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When a plan comes together

12th November 2019

We had a client who signed up with us a few weeks ago.  He had some cash and some properties.  He had just re-entered the UK after several years abroad.

He wanted to invest so that he could develop plenty of residual income in the future.  He’s in his 30s and loves his job.  However, his job will never pay as much as properties do.

Investing will give him the flexibility to choose what kind of work he wishes to do rather than be a slave to income.  Of course it will be a consideration, but its importance diminishes if you have money growing on the side.

He wanted to tuck away the funds for about 5-7 years, and wanted the whole process managed.

I recommended that he purchase three properties in a growth area we have identified in South East London.  We have identified some flats in a block where we have purchased for a couple of clients previously.  It is only a minute walk from the station.  Some may consider this worryingly close.  Indeed, a previous client asked me to video the inside of the apartment whilst a train was going past.  The apartment was on the 4th floor and therefore the noise was minimal.

Our confidence in this location is backed by an 18 page in house report which contains a firm analysis on why this area will grow year on year for the long term.

This is the kind of location which will start getting the spotlight in 3-4 years.  But by this time the wave will have already risen.

Currently, these properties are attracting a yield of circa 5%, which is a rarity anywhere in London.  This is testimony this area is still an under valued and under appreciated location.

Once the cash element has been tucked away for long term investment, we can then concentrate on more ‘lumpy’ returns.

He was happy with this broad plan.  In property you cannot be too prescriptive.

Coincidently, the seller is selling three flats in this block as one lump.  We have closed the deal, and the client is going through the motions to exchange on this deal, hopefully this side of Christmas.  It’s rare when the exact strategy which was prescribed actually occurs.  But it has in this case.

Over the years, I have become more prudent when going for ‘lumpy’ investments.  The time involved for obtaining planning is never set in stone, also even once granted there can also be time bombs which go off.  We are dealing with a few at the moment.

In order to avoid this and get more certainty, it is perhaps better to go for permissions which can be obtained under the PD rules.  This does not just apply to office to resi conversions, which every man and their dog knows about.  There are also PD rules around High Street commercial, industrial units etc.  The rules around this are more binary and less open to the subjective whims of the council planners.

When investing there are only two components, the returns and the time.  The longer the time period stretches the return diminishes.

Suresh Vagjiani

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