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Take the cream and the cherry!

Last week we mentioned a deal in Harrow, it is an office block called Lowlands House, and today we exchanged on it. We had to move quickly in order to secure this property, as there was another contract out to another party who had also put in for planning. The property was exchanged for £2.825m, the aim will be to get planning for 28 residential units.

The block is only a minute from Harrow on the Hill station and will end up as excellent BTL investments for the eventual purchasers for the final end properties.

The location to be honest is not the best for an end user as some of the apartments are likely to face the train track and thereby be off putting for someone who wishes to live there permanently.

However the project is geared primarily to BTL investors rather than end users, simply due to its location. Harrow on the Hill has connectivity to Wembley Park Station and then only in 11 minutes you can be in the West End in Baker street. It is important to know who your target market is, there exist only two types of buyers in the market: one is the end user the other is the BTL investor. By knowing who your customer is you can tailor your end product accordingly. With the end user the price and rentability are not at the top of the list; here it is very important to play on the emotions and make the property emotionally appealing. Many developers who are looking to sell the property to end users give the impression they are buying into a dream, into a way of life, this is not simply a property they are purchasing, it’s a whole lifestyle they are buying into. Here we are clear our goal will be to sell to investors and therefore the end package will be geared to this goal.

So excellent transportation links are already at your doorstep, of course shopping is also at your fingertips only moments away with St Anns and St Georges shopping centres.

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Although we have exchanged on this deal, this was done purely to lock it down and prevent another purchaser from doing the deal. We have left the door open for other investors to come in on this deal and have agreed a long completion in order to allow enough time for this to happen.

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Any new investor will have the same terms as the original investors who closed the deal, there will be no preferential terms. This project gives you the option to come in as investors at this stage, as well as becoming BTL investors when the project has been completed. You get to take the cream and the cherry! Ordinarily the developer makes the bulk of the profit; here you may have the option to increase your deposit before you purchase the final product.

Harrow has the highest concentration of Indians in the UK, therefore this development will be targeted at this market as Indians do like to buy somewhere close to where they live. We are now planning to do a top end scheme, as this is where the market is heading. The block once developed will have a revised upward valuation of just under £9m. The build cost will also be increased from what we had originally considered, and be in the region of £3m to reflect a higher quality. This is based on a resell figure of £450per sq ft which our research shows is achievable in the area.

So you can see there is margin in this deal, further more this is an area where both rents and house prices are rising. The resell figures are likely to be higher than this by the time the project has finished, which is envisaged to be 18 months from completion.

Of course this in truth can be a doubled edged sword; prices can fall, though it doesn’t seem likely given most commentators on the housing market are saying it’s on the rise.

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Many of our investors have modest amounts to invest, but wish to eventually have a BTL investment. This way they can increase their deposit by investing money into this project and later converting it into a deposit for the end property.

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It is sometimes strange how perception in the property market works. When a property has been on the market for a long length of time no one wants this property, as the perception is ‘there must be something wrong with it’.

There have been times where for some reason or another decent good properties which stack up extremely well have not sold. Simply because they have had buyers in succession who couldn’t complete the sale due to say mortgage issues. This then has the effect of the property losing its edge and getting left on the shelf, as no one wants something which nobody else wants. This is apparent even in children, a child only wants a toy which another child is playing with – when they decide to play with it.

There have been properties fully on the market which when I came across them I wondered why they haven’t sold, they were good deals and should have gone ages ago.

One was a freehold HMO in Ivor Place which was priced at £700k, this was in 2006 and it was producing £63,000. It was a 10 room HMO building close to both Marylebone and Baker Street stations, and you couldn’t purchase a freehold for this price in this area, it was sold in 5 years time for over £1m. This property was fully marketed but no one was snapping it up simply because it had passed its sell by date for being on the market for too long. In truth this was the time when finance for HMOs was a little problematic and therefore possibly even though it looked great at first glance the funding aspect may have put investors off. The client we sourced this property for ended up having the property financed at 85% Loan to Value which meant he only had to put £105k into the deal. The property gave him positive cash flow every month and he was making £70k per annum in capital appreciation.

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There are also times when you see the angle and no one else does, it takes confidence to move on a deal like this even though others may not see the angle.

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Another example is a property we purchased in 92 Shirland Road in Maida Vale, which comprised of 5 flats with all unknown tenancies. This property was in the auction fully available for anyone to go and bid on, however the unknown tenancies scared most people off. The reason being they could all be regulated or life tenancies meaning you cannot get rid of them until they die; and whilst they are alive you get a paltry sum of rent. There are some who specialise in these types of investments. You basically profit on the death of your tenants; the quicker they die the more money you make. Of course a lot depends on the age of the tenant, the older they are the higher the value.

In reality in a building like this you are not likely to get more than one or two regulated tenants, however when there are unknowns most investors assume the worst and assume all the tenancies are regulated. This has the effect of sometimes almost halving a property’s value.

Consequently we were able to purchase the block of flats for only £1.1m where as the valuation based on normal tenancies would have been £1.8m minimum. This block was sold only three days later for £1.3m, straight after exchange.

It’s not simply to purchase discounted deals that investors use us, but also for the perception and angle we have honed from experience; not just mine but also the team we work with, many of whom have been dealing in property whilst I was a toddler.

The Real Deal

Pimlico, London, SW1V

Purchase Price: £2.75m

  • A bright and airy four bedroom penthouse flat
  • Stunning views over the River Thames
  • Lift goes directly from basement car park into the flat
  • Comparable properties on the market are priced at £1,450 sq ft and above
  • End value after works expected to be around £4.5m

Call us now if you would like to have a piece of the pie!

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

Always consider the projects which are happening in and around the borough you’re purchasing in; this will ensure strong capital growth into the future.

Often people get carried away with terms like Below Market Value; remember this is not the main consideration, the potential for future growth needs to be there. A property may be cheap but that doesn’t mean it will increase in value in the future.

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