Some years ago they got together with some other people and decided to enter into a business. A franchise; which is almost fool proof hence the banks will lend you a generous amount of the money you need to invest. The money was extracted mostly by way of remortgage.
Even though the franchise model may be water tight it still needs to be implemented by humans, and humans are not infallible. If the person executing the blueprint of the franchise has issues and they spill out into the business, whether there’s a blueprint or not the business will fail, which after a couple of years it did. The business was sold on leaving the partners with larger mortgages and nothing to show for it. It was at this point one of the partners approached us and decided to start investing in property. This meant the couple would have to borrow even more in order to invest as they had paltry levels of savings.
Luckily the original mortgage they had taken out was an overdraft mortgage. Meaning they could dip in and out as they wished up to a predefined limit. This can be known by many names such as offsets, flexi, drawdown etc. lenders like to give different and innovative names but they all mean the same thing. You basically have an overdraft facility, on the value of your house. This type of product is very useful for moving quickly on deals. Especially useful for buying dilapidated properties which do not qualify for a conventional BTL mortgage, or purchasing at auctions where all the money is required within 28 days.
Due to this setup already in place they were in a position to invest at short notice and without any further underwriting required. This put them in a strong position to pick up deals at short notice.
The first property they purchased was an ex council two bedroom flat in Westbourne Grove, with the usual long lease and low service charges. These are ideal for BTL in many ways. They actually make you an income, which is getting to be a rarity in London as the rental values are not keeping in pace with the capital growth of properties. At the time of this purchase the rental was circa £500 per week and the mortgage only £264 per week. This is based on the whole amount of £275k borrowed at 5%. This gave them the equivalent wage of a third person working which was very valuable considering their financial condition. The property was purchased in June 2010, it was later sold in November 2014 for £440k, giving them a gross profit of £165k. A couple of years after the deal was done, in July 2012 I was again approached for another deal this time and I was told the budget was really low, working with a £50k deposit. I told them it was very unlikely for me to source a property at this level but I would keep an eye out. Lo and behold in a couple of weeks I got a call from one of my contacts, they had a studio in PortobeIIo Rd, again ex council with the usual low service charges and long lease. This was purchased for £235k however it didn’t give the kind of cash flow the previous purchase had done. Times had moved on and it was actually a struggle to rent out. The government was capping the amount of housing allowances it was handing out, and so the honeymoon period had ended. Nonetheless, it was a good deal. The property location overrides everything else, and this was in a strong location, which was actually rising in value being pushed by the surrounding hot spots. Often landlords get preoccupied with the smaller details of a property such as the rental or service charges taking their eye off the bigger picture, which is the bottom line profit. In the case of property it is the rise in value. This little property was sold in April 2014 for £325k, a return of £90k in less than two years.
I give credit to his appetite for property investment. In December 2012 because he didn’t have the amount of money required for another deal, he partnered up with a relative to raise the extra funds required. Together they purchased an ex council home in Maida Vale for £325K. Here there was a high service charge on the property which was eating into all the rental income. And the deal even required a cash contribution from them. This didn’t go down too well despite my assurances, and getting them to visualise this as a pension policy where they contribute small amounts in return for a large lump sum later on down the line. The first deal had corrupted them.
Despite the short term ups and downs this property was sold in July 2014, for £425k giving them a gross profit of £100k in roughly one and a half years. In total between three properties the profit made was £355k ignoring associated expenses. This not only made up the money lost in the failed business but also placed the couple in a solid financial footing for the future. Actually my advice to them was never to sell, but to remortgage instead. As I cannot see them building up this quality of asset into the future. As soon as your wealth is in cash it depreciates, it is not a safe position to be in. The come back into these deals again will not be easy as prices have increased. Even more since when they sold less than a year ago.
They have purchased one more property for £330K in October 2014 in Ealing which is currently worth £400k.
Most of the deals listed were not seen by the buyers they were purchased on blind faith. Even more impressive as I never saw one of the properties either!
This shows with a little ambition and a little equity a lot can be achieved when it is applied in the right way.
