8th October 2019
Yesterday we exchanged on probably the smallest deal we have done. The property is an interesting one, it is based in a very beautiful coastal location called Burlington, about half an hour from Hull.
This deal was actually purchased by default. Our client underwrote this at auction at £70K, what this means is if someone else had purchased the property at the auction for above £70K our client would have received 45% of the difference. Somebody else didn’t, which meant our client ended up with the deal.
The numbers on the surface looked very good. It is producing £10K per annum, and the comparables were showing the building to be worth £120K. Furthermore, the property was in the wrong auction.
We have made money for our clients using this principle previously.
On my visit there, although I spent a couple of days in the area, I didn’t and couldn’t stand in the property for more than 5 minutes.
The tenant in the top floor flat had about 4 animals that I could see; two dogs and two cats living with two humans. The animals would do their business in the hallway. The rent is £350pm. The place stank, and as soon as I entered along with the agent, I told him he could finish up and I would meet him outside.
The 1st floor flat was empty and left open. I went in there and came out in 30 seconds.
This was my physical involvement with the property. It was kept to an absolute minimum due to health concerns.
We had a stream of agents booked to come in on the day to look at the property and take local advice on the options available. Luckily, the first agent to walk in was an auctioneer. This was my preference, as this means a ‘guaranteed’ sale. Under auction contract as soon as the contract is signed and money transferred the deal has exchanged.
The property was promptly put in the auction and the rest of the viewings immediately cancelled, to my relief.
In the end, the property did not sell on the day of the auction. Instead, as an unsold lot it drew the attention of a buyer, and the property was promptly exchanged for £86K. The property was purchased for £70K on the 31st July. It was sold ten weeks later for £86K. The expenses are assumed at about £9K, inclusive of legals and interest. The deposit our client put down to do the deal was only £24K. Therefore, there is approximate gain of 30% in 10 weeks.
Even if our client never sold this property, the alternative plan was for us to tidy it up and refinance it. Assuming the valuation came in at £120K the remortgage amount would have been around £84K. This means the initial funds would have come out. Although, one would need to wait 6 months before this was done.
What this article and example illustrates is property investment can be played with on many different price sectors.