The Power of Perception
Last week we finally exchanged on a property, 10a Durham Terrace, W2, which we were actually looking to hold and refurbish and not even resell on. The property is a ground floor and lower ground period property. Auctioneers and everyone who sells property in this patch always label this property to be in Notting Hill, but actually it’s not, it’s more Westbourne Grove. Notting Hill is a stone’s throw away but it’s not Notting Hill. But the price of a label is everything; everyone knows the value of labels in the commercial world, the same exists in property. One of the most startling examples of this is when an ex council property in Gilroy House Gloucester Terrace, formerly worth £350,000 sells for £750,000. Why? The building is the same, the occupants are exactly the same… You say it must be the lease which has been extended, nope the same lease. So what changed? The label! The council are no longer the freeholder, as the leaseholders had purchased the freehold from the council; and so simply by changing the label the properties started selling for three times their value.
We purchased this property for £980,000 in December 2012, the plan was to develop and resell sell it for £1.475m. There was one on the market, no. 7A for the same price, it was a share of freehold and done up nicely.
We were simply going to piggy back of this property on the market, and purchase, get planning, extend the lease, refurbish and resell. Planning, party wall agreements etc take time, even more so when you’re dealing with the council, who happen to be the freeholders in this case.
Although sometimes this being the case has its benefits, for example when we were extending the lease, which we had a right to do as we had inherited this from the previous owner, we proposed a cheeky sum of £15,000 to extend the lease by another 90 years from its current level of 63 years.
The council have a set time to respond and counter offer, if they do not do this within the set time our amount stands; we had a feeling they were likely to miss this by a day, and they did.
They tried to combat the point by saying they had posted the letter on time – within the period. But this was a weak attempt to cover themselves. A couple of strongly worded letters from our lawyers confirmed our proposal stood and we were prepared to defend our stance. The council took advice from their lawyers and confirmed the extension would happen at our proposed price.
This was a big saving for us, the agent quoted a price of £100,000 in their estimation, I reckoned it was more like £50,000.
None the less this was a great and unexpected outcome for us. Whilst we were proceeding with the planning agreements, it made sense to put the property on the market with a small window for someone to come and exchange.
The property was in a terrible state, a dog couldn’t even live in there; surprisingly the former owner did live there.
In order to cover our costs and make a reasonable profit we needed to achieve £1.225m; surprisingly we did. A buyer came along who offered the full market value, so we had a sale agreed. It took some time for the deal to occur as the lease extension had to be finalised. Whilst this was going on we had another offer where the buyers were happy to purchase with the short lease on the assumption they could inherit our rights to extend the lease at the agreed price; this of course appealed to us more due to the time period this deal could be executed in. This party however had mortgage issues and couldn’t raise the funds on the terms they wanted. We had refused to issue a contract out to them as this would disturb the current buyer, however we did tell them I could supply their lawyer with any information he wanted and when they were ready to do the deal it had to be an attended exchange, whereby they come to our lawyer’s office and exchange.
If our lawyer became aware there was another offer on the table he would be legally obliged to inform the current buyer, something we did not want him to do until we knew this new party were serious about doing the deal.
Too be honest this is not something we like to do or encourage, but this is the nature of the beast and until you have exchanged it’s an open door for anyone else to come in; and conversely we were also not sure the current buyer will buy for sure until the contacts had been exchanged.
We were very doubtful the price of £1.225m could be achieved, not just us but also agents and other contacts told us the same. A dilapidated property should not have fetched this amount, however lack of quality stock forced the prices up and we achieved a high price, simply because we asked for it and would not have sold it otherwise. This is why the market is strong in this location, it comes down to simple supply and demand. The supply is very small and cannot be increased by much, yet the demand for good quality stock in strong locations exists nationally and internationally.
The end resell price we were looking at was circa £1.5m. If we were only getting £275,000 extra by spending another £100k on refurbishments, and waiting for another 6 months, which will cost us possibly another £50k, plus the extra time period taken to complete a sale, it did not make sense for us to hang on; and so the early exit was preferable. This will also allow us to rotate the funds with other deals.
We’re now focusing on larger deal sizes, along with the freedom for investors to invest less money in each deal.
The property market is like a triangle, the range of £300k-£500k is at the bottom where it is difficult to find good solid deals as there exist many buyers at this level, many of whom are cash buyers. As you go further up the amounts get higher and there are naturally less buyers at these levels, and the deal discounts get greater. Therefore it makes sense to clump investors together, who normally will be at the bottom of the triangle, and together achieve a greater discount through greater buying power.
Hyde Park, London, W2
Purchase Price: £545,000
- A bright one bedroom apartment in the heart of Hyde Park Estate with tremendous views of London skyline.
- Excellent buy and hold opportunity
- We believe it will be worth £700k after refurbishment.
- We have sourced a flat in the same block for £500k and the price rose to £700k in just one and a half years.
- Massive capital growth potential in the future
- Close to the beautiful open spaces of Hyde Park and shopping amenities.
Call us now to reserve!!
Sow & Reap
A Property Investment Company
!Tips of the Week
The internet has limited uses when researching properties. We have done two deals recently where the statistics on the internet did not support our decision;, but our local knowledge did and our clients made money on both deals.
Discounts are not the only means to make money in property, at times you need to see an angle which no one else sees.