We have been trying to close a deal in Ealing for about a month now, the property is in Ealing Broadway consisting of four shops and residential upper parts above. The residential is currently made up of rooms and is in a dilapidated state, surprisingly it’s still rented to tenants.
The commercial is producing £183,000 per annum, and is made up of three private tenants who have been there for decades. It has a good strong commercial tenant as well who are Ladbrokes.
The residential element has planning for 12 flats. A flat in Ealing Broadway will fetch £300,000 in a good condition; the expected end value will be £3.6m. We have been advised that the commercial element is expected to be £2.75m to £3m. When purchasing a deal we cannot ask the wrong people for advice, you have to keep your cards close to your chest.
Thus the end value of the project with the flat completed is expected to be £6.35m to £6.6m. With a purchase price of £4.6m and a refurbishment cost of approximately £1m this is a good deal.
We packaged the project up and raised a target £2.5m, just so we can be flush with funds to complete the purchase and develop the project.
We never intended to pay the asking price of £4.6m and wanted to reduce the purchase price and purchase the company the property was held in rather than the property itself.
The group selling the property owned many properties and weren’t in the habit of selling anything, and so selling was a new experience for them.
The purpose of selling was to satisfy the bank who they owed money to. There were many properties in the company so it was not possible to purchase the company. Normally when one company owns one property it’s easier for a purchaser to come and purchase the company rather than the property. This then reduces the level of stamp duty paid from 4% to 0.5%.
Even in this scenario the company can transfer the property from one company to another one without paying stamp duty, however their accountant for some reason was having none of it. He was adamant for us to pay the HMRC the full level of stamp duty. Perhaps he was concerned the government currently needs all the money it can get.
So we only managed to achieve one of our two objectives, the one which was to reduce the price. We went back and forth with prices starting at a cheeky £4m and then to and fro till we agreed on £4.2m. We put our money where our mouth is and made sure the money was in our solicitors client account, before we started negotiating the price down.
It ‘s surprising how many people go and put offers forward and pull contracts without having the money to complete. It is the equivalent of picking something up in a shop and going to the counter knowing full well you don’ t have the money.
Some of these people are traders who have no money and so they try to sell on the property without themselves owning or exchanging on it. This is a risky strategy and one which will win you no friends and a bad reputation in the market. We managed to exchange on a pub, even though there was someone else buying at a higher price, but didn’t they have the funds to do so. They were trying to flip the property.
We were supposed to exchange on Friday after clarifying a few points, then today on Monday (at the time of writing this article), so now hopefully we will put this to bed tomorrow morning.
The second deal we hope to exchange on tomorrow is a mews house in St John’s Wood, which we’re purchasing for £1.81m and we’re going to spend £200k doing the property up with the aim of reselling it for £2.75m within a 12 month period. This is a freehold property which consists of 1,745 sq ft, this comes to £1,037 per sq ft. The price for St John’s Wood is £1,500 per sq ft at least; we’re confident of achieving a resell of £2.75m on this. The other factor is this is an area which is increasing month on month.
There was one property which we sold on yesterday which has an interesting story. This property was one which we had helped to finance many years ago for a client who had no money at all.
The property was a one bedroom in Stonebridge Park, Wembley, purchased for £121k in August 2010. The property was purchased by someone who had no money to put a deposit down, he had no job and no fixed income.
He managed to arrange an 85% mortgage through a high street bank and simultaneously arranged for a personal loan for £25k, which was then used as his deposit; he timed the two loans very well.
The aim was always to use a plaster board to change the flat from a one bedroom to a two bedroom. This clever procedure allowed him not only to rent the property as a bona fide two bedroom property for £300pw, but also to sell it a few years later, in fact only yesterday, for £180k! Making him over £30k in profit in two years with no money. It was miraculous.
We have also used the plaster board technique in other properties, for example one in Edgware Rd in an ex council property. The property was a duplex and was purchased for £235k; with £15k of basic refurbishment and a plaster board it was changed from a one bedroom to a two bedroom property. It was then rented for £550pw and later attracted an offer of £325k. The landlord was too business minded to sell and so kept the property as a cash cow, generating a good income every month.
Currently we are also working on an office block outside Harrow on the Hill station. Harrow is an area which has a high concentration of Gujaratis, in fact I have heard it’s the highest in the country.
The office block is being purchased for £2.825m and we will be applying for planning to convert this block to 26 flats; perfect buy to let investments right outside the Met line which will take you to Baker St station within 30 minutes.
The block will require an exchange this week as well, though this one will have space for investors to come on board even after exchange. The refurbishment cost on this will be approx £1.5m and the resell is expected to be £6.5m within two years. The completed properties may be ones to keep hold of as I cannot imagine they will stay vacant for any length of time.
Call us if you want a piece of this pie.
Harrow, Middlesex, HA1
Purchase Price: £2.825m
- Building in Harrow with development potential
- Four floors
- Net internal area of 18,759 sq ft
- End value after works expected to be £6.5m
Call us now if you like to have a piece of the pie!
Sow & Reap
A Property Investment Company
!Tips of the Week
Remember you don’t have to pay Capital Gains tax until you sell a property; and you never have to sell a property, you can still extract the increase in price by way of remortgaging and these funds can be reinvested in better opportunities.
Decision making and speed are two characteristics which separate the investors who make money and those who do not. More people lose money by not making a decision than making the wrong decisions when investing in property.