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When the stars are aligned

8th January 2019

Currently, we are working on a specific location with a defined strategy.  Generally speaking in the current environment you cannot purchase a property with the hope of reselling in a few months’ time for a profit.

Therefore, the alternative way to exit needs to be by way of refinance.  This allows one to add value and extract most or all the capital back out.

In the current environment if you purchase a property for X amount there is a chance it will be X-5% in a month or two.  This is the reason why many people are sitting on the fence and nervous about entering the market.

However, this means there exists motivated sellers in the market and insufficient buyers, leading to a drop in price and an opportunity on occasion to get a cracking deal.  In years to come people will be surprised such opportunity even existed.

This was the case in 2013 when we purchased 23 apartments in Kilburn, on behalf of our client, for £2.675M.  At the time this equated to only £299 per sq. ft.  This deal was presented to us when the buyer at the time (who was at a higher level) was dragging his feet.  There were many issues with the building and decisions had to be made.

From my perception it seemed the buyer was leaning on the lawyer to deal with the issues, and the lawyer predictably was covering himself from future claims.  Therefore, the deal was not moving forward.  His slow approach allowed us to swoop in and take the deal at a bargain.

At the moment, we are looking at smallish lumps, from £350K to £550K freehold properties in a specific location; the aim will be to turn them in to HMOs.

This will target two objectives.  One is to enhance the rental to over 75% more than the property would attract as is. The second objective will be to use the enhanced rental income to extract funds out of the property, releasing trapped funds, so you can be in a position to invest again.

This strategy can be followed in many locations.  There was a recent survey prompted by the rise in train ticket prices which analysed several locations which were close to London.  The analysis was based on three variables: house prices, commuter times to London and train ticket prices.  On the surface this looked like an interesting article.  But on closer inspection it fell short, it was based too much on theory, and took no account of how underlying prices will perform in the years to come.

Our decision to focus on this one specific location is backed by 18 pages of in house research.  We believe the underlying asset will perform extremely well in years to come, in a sustained and steady manner.  In addition, your funds will not be trapped in the property and it will be yielding a positive cash flow.  A mean feat anywhere in London.

Suresh Vagjiani

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