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To Trade Or Not To Trade?

Last week I covered a deal we were looking at in W1 for around £2.9m, we have managed to agree a price for this property at £2.75m and our solicitors are waiting for the contract. Interestingly what has also come out of the woodwork is the property has been used as two flats since the late nineties. The lower ground has been used by the owner’s son as a separate dwelling and council tax has been paid for this on a separate basis. This means there is a record at the council showing that the property has been lived in and used for over four years, under established use there is now a strong chance this property can be converted.

We referred this matter over to our planner who confirmed there is no reason why this property will not be granted planning permission to be turned into two flats. This is a cherry on the pie, halving the property means we will have two flats which is more digestible to the market both from a rental and sales point of view. Furthermore planning for a rear extension was granted (but has since lapsed), this means we will be able to add further square footage to this property and enhance the already cheap price we are entering at.

The property market in London is shaped like a triangle, most of the buyers are at the bottom end of the market where prices are less, this means if we reduce the price of the product we are offering it will appeal to a larger mass of people.

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There is an option to come in on this deal and develop and resell, but I do not feel this will be a good year to resell and get the best price. It can be done and money can be made, but it will be crumbs, may even be large crumbs but crumbs none the less.

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The real money in property is made by holding the stock. Buying and selling actually goes against the grain of property investment, even though as a firm this is what we have been engaging in, trading or flipping. No doubt the profit has been there – our track record speaks for itself.

The beauty of property is it rises on its own accord – passively, there are very few businesses that run this way. And often most of our clients make more money from holding property than they actually manage to save or even make running their own businesses over the same period.

They actually would have made more money by buying property and going on holiday, than working over the same period. At times it’s almost like rats going around a wheel. There is a need for movement even though it’s simply going around the same wheel.

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There is some credit to trading, you can make a big gain from a small amount of investment, and you’re then in the market to do another deal, without the hassle and expense of completing. The funny thing is everyone in the market thinks you have an insatiable appetite along with an unlimited treasure chest. And the more you deny this the more they think it! You’re actually recycling the same amount of money from deal to deal and very quickly, this is done internally. The perception created in the market place is that you keeping purchasing without any limitation.

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This is a good perception to create, as it brings deal flow and opportunity.

Our model will be changing, there will be a shift from trading to holding more stock, partly because this is in tune with the current market trend and partly because as described more fundamentally it is in line with the nature of property.

The emphasis will still be on recycling the cash, but not the property, this will be the important distinction which will change everything. This means when we look at a deal one of the most prominent questions will be: when will the money come out of the deal and how much of it? The time period for this has to be a minimum of six months as most lenders are not happy to lend any more than the purchase price within this period.

This is a year where deals will start to surface from their own accord, and a great time to asset build.

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Another deal we have also locked is a £1.3m property which is a probate property which hasn’t been granted probate yet, this may take some time. The property didn’t get a chance to hit the open market. It’s a 844 sq. ft. flat facing and having access to a square in W1. We are paying £1,544 per sq. ft., prices here are around £2,200 per sq. ft. There is however work to be done on this property although even taking this into account by allowing a generous figure of £200 per sq. ft. there is still a good margin here.

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One thing the price per sq. ft. doesn’t give you is the grandeur of the property and the ceiling heights. The features on this property are amazing, the ceiling heights are huge and the property is facing one of the few squares in W1. What’s more is the service charge is only £1,500 per annum. The property also benefits from having a share of freehold. These types of properties will stay attractive even post mansion tax, should it be implemented, due to the low annual outgoings.

The cost required to enter this deal will be about £500,000 and the aim will be to hold this property for the medium to long term or even permanently.

The price has just been agreed and we are waiting for the contract, the deal will be exchanged subject to probate being granted this will give us a long completion period. We are planning to suggest a 5% deposit to be paid instead of the potential 10% usually paid; this means less money is locked up. It actually makes very little difference to the seller as the money is sitting in his lawyer’s account till the point of completion. This means we can enter this deal with only £65k tied up in it – the way the deal is set up it is unfortunately asking, no actually begging to be traded!

The Real Deal

Paddington, London, W2

Purchase Price: £2.7m

  • Freehold property in a very beautiful location
  • Currently arranged as six commercial units
  • Planning permission in place to convert it into four residential units and one commercial unit
  • Around 3,250 sq ft area
  • End value after conversion expected to be around £3.9m

Call us now to secure this deal!

Suresh Vagjiani

A Property Investment Company

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!Tips of the Week

When you sell a property you will have to pay Capital Gains tax but there is a smart way to extract the increase in the value of the property and that is by way of remortgaging -these funds can then be reinvested in better opportunities.

As with any business venture it is always wise to have multiple exit strategies; property has this naturally, instead of reselling you can refinance and rent.

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