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The Real Deal

This week we have just rented two properties. The first is a two bedroom property for £380pw. It’s an ex council ground floor, formally a one bedroom flat close to Edgware Rd station in W2. It has a long lease of over 100 years and a low service charge of £800 per annum which includes the building insurance, considering this, it is a very reasonable charge. The service charge is something to be conscious of as it can reduce the income produced. The property was purchased for £233,000 and a further £10,000 was spent on the conversion.

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This is the second property this client has purchased through Sow & Reap. He responded to one of our email campaigns, came to our office and promptly paid over all the funds, including the exchange amount and refurbishment funds in advance, for us to disperse, as he is very busy traveling.

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He doesn’t like to see the property or the works. It’s a question of number work for him. If we say it will cost £10k to do up the property and it will be rented for £375pw, this is what he wants to happen. So on this property he only needed £68,250 including £10k for refurbishment.

This will give him an income of £8250 net per annum after excluding management and service charges. On his deposit of 68,250 he’s getting a return of 12% net. In addition the property was purchased at a very good price and so he is coming into it with equity. If the property rises say 5% per annum, this equates to an increase in the property by over £11,000 pa.

The second property was purchased for £275,000, it was refurbished throughout to a high standard. This one is in the student belt of Camden. It is a two bedroom property ex council but very cheap given the location and property. The work on this one is being carried out by our recommended builders, the refurbishment is due to be completed at the end of the month. We try to ensure the property is rented on the day it becomes available or as close to this day as possible.

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Due to the demand of the location we have just taken a deposit for the property (way before completion of the project) and agreed £440 pw. This is a corporate let , and what’s more is the company who have taken the property want it for a straight two or three years.

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This is also a long lease property. The refurbishment cost was roughly £20k, this means the return on the deposit of £90k is £9180pa, giving a net yield of over 10%. The property again was purchased cheaply and the investor is walking into a deal where there is equity already built in.

Both of these properties have been rented prior to being completed this week and were sourced through Sow & Reap. This shows the incredible demand in these locations. It’s not just the time period within which these properties have been rented but the amount these properties command which is surprising.

Both of these properties are income generators. Even if they never went up in price, the running yield gives an excellent return on investment. Of course they will go up in price due to the locations, but taking an extremely pessimistic view these are still great properties.

I recently read a book about the Ponzi scheme run by Berni Madoff, which ran on a steady return of 12%. The scheme had ‘credible’ people fronting it and pushing it out on the market, this gave the illusion this must be a bona fide scheme.

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However no one actually under stood the scheme. Explanations were given of some vague strategy, and because enough clever people backed it – because it was in their interest to do so – £65billion was driven into the scheme.

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It works because more money continually flows into the scheme and so the returns are based on new entrants perpetually coming in to the scheme, however no actual investment goes on.

The title of the book was The Believers, because belief is all its based on. People believe this is a genuine scheme, because everyone else believes it is.

If it was based on rationale this scheme would have evaporated because there’s nothing behind the scheme. It managed to survive for over 44 years. It only fell apart when a large chunk of investors started asking for all their money back at one time. The whole pyramid collapsed.

I wonder what would happen if we all went to the Bank of England and asked what is behind the money which is printed and currently in circulation? What if we, the general public, are involved in one of the largest Ponzi schemes known to man?

Property offers a steady and viable place to invest your funds, without having to worry that they’ll disappear overnight. The property is in your own name, the income and outgo is easy to understand and is transparent.

Suresh Vagjiani

Managing Director

Sow & Reap

A Property Investment Company

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