Perception and reality

26th May 2018

A client agreed a deal yesterday in a block in Maida Vale.  This block in my opinion is under-priced for where and what it is.  The location is Maida Vale W9.  The price is a touch over £600 per sq. ft., which is exceptionally cheap.  One of the reasons is that it has been popularly accepted as an ex council property from time immemorial by local agents, and, therefore, often perception and reality intermingle and perception becomes reality.

Having transacted three in this very same block, we can for sure, on the authority of the lawyers, say this is not an ex council and never was an ex council property.

Not that a label should have this much influence over the price of a property in the first place.  The flat is within a secured gated development, has large green areas and comes with its own allocated parking space as well as being share of freehold.  It is managed extremely well, the reasons being is the manager lives in the block, therefore, you do not get the hands off impersonal management you see in most other blocks.

This is probably the second best block I have seen in central London; no exaggeration.

The property is a generous two bedder, consisting of a massive 844 sq. ft.  This is large enough to put an ample three bedroom in this flat, perhaps something to ponder on for a later date.

Following last week’s article, a question was posed by the purchaser regarding whether his son could live in the property at a later date if it could not be rented.

There is only one way a property like this cannot be rented; that is if the landlord dictates an unreasonable amount of rent rather than accepting what the market says.  Otherwise, there is no reason why a property properly priced, in the right area, should not rent within a week or two at the most.

I advised him to use this property as a hedge and to rent elsewhere.  The expected uplift on this property will more than cover the future rental expenses.

The client will be requiring a mortgage.  I spoke too soon when he asked me how much he would need to put down on the deal, I assumed it was 30%.  The truth is the mortgage LTV’s have shifted, and when purchasing properties now the rental cover has increased to 145%, this renders the LTV useless.  The ceiling on how much one can borrow is governed by the amount of rent you can get from the property, and has little to do with the purchase price.  Further research shows the amount required to be put down on this property will be more like 40%.

A lot of analysis has gone into the research for this property, including previous sales figures and how much they have increased by.  It is interesting to note the increases previous properties we have sourced have experienced.  For example, two properties which we sourced for a client were purchased in 2010 and 2012.  They were bought for £315,000 and £285,500 respectively.  They have, on average, increased by 8% per annum.  If you look at the increase on the cash invested, it comes to 31% per annum.

The latter figure will drop slightly, as more cash will be required to put into the deal.  However, the environment is very flat at the moment and, therefore, the entry price is relatively low.

This Maida Vale deal, is a deal which is expected to mature very nicely and the perception of this block will also change over time.  Do get in touch if you would like us to source you similar deals.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
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