No need to swim, if you can surf

Tuesday 27th March 2018 19:31 EDT

A deal which I have been working on, and almost expected to land in my lap, has fallen out of bed. It happens. It’s the nature of the beast. The offer which nailed the deal came from none other than the freeholder. The properties had extremely short leases, of just over six years.

The deal was not only good in terms of the discount in comparison to the block, but also in relation to the surrounding areas. The prices close by are in the region of £1,700 per sq. ft. and above. This site was worth £1,100 per sq. ft. post lease extension.

Last week’s article was focussed on why the current environment is conducive to plucking deals. A deal was defined as a property which is priced below its comparables. This certainly has a feel good factor to it, and is something to tell your colleagues about – once the deal is done of course.

It can be just as important to purchase in an area which is about to kick off. What I mean by kick off, is there is a tremendous spurt in its growth in a short space of time. This has notably happened to areas in and around London. The rate of growth is surprising, and is often missed until the bulk of the wave has already risen.

When the mainstream press get hold of this it is often too late to catch the highest rise.

Two areas come to mind, one is Walthamstow and the other is Shepherd’s Bush. The cost of an average home in Walthamstow has more than doubled over the last five years.

House prices in the area have risen sharply across districts close to the Olympic Park since London 2012, with E17 seeing the biggest property value increases.

In September 2012, the average property in Walthamstow would set an investor back £238,348.

However, a study by Halifax bank has found in 2017, the average home in the area was priced at £479,421. You have a doubling of price over five years.

What’s interesting is at the 2012 level, the average price was less than £250k. This put the price of property in the borough within the range of the average couple who both earn an average income. Together they would need to earn only £42,500 to qualify for a 85% LTV mortgage.

This put the borough within the reach of the desperate home for ownership first time buyer category. This is the generation which has been priced out of the whole property ownership economy; fuelled by the supply of fiat money against actual finite resources. At its bare core, this is the reason why houses cost and rise so much. It is actually nonsensical to think a house price rises in general more than a good professional working person’s wage. But that is the reality of the current terrain.

It is therefore important to deeply research the geographic environment coupled with its property prices, in order to see which location will have the next spurt in prices.

If you can purchase a distressed property in this location you will have the ideal scenario. When it comes to property investment you couldn’t get much better.

However, my opinion is that simply purchasing in these locations will allow you to sit back and ride gently off the naturally occurring wave.

We are currently conducting an in depth study in search of such a location.  We will soon have a report, which will be backed by on the ground numbers, as to why we believe this location will shoot in price in the coming few years. 

Agony Agent Is Here To Help!

Can you see the potential in your property? You may not be able to see the potential HMO in your property, however, it does not stop others from seeing it!

A landlord approached me to let his three bedroom property. The particular service level this investor had taken with us only involved the marketing of his property and referencing of the tenants. We had no further involvement with the rent and inspections. Two gentlemen were found to take the tenancy on the property, and all the referencing went through fine. No red flags were raised.

Seven months down the line, I was contacted by the landlord, asking for assistance. Apparently there were seven single people living at the property. It would seem that the two original gentleman never moved in, they set up a little business subletting the property to an extreme. After the removal of the current occupiers, there was evidence that as many as 12 people had lived in the property at one time. Apart from the high level of wear and tear on the property, which the landlord was able to claim from the deposit with our help; the biggest problem that the landlord had was that these two gentlemen were making money, a lot of money off the top of his investment.

On a twelve month AST the landlord was looking at an income of around £15,000 per year. The gentlemen subletting, on the basis of £70 per person per week and assuming 12 people living at the property including the lounge, were looking at around £43,680 per year, and even with the rent being paid to the landlord they were still earning around £28,680 in profit!

So, this third party not only caused damage and seriously breached the agreement, they also made around £28,680 profit from this. I doubt even the legal action would have cost them that amount, still leaving them with tidy profit.

Even though this situation was not great and caused the investor some expense, he did learn a valuable lesson! That his property was ripe for a conversion to an HMO.

The landlord decided to take on our full services. With a little expense, and some changes, including the implementation of some of the basic HMO requirements, we increased this investors rental income from around £15k closer to the mark of £30K!

It just shows that thinking outside the box may work for you.  So, get in touch to see how much you should be making on your investment property. 

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