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You Snooze, You Lose

Property is a business where time is of the essence, there are only two main points in a property deal: price and time. If you can execute quickly you can command a reduction in price. Time has become an important factor in transacting especially now as many sellers are struggling for cash and face pressure from the banks.

Currently we have a property dealer who is hoping to flip a property on for a quick profit. He picked up a block for £630k and is selling it on for £750k, giving him a quick profit. We later discovered he had bought the property using a bridging loan and hence is now under severe pressure to sell.

If the deal is completed this week there will be a £15k discount on the price otherwise he wants £755k, this is to reflect the charges from the bridging company.

Another real example where time has been an issue is a property we exchanged on last week Thursday after spending three months on trying to get it through. It was a small deal at £233,000, the property is a one bedroom in a purpose built ex council block at over 500 Sq ft. The attraction to this property was the layout and how easily it could be converted to a two bedroom. Simply by switching the kitchen to the living room you would have an extra bedroom. A two bedroom property can now command a rental of £420pw, which comes to £21,000pa, a 9% yield. With a long lease and low service charge this was a rare find.

The client in all fairness was and is swift in his responses and never delayed in returning paper work. This is the second time he is buying through us, having previously bought a similar property about a year ago. He does not live in the UK, hence the time he comes in he wants everything ready. He simply asks us what the solicitor and the valuer will require to exchange and then transfers the full amount to us to disperse to the relevant parties without even looking at the properties.

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For him it’s a pure numbers game, and he has developed the confidence by buying previously through us.

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The initial issue which caused a block was getting the mortgage. The mortgage companies at the moment are paranoid about money laundering to the point it becomes ridiculous, in this case the deposit was shown in Barclays bank. This was not good enough for the mortgage company, they required to see the statement of the bank it had come in from.

Given Barclays bank is a large bank and the client would have gone through their procedures already it was an unnecessary request. So we had a delay of a month to get the Ugandan bank to basically produce a statement to suit the lender. Given this was simply made up for them by the bank, it was an unnecessary tick box exercise to satisfy someone who doesn’t know what they are doing.

Unfortunately we have to dance to their tune, as beggars cannot be choosers. In this market credit is not as abundant as it once was, we were dependent on this mortgage going through. The process took many weeks.

So after the big issue of finally getting the mortgage, we breathed a sigh of relief, we were ready to exchange only to discover there was another contract out on this property. Unbeknown to us the agents had decided to go with another seller without informing us.

This deal had been on the burner since early November, so it had been brewing for three months. To find another buyer for this property is easy to do as there is not much around at this price level and potential. The lower the price of a property the more accessible it becomes for people to enter.

Luckily we had a good Jewish solicitor on the case and he immediately moved into action and arranged to see the client the day after he arrived in the country, done all the checks and got insurances for the ones he didn’t do and we swiftly moved to exchange contracts to blow the other party out.

You can never be too relaxed when purchasing a property, surprises can come out from any nook and cranny.

Most people think once you’ve exchanged the deal is secured and you are safe, which is true……until the lender starts asking further questions regarding the mortgage offer… they are not bound by the exchange or even aware of it, the mortgage offer comes into play at completion.

I have seen offers being revoked post exchange, leaving buyers high and dry. The only option they have is private funds or bridging money, which is expensive and may just be prolonging the pain of losing the exchange money.

Smaller deals are harder to come by, the real potential this year is in the bigger ones. These can be accessed by arranging small investment groups. If you would like to find out more please call the office to arrange a meeting.

The Real Deal

When time is off the essence

Originally we had been offered two freehold titles consisting of four flats, two regulated tenants and one sold on a long lease. These were conversions in Willesden NW2.

The regulated tenants were to be honest not our forte. We had researched that these would be worth 50% to 70% of the open market value, and we are in touch with dealers who deal in only regulated tenants. The tenants were in their late seventies and had no dependents, both these points are important. The age is important as holding regulated tenancies as I understand is a bit like being a butcher, you make money on the death of your tenants. Unpalatable perhaps but true! At the point of death of your tenant you can make, in this case, about £150,000. The point of no dependents is important too as the tenancy cannot be passed on with the death of the original tenant to someone else.

Whilst we were mulling over these, the decision had been made for us when we were told they had been sold off to a dealer who only does regulated tenants, and now only the vacant flat is left for sale.

We have arranged to attend and exchange at the seller’s solicitor’s office later on today. The price we will be paying for a three bedroom flat with garden is £250k. The aim is to punch through to the loft to extend and resell at £375k after spending £50k on works. This is plain vanilla and something we are confident of executing.

Luckily both our solicitors are walking distance from each other in Baker Street. Actually you do not need to attend, things can be done just as fast nowadays without getting up from your chair, but we had a stubborn seller who would not send out contracts, so if we wanted to do this deal we had no choice but to attend.

Suresh Vagjiani

Managing Director

Sow & Reap

A Property Investment & Financing company.

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