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Auction Property

My London Auction Property Bought At A Knock Down Price

Today I have decided to do something new – I have worked out (just about) how to use the video function on my iphone4 and I have recorded a short video!

The video shows my new property which I have just purchased at auction. I completed on this 2 bed flat in South East London on Friday (sorry has taken me a few days to work out how to embed video into the blog!)

The first part of the video is the outside of the block and the surrounding area…until I get interrupted by the estate agent (who has arrived to value the flat). If you watch out you will see a bearded guy walking down the road with a briefcase – that is him!

Here is the second part of the video and this is inside the flat.

I bought the flat at auction in London for £96.5k and am currently deciding what to do with it. I have had it valued for rental at £850-900pcm and for re-sale on the open market at £130k as it stands.

The sting in the tail (there usually is one!) is the flat has what is deemed to be a short lease (66 years) and so I have to decide whether I want to extend the lease to get the maximum value for the flat (for that I will have to enter negotiations with the Freeholder and pay a premium). However, the key issue is that I have only just bought this flat and the right of extension for a leaseholder only applies after you have owned the property for 2 years. That means the Freeholder can refuse your request or ask a higher figure for the extension premium (as I have not owned the flat for 2 years).

The agent was very interesting and he was telling me flats in the block had sold in good times for around £200k…

So – now I have to decide – do I rent it, extend the lease and wait for good times

OR

Sell it on now and make a quick buck!

Will let you know what I decide!

11 comments
  1. Les Sheppard

    Sam,

    I know the area well, having worked it extensively for the big brewery companies, and I’d say you’ve bought competitively. In the long-term prices should perform at an above average rate here, and I’m sure I would hold for the time being.

    Best regards,
    Les.

  2. Shaun

    Sam

    I’d be interested to know whether you still feel this is a good buy if you decide to hold the flat and then exercise your rights after two years to extend the lease. This is because in order to make properties mortgageable on the open market (ie. by ensuring there is 70+ years on a lease so that when you go to sell it to a member of the public, they can get a mortgage from a lender) your freeholder (or their lawyers more precisely) will calculate a premium for the lease extension using a concept known as “the marriage value” of the property. In most cases this “marriage value” calculation for the premium for the lease extension ends up being the difference between what you paid for it and what it would achieve with a long lease on the market (which as you noted could be around £200k). If you do go down this path and your premium ends up being in the region of £100k or slightly less, would this still be a good buy?

    I would be very keen to hear your thoughts if you have any insight on how to negotiate down lease extension premiums.

    Thanks for a good column as always.
    Shaun

    1. Sam

      Yes Shaun you are right about the marriage value – although it is split 50/50 so they do not take the whole uplift but 50% of the uplift. It all depends when you do it and when you sell. The trick would be in getting the extension in a low market and then selling it with the extension in a high market! That way you can then benefit further.

      PS. Glad you like the blog 🙂

  3. Steven Ball

    Hi Sam,

    Great to hear you bagged one this time. I too would be interested to learn how this pans out regarding extending the lease. Being the savvy lady you are I’m sure you will have done the sums. If it proves too expensive just flip it and take the profit now, by all accounts there could well be more bargains to have for a while as yet.

  4. Rich Greenland

    Yes I’d be interested in knowing how it goes with the lease extn too.

    What happened to the hob, oven and boiler? Theft? Seems like odd things to take away otherwise.

    Like Steve I’m glad you bagged one at last. I’m still working on it!

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