I’m in Delhi today staying at the Taj Mahal Hotel preparing for our seminar later on this evening, pitching to Indians what a great investment the central London property market is. An unheard of attempt not so long ago. But now most of the wealth exists here.
This morning I happened to be sitting next to Peter Mandelson at breakfast, you know the chap, the war criminal and the former trade secretary…
When I later done some research I discovered he had done rather well by selling his home in Regents park last month for £3m. This was bought for £2.4m in 2006. According to documents, the property was bought by Lord Browne-Wilkinson, 81, a former senior Law Lord and former head of the Privy Council.
That’s a gain of £120,000 per annum. And bear in mind this was perhaps the worst time to purchase property, near the top of the market and perhaps the worst time to sell, as we’ re currently in a buyers’ market. This shows the resilience of the central London market.
This week I thought I would recap on some of the points you should be aware of when purchasing properties, so perhaps one day you can make gains like Peter did. You will have the added advantage of striking in a buyers’ market – if you move quickly -and not a sellers’ one. And you don’t need £2.4m to start you off.
1. There’s no Local in Location
As Indians we like to invest in property no doubt. But generally the trend is to invest where we know, so this means around where we live and also with the view that at least one of our offspring will marry in the community and will end up living around us. And of course there’s the satisfaction of seeing the property daily and doing the maintenance works ourselves.
This is not a pure investment and if it is not done with a singular aim it will not yield the best results. Treat the investment as a strict investment. The question when investing is where will I get the strongest growth in the shortest possible time period?
The amount of money you will save by doing works yourself is nothing compared to the gains you will make by investing in a premier location. Look at Peter’s example! One also forgets property, especially in Central locations, is very liquid. These days you may get more money by putting it in auction and an assured sale.
2. Look for odd properties in auctions
Time to time you will find properties which look odd in the auction catalogue. For example all the properties are in London and then there is the odd one in Essex. Chances are no will be there to bid for this lot. More so if it’s with one of the smaller auctioneers.
3. Offer low
The worst thing is when a property is priced at say £150,000 and you offer £145,000 and then the agent comes back and says yes it’s been accepted …..D’oh!! Unless you’re Phil and Kirstie on Location, Location… you’re not going to get too excited. The first thing you would think is crap why didn’t I offer lower!
Remember you can always go up in what you offer but you cannot go down. And if it’s an investment sometimes it’s better to sit back and wait patiently.
At times the original low bidders are being called again after failed transactions by the higher bidders.
4. Remortgage your home
When purchasing BTL property many are under the illusion they should not refinance their residential home to purchase BTL property, as by doing so they will be putting their main home under risk should things go wrong. This is an illusion. Your home is already at risk whichever property you attach the mortgage too. By raising the finance on your home you achieve two things: One is the finance is a lot cheaper currently, about half of that for BTL. Secondly you can offset the interest element of the whole purchase price against the rental income, so it is more tax efficient to do it this way.
5. Have a Strategy
Nothing worse than buying a great income yielding property in a central location and discovering you have to give 50% to the government as you are a high rate tax payer ……again D’oh!
Better to sort this out in advance. You can either buy in someone else’s name or purchase properties for capital gain only. Currently you have an exemption of around £10k per person per tax year. Most people don’t make use of this valuable exemption. This does not mean you’re sacrificing the income! This means you are transforming the income to a capital gain. The properties which generate income are very different to those which will go up aggressively in value. If you wish to go heavily into the property market it is better to sort a solution out in advance rather than reacting to it when you have a gain or when you’re old and it suddenly dawns on you that you have to pay 40% to the government when your estate passes on. Better to prepare than react.
6. Remember the value of Time
Many sellers are stuck on the price and are as stubborn as mules. They will not negotiate or compromise. They are not desperate so you cannot even play the waiting game. In this scenario you have another commodity to play with which they forget, which is time. You can say…..‘ok you win I give up I will give you your price, but I need 6 months to exchange’. This will give you the option of putting 10% down now and reselling the property on, this is especially good in a rising market. If you’re selling the property on for even 5% more than you paid you will have made 50% on your investment. You will have avoided all the completion expenses such as stamp duty. This is a bit like spread betting with property.
7. Remember you never have to sell
Some investors are under the illusion that when they purchase property they will have to sell to release the gains made. Not the case, many investors never sell. I have met a few who state quite rightly if they sell they lose out on the purchasing and selling costs.
Wealth in the form of cash is dangerous as it is under the danger of depreciating in this form.
You can release your gain by refinancing your portfolio and you never have to sell the portfolio, it can be passed down through the generations.
So here’s my 7 step plan. I had more but for some reason every plan and book talks about 7 steps, so in the interest of conformity I kept to 7.
Suresh Vagjiani
Managing Director
Sow & Reap
A Property Investment & Financing company.
