The Price of a Label


This week we secured a commercial property for one of our clients as a long term investment. The property is in High St Sutton, in a very busy and prime area. Nearby you have all the shops you would expect in the prime position such as Pizza Hut, Lloyds bank etc.

The property consists of 5 floors, with a retail unit on the ground and basement below, and offices on the top 3 floors. The price has been agreed at £550,000. The interesting cherry on the pie here is there is a strong chance it will come with a tenant for the ground and basement, producing £30,000 p.a. We are trying to get both things agreed simultaneously, so that on the day of completion we will have an income from day one of owning it. The seller is not aware of the possible tenant. This is a good yield even when considering the whole building.

We are applying for finance for the client at 75% LTV of purchase price and if all goes to plan the build cost as well, this means he will be putting in £137,500 for the purchase and another £62,500 for the build when permission comes through on an estimated build cost of £250,000. The rest we are hoping to fund at about an absolute maximum of 6%. On the assumption of 6% his cost will be £24,750pa for the purchase alone. This will be covered ideally when the tenants sign for the ground and basement flats. The cost of interest on the build cost will be £11,250pa which will ideally be rolled up meaning it will not have to be paid until the project is completed.

There are a number of options once the property has been purchased, one is to keep the upstairs floors in their current configuration and spend the minimal to bring them up to standard which will come to about £60,000. This means we will not need the renovation loan.

The other is to go all out and change the whole building structurally. Of course money will need to be spent on planning and refurbishing of the property which is estimated at £250,000. This includes a mansard and a double storey rear extension, if all goes to plan the aim here is to turn the upper floors back into residential use from current office use, ideally allowing 5 flats with an additional floor being provided by a mansard roof.


This would enhance the rental by another £50-60,000, which provides an excellent return. Not to mention the rise in value of the property itself.


Ideally we would have liked a longer completion period. This time period would have been very valuable as it can be used to apply for planning and getting the building project ready to commence. There is no reason why the works cannot even be started prior to completion of the property transaction, this would save on the mortgage costs. In this particular purchase as it was being brought from a big group they were inflexible in the way they do things. So we are proceeding in a conventional fashion.

This week we also secured a studio flat on the fashionable Portabello Rd, Notting Hill on the 12th April. We purchased this for £235,000, it’s a purpose built block with 7 upper floors, with 100 years left on the lease and a minimal service charge of £700pa. Often especially when purchasing new build properties investors over look the long term on going charges. Things like service charges, ground rent and management fees can very easily eat up the left over rent, leaving them with nothing or sometimes they may even need to contribute to the investment. Having a lift also increases the service charge as the maintenance of it needs to be paid by the residents. This building has no lift hence the low service charge and our studio is on the ground floor so the lift is irrelevant for this property and would have been an additional unnecessary contribution if there was one. Infact it’s actually unfair for ground floor flat to contribute to a lift in the building as they derive no use of it, so why should they have to pay?

One must be cautious in purchasing a studio in an ex council building due to possible funding issues. As the funding available has shrunk, the criteria for certain properties has become more stringent, studios being one. There are 3 constraining factors in getting finance on this property, one is it’s ex council, the second is the number of storeys and the third is as mentioned, it’s a studio.

The first issue is not such a major issue, there are lenders who will lend subject to valuation given the location it should not present a problem. The second will serve as a filter and rule out a few lenders who will not go over four storeys on an ex council block. What they are trying to avoid is bad security, such as the monstrous concrete tower blocks outside of the M25. They do this by developing a set criteria for their loans, in doing this they also miss the opportunities to lend on good security which happens to fall outside of their net. The third issue is the flat being a studio. Many of the lenders who lend require it to be of a certain size, the minimum being 30 Sq m. This studio is 40 Sq m and so it will jump through this hoop.

In one sense the whole episode is nonsense, as the idea of not lending on a council property is to avoid getting any bad security on the lenders books. However the majority of ex council flats in prime locations are in private ownership. The fact the building is still “ex council” is only a formality. I know of an ex council building in Gloucester Terrace W2, where the owners of the flat got together and purchased the freehold from the council. Overnight the properties prices almost doubled. The block in question is Gilray House. What’s changed? The occupants? No. The building? No. All that’s changed is simply a label!

The Real Deal

Travel to the past…Flat in Maida Vale at 2008 price!

Purchase Price: £290,000

Share of freehold.

2 bed room purpose built flat with lift. A beautiful property well managed in one of the best blocks in Maida Vale.

It’s a repossession opportunity. Unmodernized flat in an elegant block in Maida Vale.

Most recent sale in the block went for £327,500 in Aug 2011.

Two of our clients have purchased identical flats in this block two years ago.

By the time the purchase is completed and refurbishment is done, the property will hit the rental market just in time for the Olympics and the start of the new academic year at universities.

Call us for more details on 020 7096 1083 now.

Suresh Vagjiani

Managing Director

Sow & Reap

A Property Investment Company


! Tips of the Week

* Don’t forget the first mantra of property investment: Location, Location, Location. This will attract a quality tenant and ensure future growth.

* Don’t wait to buy property, buy property then wait!


We offer a Property Sourcing Service, so call us now to see how we can help on 0207 096 1083 or email

Our Address: Westbourne House, 14-16 Westbourne Grove, London, W2 5RH

Suresh Vagjiani
Suresh Vagjiani
Articles: 819