It is currently used as a care home and we are confident in getting planning for conversion into a number of residential flats. The rest of the road is all residential and the planners are of the same opinion.
Exchange was very difficult to execute on time, the reason being because both the solicitors were overloaded with completions and exchanges, and of course everyone thinks theirs is the most urgent, but obviously ours was!
Our solicitor had 19 exchanges to do on the same day and the seller’s had five to do on the same day.
Hence we had to oil the machine and ensure our one happened on the day as well and didn’t get forgotten in the pile, otherwise anything can happen over Christmas. I mean someone could offer more money or the seller can even change his mind. We had a further time pressure in that the seller needed the funds on the day to execute another deal.
The property we purchased wasn’t on the market, the seller wasn’t even looking to sell it. We tracked him down, via a mutually known solicitor, and made him an offer.
It was originally purchased from a charity and was bought at a very good price. The purchaser was planning on refurbishing it, but instead we got him to resell it to us prior to completion.
The deal was agreed on the basis we purchase both properties bought by the seller.
There were two properties both freehold houses as part of the deal, the deal was on the basis both will be purchased simultaneously.
Later down the line we realised one of the properties, whilst being a good deal, had less meat on the bone than the other.
Simply put generally the bigger the deal size, the better the margin, not always but generally true. In our case one was priced at £1.5m, and the other at £840,000.
Consequently it was decided to drop the lesser one. The question was: how should we should play this in order not to scarper the whole deal? We definitely wanted the larger property and had the funds lined up to exchange but we were not too sure how to suggest this to the seller as in all fairness we did agree the deal on the basis both properties will be purchased.
We were thinking that perhaps we can suggest we will pay for one now and then we exchange on the other post christmas holidays…. we decided to lay our cards down to his solicitor and told her we only currently wanted to purchase one, after all she had brought this deal to us.
The vendor was not having it. The reason he decided to take the deal was so that he could release funds to do another deal for which he had a deadline to execute. Therefore it had to be both the properties or nothing, as he needed more funds than £148,000 which is what the bigger property would give to him.
We were in a dilemma. The property we picked up for £1.48m was a very good deal and we didn’t want to let it go. The other property was a great buy to let but didn’t have the certainty of a buy and sell.
Buying and selling has become our primary focus now, not sourcing to purchase and hold. To do this you need bigger margins of discount to allow for the stamp duty at these levels. Generally you don’t get these deals handed on a plate, you need to take a view on the situation.
The seller was within his rights to increase the purchase price for the individual property as this was no longer the same deal anymore – we had moved the goal posts.
Because the information came from his solicitor we knew it to be true. When we know the problem we can come up with ways to address it, so we made a suggestion of increasing the amount of exchange and releasing it to him on exchange. Normally the solicitor would keep the exchange amount until completion, and this would only be 10% of the purchase price.
We suggested he take 5% extra to help him exchange on the other purchase as his solicitor confirmed this would be sufficient.
This was promptly accepted by the seller and we managed to close the deal on the basis of a larger exchange amount and on the basis it would be released to the seller on exchange.
When two parties are honest and put all their cards on the table problems can be resolved. Issues most often arise when parties are not honest and therefore problems cannot be resolved as nobody knows what they are resolving. Sounds basic but deals can be broken on this basis alone.
However putting all cards on the table risks creating another scenario altogether, especially if the other side is in a position of weakness. The fear in their mind is always about the possibility of the other side exploiting their situation. For example if the seller was about to be repossessed we could use this information to chip the price at the last minute.
In this situation both parties were property people so there exists a certain level of understanding. And we also live in a small world – of course a bad reputation travels around like a bad smell.
The property was purchased for £1.48m, with completion set for February 2013. We have already had a surveyor access the property to get plans done and start looking at what can be achieved regarding planning. From a very prima facie observation we are looking at 4-6 flats.
Although the property consists of 4,000 sq ft, this is deceptive as the top floor is slanting therefore you can’t count the full floor area. To compensate we haven’t allowed for the possibility of extension to the property. This will add further square footage, and the land print is very large so there is a lot of possibility. The property looks as if it has been untouched for decades.
It is always better to have several exit plans and exercise them simultaneously. This is more work but your position becomes stronger. The plan you originally had may evolve as you start to explore several avenues, instead of only considering one.
What this means is we will also be looking to offload this property prior to completion for a quick profit. Whilst in the process of applying for planning for flats, we will be applying for funding at the same time in anticipation of completion.
Commercial lenders aren’t not very forthcoming with funds especially for development projects, this is why there has been entry into the UK lending markets from foreign banks. Companies which are currently lending are very fussy regarding both the types of clients and the projects. Initially they say yes and then several months later after they have undressed the applicants and the project they turn around and say no.
I have always been intuitively averse to bridging finance, just because of the high rates and the charges going in and coming out, however due to the current situation these institutions are becoming a good option.
Currently on the market you finds deals which make sense, in spite of the higher costs of funding.
A big positive with bridging is it reduces the amount of deposit which gets tied up in a project, giving you a higher return on your money as there’s less of it buried in the deal.
The project, in my opinion, must not only stack up today but must be in a strong enough area where the price is continually increasing. This way you have a stronger chance of coming out on top even if some of the variables do not go in your favour.
Purchase Price: £250,000 (£542 per Sq/Ft)
- A large and bright one bedroom flat
- A spacious reception room with open-plan kitchen and dining area, bright bedroom and shower room
- Benefits from its proximity to the shops and amenities of Maida Vale and the open spaces of Paddington Recreation Ground
- The closest transport links are Maida Vale Station
- In the borough of Westminster, rental of £325pw achievable
- Properties on the same road have gone for over £700 per Sq FT
- Share of freehold
- An extremely cheap BTL flat
Call now to purchase
Sow & Reap
A Property Investment Company
!Tips of the Week
With the turbulence of the world economy this is the time to take control of your wealth, banks, institutions and governments cannot be trusted with this task
A heavily discounted property may not be the best buy. Where is the price going to go in the years to come? It may stay the same, or go even lower