Currently we are prowling around a flat in W2, this is coming up in auction on the 29th of this month. By the time you’re reading this article this property would have been exchanged by someone – perhaps us. The reason why I’m interested is because it has a lot of issues and will scare the novice and part time investor away. Auctions have become a cesspool of these types of investors, who have had the seed planted by various TV programmes and are responsible for turning the auction room more into a place to sell stock rather than to purchase.
There are three points which stuck out in my mind when I saw this property: The first is it is a sale by the mortgage company, this means the reserve price will be low, therefore it will be going into the room to sell. It also means they will not entertain a bid prior to auction. As with all professional bodies and persons their primary aim is to cover themselves first, and not necessarily to advise the best for their clients. If the property is sold prior to auction they would need to justify why this was the case. They would then be open to being sued if the reason was not justified. With the property being sold in the auction room, anyone can come and purchase the property, it becomes an open and transparent sale. The property has been put into the auction by the receiver who is appointed by the mortgage lender who does so on behalf of the borrower. Therefore the receiver acts on behalf of the borrower – that’s the theory anyway.
The other two points are issues which excited me about the property, one being that it has a short lease. The property is held on a lease for a term of 75 years from 24th June 1968, there are therefore approximately 29 years unexpired on the term. This means it cannot be mortgaged – not by most conventional lenders anyway. The chances are it will need to be bought in cash. This will filter out those buyers who are dependent on finance to complete the purchase. The second issue is that the receivers understand the property is occupied on terms unknown. This point is interesting, this means it could be a sitting tenant in there, or i t could be an AST, which is an assured shorthold tenancy which means you can get rid of the tenants if required.
We purchased a block of flats with similar issues on 92 Shirland Rd from the same auctioneers in fact. Again the tenancies were listed as unknown. However we had a tip off informing us the flats were all held on AST’s, therefore there would be no issues in getting them out. Consequently we had insider knowledge when going to bid for the property, whereas all the other bidders were unsure of the situation. We managed to pick up the deal for £1.1m and resold the property for £1.3m within 3 days after exchange. In this deal the property occupies the top floor of a purpose built block of flats, consisting of 3,000 sq. ft., it’s on the 13th floor and is the pent house of the building. We made some enquiries with the porter who confirmed our suspicions, there was someone related to the owner who was occupying the building. So it seems as there will be no tenancy in place though there may be some tenants. Of course with such a short lease the cost of the lease extension will come into play. We called our usual surveyor, who informed us he could not act as someone else had already asked him to look into the matter and therefore he will be conflicted. Seems we are not the only ones circling this property. It will come down to who goes the highest. It may be the case where we have to hold on to the property for two years in order to qualify for the lease extension. If the prices keep going up the way they are now it will be an expensive extension. The price per sq. ft. of this property is around £1,500, however at this price our flat equates to £4.5m. There is nothing, unsurprisingly, which has sold for this amount of money in this block. Therefore in theory though this may be worth the money when calculated price per sq. ft. in reality someone with nearly £5m to spend may not choose to put it in this property in W2 be it on the top floor. This could ultimately be a sticking point. At this level you can purchase a freehold building which is the preference for many overseas buyers who intuitively do not like the leasehold concept.
When the property has a sitting tenant in there it can be worth typically half the value depending on the tenant’s circumstances. The fear of losing money is stronger than the pleasure of gaining money therefore investors act irrationally when there are unknowns.
Furthermore when a property is repossessed the person whom it was repossessed from will often try – in some ways understandably – to scarper the deal and make it difficult to resell.
This can be done in a variety of ways, however as this property is a purpose built flat the ways in which the property can be sabotaged is limited. Playing with the tenancy and giving the illusion it is a questionable tenancy is one method. On freehold sites, the options for sabotaging the property are manifold. One is to do something which is illegal and against building regulations and then report it to the council, they then put an enforcement notice on it. This will deter most buyers allowing the original owner to come in and purchase it back for a fraction of the price. They have insider knowledge which the market will not be privy too. Time will tell what happens.
Also, as mentioned last week we managed to exchange on a large property of around 13,000 sq. ft. area in Portland Place last Thursday for £14.75m. Portland Place is one of the most sought after locations in London and it is rare to find such a large property for sale on this road. It carries on from the famous shopping district of Regents St, and the property is near the famous Langham Hotel. We agreed a price of £1,140 per sq. ft. similar properties in this location are being sold for £1,900 per sq. ft. to £2,400 per sq. ft. conservatively. This property was not on the market but we managed to source this through one of our contacts with whom we had dealt with before.
We are very confident of turning this deal around with good profits for all concerned.
The Real Deal
Earls Court, SW5
Purchase Price: £1.6m
- A large top floor flat in this highly sought after location.
- 1,300 sq ft area.
- The property will benefit greatly from the Earls Court regeneration scheme, being located close to the proposed ‘High Street’ and parks.
- Comparable properties in the market are priced around £1,500 per sq ft while this property is coming at around £1,230 per sq ft.
- Call us now to secure this deal!
Sow & Reap
A Property Investment Company
!Tips of the Week
The speed with which you make decisions and commit to them will ensure you get a good deal flow time and time again.
To determine if anything is a good investment, you should look at the risk versus return. Generally if an investment is high risk it is high return and low risk means low returns. Property is considered low risk, hence the banks will lend you 75% of the value, BUT you can make high returns, if done creatively.