Last week Friday we exchanged on a small property in Kilburn NW2. The property is on the 8th floor of a purpose built block, consisting of two bedrooms and 800 sq. ft. It’s an ideal BTL. Being ex-council means it has low service charges and a long lease, with large well portioned rooms. The views from the property are stunning, you can see both the Shard and the Gherkin from the balcony.
In truth the block looks ugly from the outside, it is a concrete monstrosity and an eye sore, however the internals make up for it. There is hardly any work to be done surprisingly, and it comes in good condition. The prospective tenant will care more about the location and the internals of the flat than the way the block looks from the outside. It’s only minutes away from two stations in Kilburn which means it will rent in days.
I had offered £325k on the property last year, at the time the owner wanted £360k and the offer was rejected. The rental on this property is expected to be £400pw which gives an impressive 7% yield, which is good for this location. Yields have dropped heavily in London the closer you go into the centre the lower the yield. The reason is that the rentals have not kept pace with the huge uplift in property prices; 2 -3% in central locations is not uncommon.
This year surprisingly as all property prices have increased we were able to close the deal at £279k, which equates to only £348 per sq. ft., £ per sq. ft. will give you a good rule of thumb estimate of whether the property is a good deal. It by no means is an absolute indicator as it takes into no account the views, condition, or the ceiling heights.
On this property you will require £70k on a BTL basis as your 25% deposit, the rest will cost you about £10k per annum in interest payments. This means on the basis of a £400pw rental you should be making about £8k per annum allowing for service charge and management fees. This is a healthy income; however the main money in London property is not on the income but on capital growth. This area is still growing due to its vicinity to Central London, therefore the future looks bright. It is helpful that this investor has entered the deal at least £45k below market value.
The property was due to go into auction on the 22nd of July and so it was imperative we do the deal quickly. The lawyer was told the auction was on Monday, a little white lie to get the deal over the line. The management pack was dropped by hand on the Thursday. Management packs are provided by the managing agent of the block, they contain information on the works which have been done and are due, and service votaries – basically they are to do with the running of the block. The managing agents typically like to overcharge every time a pack is requested and they tend to take their time over providing it. For this reason we insisted for it to be brought over by hand to avoid unnecessary delay.
Our lawyer picked out that the works to the lift had been done but not been paid for. He therefore suggested a retention of £20k. This means the buyers hold on to the money until this has been settled. After this was suggested I received a call from our contact who passed the deal to us to say he understood we were trying to chip the price. This is a common practise amongst some property traders, as the property is about to exchange they drop the price. If time is an issue to the seller he may take the hit.
This is not something we follow, unless something has come out of the woodwork. I explained this was a case of Chinese whispers, there were four people in the link and the message had been corrupted.
We finally agreed on a retention of £5k, which the seller agreed to. Works are apportioned between the seller and the buyer, and paid for according to the completion date.
The market is heating up partly fuelled by credit which is coming strongly into London, prices are starting to heat up. I have heard many traders are now sitting back and taking things easy, waiting for things to turn downwards; at this point they will enter the market. When the property market is this bullish, if you are going to invest it should be done so with a ‘correction’ in mind. Avoid the high end and developments. The high end because if things go down these types of properties will be hit first, and developments as you may just come to market when the property market becomes dampened.
With bread and butter properties which are bought at a discount to the current market prices you cannot really go wrong. The bottom line is each property is unique and therefore you may only have one chance to acquire it.
We have a few properties which fit this description in the pipeline and are in the stage to exchange, these range around the £500k mark. We have one particular one which is priced at around £700k and in a very very prime location, it is 500 sq. ft., which means you’re paying £1,200 per sq. ft., in a location close to Regent’s Park and the embassies – this is ready to exchange now.
The Real Deal
Marylebone, London, NW8
Purchase Price: £530k
- A spacious three bedroom flat within a purpose built block
- Long lease
- Properties in this location are being sold for around £650 per sq. ft. and above while this is coming in at around £530 per sq. ft.
- Close to Marylebone station and the open spaces of Regent’s Park
- Excellent buy and hold opportunity
Call us now to reserve!
Sow & Reap
A Property Investment Company
!Tips of the Week
The money you invest in property will grow in direct proportion with the location you invest in.
Always focus on the capital growth of an investment property – never sacrifice this as this is how the bulk of your money will be made in property; rental income is secondary.