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Profit, from St John’s Wood

We have just taken on a property in St John’s Wood, a large spacious one bedroom property which comes with share of freehold and is 631 sq. ft., which is large for a one bedder. The price is £750K, this equates to £1,188 per sq. ft. It comes with car parking which makes the deal very good; considering that car parking alone in this location is worth £50K. It is minutes away from the Station and is on the highest floor of the block.

In fairness this is not a bargain basement property, it is well priced and the future growth will be strong. The block, the upkeep of it, the location and you’re getting a share of freehold, makes this very attractive.

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Put into perspective ex-council properties are selling for around £1,000 per sq. ft. in this location, in my opinion ex-councils have always been underpriced due to the label put on them. This is no longer the case, the divergence between the two is getting closer. In fact I would even say as far as a BTL investment goes ex-councils make more sense. The lease is long to begin with and is cheap to renew, service charges tend to be low and rooms tend to be spacious. This is often not the case with private properties where the service charges are often extortionate, and you do not see where the money is being spent. It seems the contractors, the freeholders and the managing agents have a cosy relationship. Technically the leaseholders can get together and purchase the freehold, they have the right to do this but to make this happen in reality is no easy task. Some landlords may be abroad, others may not have the money or the inclination.

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We purchased a property in St John’s Wood not very far from this one, in November of 2013. The couple who purchased this property were a semi-retired couple who had never purchased a BTL investment in their whole lives, and at this ripe age they wanted to take the plunge.

Their motivation was partly driven by the paltry returns the banks were giving, and partly by the fact that they wanted to leave something for their offspring.

The property was bought blind, meaning they didn’t see it until we were about to exchange. In truth the communal areas were very typically ex-council, with dark corridors and exposed dustbins in the forecourt. The flat however was stunning, it was on the top floor, with a balcony. The views were impressive, the interiors were dated and required work. We had builders ready on completion, on certain deals we have managed to commence works on exchange if we have been able to get access.

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The property was purchased for £580,000 and consisted of three bedrooms in 773 sq. ft., this equates to £750 per sq. ft. This puts the above deal into perspective, which is a private property and comes with share of freehold.

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A nominal amount was spent on the works, the property was valued again by two agents; three months after the purchase the valuations came in at £650K and £675K. The investors were very pleased as they had not expected the price to come in so high in such a short amount of time, it was beyond their expectations.

At the time of purchase the amount of money required was £145K for the 25% deposit. The rest was mortgaged. What’s interesting is the property was recently remortgaged at a valuation of £725K.

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When the mortgage company does the valuation it is normally very conservative. At this point you could extract 75% of the valuation which comes to £543K. This means there is only £37K of the initial £145K left in the property, the rest has been extracted. The property has very little of your investment trapped in it. If this exercise was to be done again in two to three years who knows, you may even be able to extract some equity out of the deal.

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In this situation the clients did not want to take any funds out of the deal and preferred to leave them in there. The property is currently rented and is achieving £2,275 per month; and the mortgage is £1,080 per month. Therefore it is cash flow positive, generating £1,000 per month before costs.

This live example puts the deal we’re proposing this week into perspective, the growth rates on this property will be strong, and to get share of freehold, car parking and a top floor flat which is well maintained is a rarity. To have this many boxes ticked on an investment makes it a gem.

There are two points to watch out for in the housing market, one is the rise in stamp duty which will be a hike of 3%; in this example this will equate to £22,500. The second is the mortgage interest element against which only a maximum of 20% of the basic rate of tax can be offset.

Purchasing property now will save you the 3%; and with the other point there are ways and means around this, which can be put in place and will ensure you have a tidy investment.

Suresh Vagjiani

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!Tips of the Week

  • People moving abroad, getting divorced or going bankrupt will need a quick sale; this means if you can offer a quick deal with commitment you will be able to negotiate a better price.
  • When purchasing and developing always keep the buyer in mind, not your own preferences.

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