this agent and she did not have any vested interest in lying to us. On the strength of her information we decided to go for the building.

We had about fourteen hours to arrange to purchase this. I called one client up straight afterwards, who didn’t pick up. I managed to speak to another client at 10.30pm and explained the angle. He agreed we should go for it, he said we should will sleep on it and then decide the limit the following morning.

The property was guided at £1m, this doesn’t tell you much. I have seen properties go for double the guide price. I was expecting this building to go for around £1.3m and there would still be a margin left on the property. The building was 2,800 sq ft, the price on this road is easily £700 per sq ft, so according to this the building would be worth £2m. We agreed a ceiling of £1.3m for the property.

The bidding started at £850,000 and ended surprisingly at £1.1m. We secured the building extremely cheaply. It was odd, but auctions can be like this, very hit and miss especially as there was a lot of information missing from the legal pack.

We were anxious to try and get all the agreements together and see the building from inside. To date we still haven’t been able to do so.

As soon as the local agents found out we secured the building they were on to us to see if we wanted to resell.

Over the weekend one agent was hounding me to agree the price and then agree the commission. He claimed to have someone who knew the history of the building and was happy to purchase this blind for £1.3m. I explained this would have to be on the basis they could ‘attend’ (which means, exchange at the solicitors office, without the contracts going out) and on the basis they be happy with whatever paper work we have.

As of Monday morning the price was confirmed and the paper work has started….

The Real Deal

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Purchase Price: £3.5 million

Estimated Build Cost: £3m

Estimated End Value: £9m

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Suresh Vagjiani

Managing Director

Sow & Reap

A Property Investment Company