Sow & Reap : When the stars are aligned

Thursday 10th January 2019 04:40 EST

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.

Agony Agent is here to help!

Q: Due to a huge leak in my flat the tenants cannot live there until it is fixed. What should I do?
A: Apart from the obvious problem of the leak, your major problem is your tenants and where to put them! Act quickly. Find a hotel locally and book a room for them. Now, we are not talking a hostel, and neither are we talking about a luxury hotel. Something in the middle. Unless of course your flat  is high end, in which case a decent hotel will be necessary.

Now comes the painful question: do you have landlord insurance?

If you don’t then this is going to be very very expensive for you. If you do have this in place then you need to give them a call. Most landlord insurances will cover the issue you have with the leak in terms of repair works, loss of income (as you will not be able to charge the tenant’s rent for an unhabitual property) and fingers crossed the alternative accommodation for your tenants.

All insurance companies work differently. Some will want you to rent a self catering apartment and they will pay for it, and some might ask you to pay for it and then claim it back from them. Keep on top of the insurance company and give your tenants daily updates on the situation. If you need any other property management guidance, please do get in touch.

Richard Bond

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