Archive | December, 2010

My New Forest Property *Slip Up*

23 Dec

Today I braved the cold, wet, winter snow to get myself into the New Forest to see a dilapidated shed which was going to auction and which I thought may have the potential for some planning gains…

It was located in one of those VERY small places where you have about three houses, 18 stables and just as many land rovers. Yes – the sort of place where everybody knows everyone and the curtains twitch when they hear a car on the road. And so as I didn’t want to draw attention to myself – especially not if the locals see me looking at the barn. And so I thought I would just have a quick look round and take a video of the surroundings so that I could study it better when I was back home later.

So there I was crunching quietly in the snow…watch, wait and then laugh!  I have bruises all down my side, my elbow and my hand, my clothes were soaking wet and I was most concerned about the damage I’d done to my iphone and it’s sudden orbit into the atmosphere!

Wishing you a wonderfully happy Christmas and New Year 🙂

Selling A Property At Auction – The Quick & Easy Way To Make a Sale

21 Dec

Today I decided to sell a property at auction. For those of you who are regular readers of my blog it’s a property which I bought just last month – My Cheap London Auction Flat

I had the estate agents out to value it and I also checked with a big auction house what they felt it would achieve in the room. I was in two minds what to do as it would achieve a great rental yield and it had good potential for capital uplift as it’s in an up and coming area of London…however its always good to have extra money in your pocket now for when you find your dream project…and I’m currently on the hunt for a BIG project

So I decided to go with the auctioneer – they told me they could probably achieve £115-120k which admittedly was less than the estate agents, but by selling at auction you can be sure that once the hammer goes down the property is sold, the buyer exchanges on the day, pays 10% as a deposit and you complete 28 days later.  It’s a quick and easy way to sell property. The other thing with selling at auction is that you can also stipulate that the buyer pays a proportion of the purchase price towards your selling costs – something which you cannot do with an estate agent sale (maybe you can – I’ve never tried!).

Anyway, so I agreed with the auctioneer there would be a reserve of £110k.  Not really what I wanted to sell at, but the auctioneer assured me that should there be a good level of interest they would increase the reserve to £115k as I had wanted.

So then we had all the snow and people decided it was Christmas way earlier than what they should have…and people weren’t really that interested in buying a property at auction or attending viewings in the snow and cold…And the news forever broadcast that people should only travel if it’s “essential” or “vital” and in all honesty I guess viewing an auction property does not really fall into that category…

And so you’ve already guessed that I put it in the wrong auction house at the wrong time of year….we sold all in for £111k. OK I have to admit it’s a profit on the £96.5k I bought it for last month, and I didn’t do any work or anything at all to the flat.  So yes, in a way I made money for nothing.  But I would be a liar if I didn’t admit that I was disappointed with the result…(I really believe it should have achieved at least £115k) but there we have it – that’s auctions for you. It’s all about the room on the day. Some days you get lucky – other’s you don’t…

However at least I got myself a little something the previous week and I’ll post details about my new little flat in East Dulwich soon 🙂

The South East London War Zone?

15 Dec

Today I went to see a 2 bed house in central South East London with a guide of £200k.  I know the area quite well and so I knew £200k was a steal for a house here….however I also knew that when the auctioneer states they “will not be held liable for any injury to anybody viewing the property” and that you should “bring a torch” and strong shoes that it was going to be in a state…I was not disappointed!

From the outside the property looks fairly normal – a 2 up 2 down terrace…however you can tell from the fact it’s missing a front door (there’s corrugated iron there) you are going to be in for a treat 🙂

Situated on a pleasant street and within easy access to central London (it’s just on the fringe of zone 1) this property is just a stones throw from a huge range of facilities.

Inside the property it’s a different story….and I’m afraid for my own safety I did NOT venture upstairs and I got out of there pretty quick!

As you will see from what photos I did get – the property requires a back to brick renovation with a HUGE amount of work (and money required)

However – the best sight I have ever seen while viewing auction properties has got to be the TANK in the back garden

Yes A TANK!!!!!!!!!!!!

Be Aware and BEWARE When Viewing Auction Properties

9 Dec

Looking to buy property is an exciting time. It is even more exciting when you think you may bag a potential bargain. However, you have to be aware and beware when it comes to buying property at auction as you don’t have a lot of time to do the necessary research – but once you’ve bought it, you will have a lot of time to reflect on any mistakes!

Typically auction catalogues are released 14 days prior to auction. That means you have just two weeks to view the property, check the legals, get a survey, raise the finance, research the area, assess demand, research the end value, cost any works, get quotes from trades people – it’s a lot of work to do in a short space of time!

Because there is so much to do – and so little time – and because you are focussed on “bagging a bargain” it can mean the simplest things get forgotten.

From the outset you must focus on getting the answers to 2 key questions – this will help you understand more about the property:

1. Who is selling the property? Most auction houses will show who is selling the property – it may by order of the mortgagees/ LPA receivers/ a housing association or if it says nothing it will typically be a private individual/ company.  If in doubt, give the auctioneer a call and ask.

2.  Why are they selling the property? If it is a mortgagee/ LPA receiver they often need to sell the property quickly to raise the funds to clear the debt that is owed. If it is a housing association they may be selling the property as it is deemed too expensive to refurbish for their own use, or they may need to raise additional funds for other properties.  If it is a private individual – it could be they need to raise funds quickly, or maybe the property has a problem which means it cannot be sold easily on the open market.

In all instances you must be “suspicious” and act like a detective as to the motivations behind the seller. This may sound far fetched – but properties go to auction for a number of reasons and your job is in doing the detective work to understand why it is going to auction.  A “people problem” (i.e. debts need to cleared) is a problem which be solved pretty easily through the sale of the property.  However, if it is a “property problem” i.e. the property has structural or legal issues, these are problems which come with much higher costs, longer time frames and more complications. These are issues you need to be aware of and which need to be factored in.

The legal pack for an auction property is critical in understanding the background of the property and may highlight issues you did not see when viewing the property. This can range from things such as having a short lease which will make finance difficult, work which has been undertaken without planning permission or building regulation approval to the property being located in an area which the council plan to compulsory purchase in the future to build a new road.

I have seen auction properties (which were being sold as repossessions) which had legal issues which meant while you owned the flat, you did not have any right of way into the building to enter the flat! Others (again repossessions) had substantial communal bills which you were required to pay when you became the legal owner. In one example, there was a flat which looked cheap at a guide of £90k, however further investigation revealed that the new owner of the flat would also then become liable for a community bill of £25k! The legal pack will also detail any additional costs you may have to pay – in the case of housing associations, they typically ask for a contribution towards their legal fee (usually 3% of sales price).  Again, all these costs need to be taken into account as they will impact on your bottom line.

Viewing auction properties is a minefield – on the surface many properties appear to be good value.  However, the old adage “if it looks too good to be true…it usually is” is worth heeding. Thorough research and detective work is required to uncover if that “auction bargain” really is all it’s cracked up to be.

All That Glitters is NOT gold – Especially In Property Auctions!

3 Dec

Today I went to see what sounded like a great investment in Cheshire. It was a terraced house which had been converted to 3 flats.

One of the flats was tenanted and had an annual income of £6k. It also had two vacant flats and a potential total rental income of £15,600 per annum.The guide was a measly £50k.  Just imagine the yield if you bought it at guide – yes an astonishing 31.2%!!

HOWEVER….all that glitters is not gold – and that is certainly the case for auction properties (especially those that have such a cheap guide!)

So let’s start with the uglyness of this building…yes truly I think even it’s mother would give it away for adoption:

What you will see from the photos is that the previous owner (now bankrupt – the administrator is selling) has converted every spare inch possible. And that includes what I reckon must have been a former shed/ outhouse.  Of course, there is nothing wrong with that…but there are several things you need to be aware of:

Lack of Planning Permission/ Building regulation Approval

* This conversion most likely does not have planning permission. That means in the future the council may take enforcement action and you will either have to apply for retrospective planning (if they will allow such a conversion), or apply for a certificate of lawful use (and you will have to prove 4 years continued use).  This is a planning risk which needs to be factored into your costs when you are thinking of purchasing such a building.  You also have to be aware of how planning policy changes and what impact that may have on your development (The lack of adequate parking is a big issue with this property in the eyes of the planning department and may prove a major obstacle if you did try and obtain planning permission)

* This building is also unlikely to conform to current building regulations. That means it’s essential to have some “rainy day fund” in case the enforcement officer decides that you have to undertake upgrade works to ensure it will comply.

Limited Lending & Demand

Another issue which is not apparent from the photos – is the difficulty you will get in lending on a property like this. Banks do not like properties which have been sub-divided in such a manner and most often classify them as HMOs (House of Multiple Occupation). This is a specialist area where very few lenders operate. This means the property has limited market appeal (mainly other cash investors) and creates a ceiling on the price which is derived mainly from the potential rental yields.  As an income/ cash investor this is not an issue. However, what it does mean is that capital growth will usually remain stunted for these types of properties. Therefore, any capital invested in the building should always be targeted at improving the rental income stream.

But let’s get back to the property….

The property looked as though it had been renovated quite recently, and while not the greatest finish – the kitchens and bathrooms are adequate for rental properties.  With some finishing off, making good and some upgrades the bathrooms and kitchens could be made functional.

The bedrooms and lounges were also in good condition and only required minor repairs to get them ready to let.

However, while the surface decor looks acceptable on these properties. It is actually the fabric of the building which is the major concern for me.

The roof is sagging on all properties and will need replacing – by the time you get the scaffolding and roofers out this has got to be at least £10k.  Furthermore, I suspect the actual walls of the building are poorly insulated and this was confirmed by the tenant living there who had her heating on full blast and the flat was still freezing with all walls cold and damp to touch. Moreover, I also suspect the vacant flats (in rear extension of the building) to be single brick. This means the building will never retain any heat, it is not insulated, nor was it designed to be a habitable building.

In my experience, tenants in cold properties tend not to stay and the property will develop further issues related with the cold. Mould and damp is a huge issue and will lead to accusations of causing ill health. Moreover, because the property is so cold, windows are rarely opened which means the property lacks adequate ventilation creating further issues to the fabric of the building. Lastly, you also need to remember that these types of flats will rent to people who are cost conscious and more aware of their heating bills.  The current tenant (who had given notice to leave) claimed she was spending £7 per day trying to keep the flat warm and was failing miserably. This again, will mean that these flats have high churn – which would have an impact on the potential rental yield.

Given the mould and damp that was starting to penetrate, and the cold clammy walls I think the only way you could make this building work as a successful rental machine would be to actually build cavity walls and insulate the property.

However, this is then a major job which undoes much of what you see here.  You would in effect be re-building the properties from the inside. You would need to build the walls (most probably in breeze blocks), plasterboard, skim and decorate all again….but the knock on effect of such major works is that you would end up moving the kitchens and bathrooms (which because they’re poor quality would probably break), then you’d end up re-wiring and replumbing the entire building (which I doubt would conform anyway!)

So on the surface while this building looks like a bargain property with fab yields – in essence, it’s a money pit – and a very ugly one at that!