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Taking the personal out of the investment

Just before the year 2015 was over we managed to sneak in a deal prior to boxing day. The property is in a block close to Marble Arch. The property consists of two bedrooms and is in a block called Park West. There is a possibility of conversion, this would enhance both the rental received and the value of the property. In truth it’s not a block I would choose to move into.

I actually find this particular block horrid, from the carpets to the décor to the smell. However an important distinction needs to be made, this is not for me to live in therefore my opinion in this regard is irrelevant.

The point is will it make money?

Many investors get emotional when purchasing property and this clouds their judgement. There are only a couple of questions which need to be asked, the first is the obvious question as above and the second what shape and time frame will that growth be in?

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Meaning, are you planning to sell in the future, or planning to keep as a long term BTL and if so when? Do you want to recycle your money if at all? These are considerations which will influence the mortgage product you choose.

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In this situation it has been taken as a long term BTL with a view to holding on to it permanently. The client was already a convert having purchased previously through us. The convincing time was short as he has experienced the growth a property in Central London has to offer.

The first property he had purchased from us was a two bedroom property in Little Venice very close to the canal. The canal stretches from Paddington all the way to Birmingham, and even manages to snake through Wembley. I even managed to cycle to work using it – for one day at least.

These canals were the transportation system for Britain prior to trains. A horse would ride either side of the canal to pull cargo across the country.

When trains came in the early 1900s there was a prolific spurt in house building due to the ease of transportation of material,  this was during the time of Queen Victoria. Hence there are a huge number of Victorian properties across London known for their features such as high ceilings, and bay windows amongst others.

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After the advent of trains the canals were used as dumping grounds and for waste. They have since been cleaned up and gentrified, and now are very desirable places to live next to. Canals contribute to the uplift in property prices for any properties in the vicinity of a canal.

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The property was purchased for £325K at the time. It was a three bedroom ex council property with views over the canal. From memory the client or rather his wife insisted the deal was done on a certain auspicious day. The lawyer who was Jewish kind of got the concept having the same principle amongst his faith.

It was an ideal BTL property with low service charges and a long lease. At this time the rent was very high due to the demand from the DSS sector, which has since been capped.

The property was purchased in September in 2011. It has risen to £550K – as a current conservative valuation. This represents an uplift of 70% over a four year and three month period which equates to an uplift of 16.5% per annum. This is impressive, given there is money being made on the rental income as well.

What makes this more impressive is the amount required to complete the purchase was only 25% of the purchase price. This means the amount invested was only £81,250, lets even say £100K with all the expenses. This means now the client has made £225K in four  years and three months! This is 225%, which equates to 52% per annum.

This is the beauty of property.  The benefit with property is it is mostly purchased with the bank’s money and not yours. Therefore, looking at this again on a return on capital point of view which is the actual return on your money, the returns are very impressive.

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Having his appetite whetted for property the investor was ready to take another bite only a year later.

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The second property was purchased a year later for £285K supposedly an ex council but it transpired after doing the conveyancing it was not an ex council property, which was strange as all the agents seemed to think it was. The block was originally built for council tenants but due to an oversupply at the time the block was given for private rental, however the stigma stayed attached to the property.

This is a block I actually like, it is surprisingly well maintained and has an open green space in the centre and good security. One of the reasons for the high level of maintenance is one of the residents acts as the managing agent; and most people don’t like to make a mess on their own doorstep!

This property has risen to a current estimated valuation of £575K even higher than the first which means the returns for this property are over 100% in three years and three months. In terms of return on capital the amount invested was £90K with expenses, so £290K was made from £90K, this shows a massive return of 89% per annum.

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To put a cherry on the pie both properties are cash flow positive, one bringing in £1,500pm and the other £1,000pm.

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One of the reasons for this huge uplift is that they were bought well, and another reason is the location.  These two factors were enhanced by the rising market.

Given the previous two deals there is no reason not to replicate this success, in this case it was a case of preaching to the converted.

This property was purchased well before the April uplift on stamp duty and therefore an instant saving of 3%  is being made. On a purchase price of £663K this is a saving of £20K, the cost of a new Mercedes! (OK maybe not the new S Class).

The Real Deal

Marylebone, London, NW8

Purchase Price: £600K

  • A nice three bedroom flat with a long lease
  • Low service charges
  • Close to the open spaces of Regent’s Park
  • Properties in this location are being sold for around £650 per sq. ft. and above, while this is coming in at around £600 per sq. ft.
  • Very good buy and hold opportunity

Call us now to secure this deal!

Suresh Vagjiani

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!Tips of the Week

  • Purchasing property is not a get rich quick scheme, it is a solid investment which will rise steadily into the future. If it was a get rich quick scheme it could just as easily go the other way.
  • Whether it is a BTL or Buy and Flip deal, the most important aspect is Location. Find a property in a desirable neighborhood where people want to live.

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