Separation can be a good thing

We are in the midst of closing a deal which is a shop and uppers; it’s seconds away from a train station, which is always a good thing.  This will ensure minimal void periods.  The area is very patchy, one can see it was very dominated with immigrants and social housing, but due to its connectivity and regeneration, the area is coming up.  The same can be said for what was formally Chalkhill in North West London.

What’s attractive about this deal is not necessarily the discount, it’s the low price of this property.  It is difficult to purchase a freehold shop and uppers for less than £500K anywhere in London.  This combined with its location, means it will mature nicely over a five-year period, despite the storms waiting for us around the corner.

In order to finance this property, you will need to get commercial finance; in this market this is very expensive.  Therefore, the way to get around this is to split the lease into residential and commercial and put most of the funding on the residential side.  Residential mortgages can be still obtained at a very sensible level.

The property has been misdescribed.  It consists of four floors, only three have been mentioned in the particulars.  The basement is absent.  This means 25% of the square footage has been left out.

The development potential is very limited in this property; there may be an angle for a mansard but not much else.  It is very much a buy, tweak and hold, and wait for the area to bring the property up.

This cutting the lease may seem like splitting hairs, but when one looks at the figures over a five year period, the numbers speak from themselves.  On another site this exercise is saving £100K over five years from the discount in the residential interest rates, so a worthwhile exercise.

Hopefully, we should have an agreeable answer on this deal shortly.  If it’s of interest please feel free to get in touch with us to discuss.

I do believe there is the possibility of trading this asset.  However, as it’s rare to get something in this price range and location it is better to hold and benefit from the anticipated growth; without too much exertion.

About £200K investment would be required for this deal.  It could be structured in order to do this deal with less.  It is better to keep a buffer and be prepared for any speed humps which inevitably come along.

Recently, I went to view a sample of properties which are owned by a German fund, who are flush with funds.  They had used the old trick of converting a normal house into a HMO.  The properties looked like you were in a hospital as soon as you stepped in; so easy to clean and low maintenance.  The numbers they were producing in comparison to the properties were through the roof.  Over 10% yields.  From the finish they weren’t intended to be for professionals, it was the social housing sector which they were ultimately aiming for. This idea, which has been executed well, and on a massive scale, is well worth exploring and implementing in this deal we are looking to close shortly.

Suresh Vagjiani
Suresh Vagjiani
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