Only yesterday my colleague and I attended an auction. The property we had our eye on was a garden flat in Balham, the third lot down. I was given a strict purchase of £430k from our general manager, who knows me a little too well, and knew I would get itchy if we didn’t purchase. See I have a disease, if a deal doesn’t happen it causes me psychological discomfort which in turn affects me physically.
I was very pessimistic at this level given the guide price was £400k, therefore I discussed the deal with someone else more favourable to my disposition in the company and we managed between us to talk ourselves up to a purchase level to £475k. This was done through reducing the budget allowed for the refurbishment (so we do a bare bones fit out), coupled with us feeding off each other and just talking the property up between us.
However since the election, auctions results have been going through the roof so I suspected this lot would go way past even the raised limit we put on it, and this would be a futile exercise. It was close to the station and it had a wow factor to it, I hadn’t seen it, my colleague had, however you can get a sense of the property just from the picture and the description. Things like bays windows and high ceiling heights as well as checking whether the sun shines into it. Do not underestimate this last point, the property we bought in Bryanston Square is on the side were the sun shines into it. If you stand in the front of the square and look at both sides you can see instantly which side has the better feel to it.
The first two lots went less than 20% below, so I started becoming confident that maybe there was a chance. However as soon as this lot came up there was a ruffle and we spotted about five different people bidding. This means like us there were many more sitting quietly on the fence under the radar. There’s no point interjecting, let the floor get on with it and then if the price is below what you’re prepared to pay come in. There was fierce bidding and the price went all the way to £550k, and as nice as the property was, it was hard to see were the margin was. You could buy a refurbished one down the road for £650k.
Furthermore because the property down the road was refurbished you could get a decent mortgage on the property, 75% of the value at a decent rate. Buying the property which required work would not qualify for a Buy to Let mortgage as the property was not lettable. You then have two choices one is to use a bridging loan which costs normally 1% interest per month with a 2% arrangement fee, or use a refurbishment product which keeps you locked in for a few years.
I can only assume the buyer for this property was a cash buyer or this was an emotional purchase, probably a combination of the two. With these kind of buyers creeping into the auction rooms, it is becoming increasingly harder for us property folk to put bread or chapattis on the table. This in my opinion is a direct result of televisual programming. As the auction programmes show casing property investors have increased so has the number of bored housewives coming into the auction rooms.
The auction environment has changed, so you need to change with it. These new buyers are mostly novice buyers or at best have a little experience. There is always an angle. In this environment it is best to concentrate on problematic properties. Properties which have short leases, problem tenants, places where there are enforcement notices in place. These kinds of issues will scare most buyers away.
With these new influx of buyers the auction now becomes a good market to even sell your stock, auctions will give you an almost guaranteed sale, especially in the current environment. Even properties which perhaps would get stuck in a conventional sale, due to some minor issues, will fly at auction, and you may find you might even get more money.
Buying with emotions isn’t always a bad thing. I have been told to never fall in love with a building, but is it sooo wrong? I hope not as it’s happened to me on a couple of properties we have bought recently. One required an injection of nearly £900k and it cost only £1.3m, because the rental figures were so low. However in the same way I fell for the property so will the incoming purchaser – if I manage to let it go.
The other is a large lump consisting of 13,000 sq. ft. in Portland Place, just off Oxford Street. The original plan, and a plan still in motion is to convert it into five luxury apartments, with the election results the market is ripe for such a move. However this would mean letting the building go. And this would be difficult for me, on a deep emotional level. Therefore the next option is to convert into offices. The building already has office use, but it’s in a dated condition, if we polish this up it would attract a good rental yield, with a solid rent roll we could then retain this building. Luckily the market conditions are supporting my whims.
Not all the investments have been purchased with emotions, some have actually been done with some common sense too, for example we have just exchanged on a pub in Alperton called The Plough on Ealing Road. The area was researched thoroughly by our planning consultants and architects, this is a spot which has been earmarked for massive regeneration. There was much interest and bidding for this site, in the end we managed to snatch the deal. The aim will be to look at which will be the best way to fit as many units as we can on this site, the patch looks like it could take about 50 units, there is also the option to tie up with the neighbours and work out a JV which will push the numbers even higher.
The Real Deal
Marylebone, London, W1
Purchase Price: £2m
- A beautiful large lateral apartment within a purpose built mansion block
- Four bedrooms and four baths
- Long lease
- Properties in this location are being sold for more than £1,500 per sq. ft. while this is coming in at around £1,100 per sq. ft.
- Close to March Arch and Baker Street
- Very good buy and hold opportunity
Call us now to reserve!
Sow & Reap
A Property Investment Company
!Tips of the Week
Buying at auction is a good way to pick up a bargain, provided you don’t get carried away with the emotion of the auction itself. Set yourself a limit and stick to it and don’t get carried away with winning at any cost.
Know your market – there’s no point transforming a three bedroom house into an eight bedroom house if there is no demand for eight bedroom properties in the area.