Double Dipping

We have managed to secure another deal in an area of South East London that we are targeting.?This is an area which we believe will have long term sustained growth, primarily due to a couple of reasons.?One being the Crossrail, which, though delayed and over budget, is moving towards the finishing line.?Given the scale and the cost of the project, and the fact this is a completely unprecedented project, the delays and costs are reasonable.

The other reason is that this is the only borough out of 33 boroughs in London where one can purchase a property for less than ￡300K, though the ‘average’ runs higher than this closer to ￡350K.?This is the benchmark, used by many commentators; as below this level puts the property in the realms of affordability for the new aspiring buyer.?This is based on a couple who earn ￡25K each.

Over the years we have shepherded many investors into this location, with good reason.?And we have got to know the area, the blocks and agents well.?This is how we got our latest deal, which is currently sitting with our lawyers, waiting for an exchange.

The property is worth ￡300K – conservatively.?It is in a block which is only a stone’s throw away from a newly developing station.?It is a gated development and comes with a parking space and outdoor space.?A lot for a mere ￡250K (which is the price we negotiated).?We have bought several properties in this development, on behalf of investors, and so have got to know the managing agents reasonably well.?In short, this is a well managed block, where the service charge is put to good use, and is very reasonable.

The investment comes with the benefit of a tenant, so income from day one. Although, we believe the property is under rented, and at the end of the contract the rent will increase substantially.?It’s very rare to obtain a property in this location, at this price range with a ￡50K discount.

The other part of the equation is the financing.?All the attention is fixed usually on the purchase price, yet a 1% shift in rates will cost nearly ￡10K extra, based on a 5 year fixed and a 75% LTV.

And rates have been creeping up and will continue to do so for the near future.?Currently, a 5 year fixed can still be obtained for just over 2%, but not for long.

The quicker the application is submitted, the more chance there is of locking the rate in.?Once the offer letter is out you have 3-6 months depending on the lender to draw the funds down.?Bearing in mind current trends money will be a lot more expensive by then.

Though one is on a fixed rate, there is the option to dig into the property’s equity without disrupting the cheap rate.?This can be done by way of a further advance, the main mortgage stays as it is, and a further advance is taken, which sits on top of the original loan. You are restricted to the same lender when drawing this down.?However, as long as they are a competitive and well known lender in the market you should be able to secure a competitive rate.?This allows one to reinvest again and replicate the model.

If, for example, the property value goes to ￡350K (which isn’t a huge stretch given one is actually coming in at ￡300K) you should be able to extract ￡75K, which allows one to do the same thing again.?This is without any kind of tax payable.?Call the office now if you would like to know more.

Suresh Vagjiani