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Blogs by Richard Greenland

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Rich G

3 Howgill Lane, Sedburgh, Cumbria LA10 5DE.


At first this seemed too good to be true, but I don’t believe in TGTBT so I looked into it. It starts as a desperately sad story but has a kinda happy ending. The owner never lived in the house but his mother in law did. He suffered a double bereavement (wife & brother) in two separate RTAs. Then he lost his commercial diving business due to an investigation when one of his divers falsified his own health status from his doc and died underwater. As a result he had been on IVA for 2 years, a family of 4 living on £450 a month. To top it all off he had developed Sudden Death Syndrome where his heart can suddenly stop beating, so has a heart defib fitted. I would almost have thought it was too BAD to be true, that he was making it up, except I saw the shape of the defib fitted under his skin. It was quite a big triangular lump. Just when you'd think it couldn't get any worse for him, there was a partial collapse of the basement at the house and the council placed scaffolding against the side of it under the Dangerous Structures Act, and a charge on the house for the cost. It blocked the entrance to the car park of the large pub next door. Then the pub owner then threatened to sue for loss of trade. The poor vendor had no money to solve the problem, and was having anxiety attacks over it and everything else. He was an awful situation.

 

I knew what to do about the basement (fill it with concrete - job done!) But

 

I commissioned a structural engineer's report anyway to tell me what I already knew, as belt-and-braces. Engineers must carry Public Indemnity Insurance, so if we both get it wrong I could claim on his insurance. Also I could put the report in the Legal Pack to reassure prospective buyers. Then I agreed to buy it for 22k, minus any costs due to the pub.

Unfortunately the pub owner wouldn't communicate properly or give me a settlement figure, only threaten, so the amount outstanding was unquantifiable and much as I felt sorry for the owner, the only sensible thing I could do was stay away until the pub owner became more communicative or the house owner sorted it out with the pub himself. The pub owner saw me as a money pit, unlike the homeowner who was skint, so he was trying to make it my problem and make me pay. I told both of them that it was THEIR problem until we exchanged contracts, not mine. I felt very sorry for the owner and apologised for having to withdraw, but it had to remain business and I had to try not to get emotionally involved, however much I wanted to help him. I was less sympathetic to the pub owner who wasn’t exactly helping himself by stymying the sale. It merely prolonged his own problem with the blocked car park. I told him that the scaffolding could be there till kingdom come, because no normal sane buyer would buy that house with a partial basement collapse AND an unquantifiable financial claim against it.

 

Things finally moved when the owner offered to GIVE me the house for nothing just to take the stress and the pain away. It seemed unlikely that my financial exposure would be greater than 22k even for the entire period the scaffolding had been up, so I agreed, but it would have been like taking candy from a baby so I insisted on keeping as close to our original agreement as possible. You have to know when something is a deal and when not to milk it. It’s about treating people fairly and being able to respect yourself and be deserving of the respect of others.

 

I'd already given him £500 in cash on a no strings basis so he could enjoy Christmas with his new family (he had re-married), so I gave him another 8k to settle the £5.5k charge the council had placed on the house for the scaffolding (which needed settling anyway), and the rest for his conveyancing bill and about 2k to be going on with. Eventually I paid him the entire £22k, minus an agreed sum of £6,750 to settle with the pub. I’d offered for him to wait for the full settlement but he just wanted out ASAP. I had no legally binding contract with him, we had nothing but a gentlemen's agreement and a handshake, but as I say he’d already offered me the house for nothing so he was happy with that and he trusted me. It isn't just about the money. Money comes easier than happiness. In so doing I hoped to restore his faith in humanity a bit as it's had a real kicking over the years with things going disasterously wrong and to make it worse, people treating him badly. Of course by doing so I'm helping myself too. If you want to feel happy, the best thing you can do is help someone else, especially when you don't have to. It really works you know! Try it!

 

Then I offered (without prejudice – that is VERY IMPORTANT to avoid legally committing to anything) to settle the damages claim from the pub owner for the entire period of car-park blockage, to clear it completely for my vendor, as with his recurrent anxiety problems he wasn't in any condition to negotiate it for himself. Eventually after a lot of persistence I got an approximate settlement figure, just under 6k so not nearly as bad as it could have been, and I'm contesting some of the items anyway. I'm hoping to get it down to 3.26k. This has still not been settled, and it turned out that the “pub owner” wasn’t the real owner after all so the dispute is still open and could go either way.

The outcome? I bought it for £22k (minus £6,750 for an ongoing dispute) and did no physical work on the property at all. I never even went back in the house. Then I put it in Auction House Cumbria and it sold for £42k! Obviously I had costs, including 2 lots of legal fees, auctioneer fees, and £3k finders fee. Still, it was a nice little profit. This is it, Lot 56, you will have to scroll down to see it ‪

 

http://img.auctionhouse.uk.net/files/cumbria/auctions/20160602/Catalogue.pdf

 

Colin the auctioneer assured me it would be very popular, in fact he said they had so many requests for viewings they had to do block viewings 2 x weekly!

 

If for some strange reason it didn’t sell at auction I needed more exit strategies, so exit 2 would have been to do the works and sell on with an agent. This is how the numbers looked. Working backwards:

Nicely finished it should value up at 100k with the yard opened up for parking. But the real value in a slow market is the 90 day val, and that was only 80k

The costs of the works was an allowance of up to 10k for the structural work, shuttering against the basement collapse and filling in the shuttering with concrete. Steel rods through the floors and ceilings to bind the back and front walls together, they are adrift currently. Then a fairly big refurb, 25k. So a total of £35k. Then £3k finders fee to David Clouter and his mentee who brought me the deal. Then conveyancing costs x 2, insurance, utility bills and council tax, and all the other costs associated with the sale such as estate agency fees, perhaps another £4-5k. My finance was my own cash so the only cost there would be opportunity cost. Money in £65k, money out 80k so not a brilliant deal but OK if I got stuck. Exits 3 and 4 would have been to let it on an AST, or as a holiday let. It was in an excellent location for the latter.


The new buyer's purchase price was 42k + 35k works = 77k so there's no money in it. Add in + conveyancing, auctioneer premium, finance, insurance, and agent fees if they are selling and it even looks like a loss. But some small builders just buy to keep themselves in work – I know it because I was one of those guys once. Others are hobbyists following I the mode of HUTH, which is a great program for advertising auction flips by the way! Auctions are a great place to sell really crappy knackered old houses :-)


Anyway it was a very interesting deal, and I think I found the best possible outcome. I was very happy with the result for both myself and the vendor, who was delighted. 

 

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Rich G

I’m told this property originally received an offer of £2.3m in 2007 but the owners refused and asked for £3m. £2.3m would have been a fair price in 2007 but we all know what happened next. So I think the buyer had a lucky escape.

 

It also appeared on RM with an AP of £1.85m http://www.rightmove.co.uk/property-for-sale/property-35226979.html but when I found it, it was unsold at auction with a guide of just £950k. There were 8 houses on 1.5 acres and it’s quite a high value area so clearly something strange was happening…

 

yew-1.thumb.jpg.5139d9d68c910107fad86502

 

Hollis Morgan the auctioneers said they could meet me on site but couldn’t get access inside any of the properties – now this was getting interesting! The reason was HSBC had been instructed as executors of the will and were forcing the sale, but the owners were doing everything in their power to prevent it, including denying access and threatening potential buyers. In doing so they had massively reduced the value of their own property. All normal sane buyers had decided they were too much trouble and find themselves another deal. I’m not a normal sane buyer and can be really, really persistent so I kept going back to the auctioneer to press for access and after several abortive journeys, finally HSBC must have threatened something because one fine day all the unoccupied houses were unlocked. Internal inspection revealed they had all been subdivided into much smaller units let to LHA tenants. They were horrible little rabbit-warrens and maintenance had been neglected, roofs leaked and some were semi-derelict. It’s the second time I’ve seen this, portfolio landlords with so little regard for their tenants that they don’t carry out a few minor repairs that would keep the places liveable, the tenants leave, income stops, mortgages can’t be paid, massive internal damage occurs and they lose the lot. I did a quick assessment and works needed came to £228k. Sold comparables were yielding about £1,800/ sq m, but these were out of date. Also all but 2 of ours were period houses with two built in 1723 & loads of original features. So working off £2k/ sq m the GDV was £1.74m.

 

yew-2.jpg.1ae93de5320ffabb19c6991498c97eI offered the auction guide of £950k which was accepted, the auctioneer forwarded it without even asking for PoF which surprised me, but I’d been in their office so many times by then we’d already struck up a relationship so presumably they were confident I knew what I was doing.

Moving into the £1m price bracket was a big step for me and to be honest back then I lacked the confidence, so I went in with Glenn Armstrong, a JV partner with a lot more experience who made many useful suggestions and was also instrumental in getting a quick sale of my share. He arranged the finance through a private bridging company and we exchanged contracts so were committed to buy.

 

yew-3.jpg.9117ba34bc9ef713f1cf6bc556b070The next obstacle was getting the surveyor in to value the properties for the bridging company – again we made several abortive attempts where the owners said they would give access but failed to do so. We HAD to get him in because if we failed to complete we’d lose our 10% deposit + costs + the deal, so I HAD to make it happen. On the last attempt the owners had removed a security camera, presumably because following exchange we were responsible for insurance and they weren’t going to help us in any way… Which meant there were a series of break-ins making access possible to most of the properties. I met the surveyor at 2pm and with a step-ladder got him in through each of the windows. At about 4pm the two men (relatives of the owner) who lived in the one occupied house came back and there was a lot of shouting and threats, which I was prepared for and dealt with (the gumshield incident). They went inside and called the police, claiming I was trespassing and that I’d threatened them. If ever I have to deal with the police I find it best to behave as if I have every right to be there, so I explained that I’d already exchanged contracts and was responsible for insuring and securing the site, and that I couldn’t possibly have threatened them as there were 2 of them and only one of me. They agreed, said it was a civil matter and drove off.

 

yew-4.jpg.baadb2e25a097cfc24c894bd9dfecfThat wasn’t the end either as over the next few days I had death threats on my phone. I reported it to get a crime reference number but didn’t take it seriously because the caller left a voicemail and didn’t withhold his number. Googling the number led to a social club in Sunderland. A scary accent but not very professional.

Even that wasn’t the end as they then signed a statutory declaration to say they had a fixed tenancy granting them the right to live their for the rest of their lives rent free. Obviously we didn’t believe them so called their bluff, offered to complete anyway but with a retention of 50% for having to work around them. There was a lot of rubbish and animal excrement over the whole site spreading from that house so we’d have to partition it off in some way and clear the rubbish before we could proceed. It worked, perhaps the owners decided that if we were going ahead anyway they might as well have the whole amount and we got a call from the auctioneer to say they’d left.

 

yew-5.jpg.113dca9f014c2fdc740e92609b65fcTo complete the deal we had to put in just £5k as the valuation came in so far above the £950k we were paying that 70% LTV covered £945k and costs. We were buying in a SPV but the bridger insisted that both directors sign the PGs. I never sign joint PGs as they would make me jointly and severally responsible for the loan. If anything happens to the other signatory you can become solely responsible for repaying the entire loan. I don’t want that. So I had to trust Glenn and assign all my shares to him. The deal went through on a handshake with me having no security at all. You have to be very confident of your partner and your position to do this.

 

yew-6.jpg.d0ee9fa2bfa3beb8e60b852dc58998The purchase complete, I wanted to exit ASAP. Why? Well, I was absolutely delighted to have completed such a fantastic deal, but a bit daunted about what to do next. These would not sell individually as easy auction flips because they were outside Bristol, quite big houses, all on one site that also needed a lot of landscaping, kerbs laying etc which would deter retail buyers. I was clear that I didn’t want to manage 8 refurbs and a new-build project for 6-8 more houses on the vacant ¾ acre. It would potentially make a profit of £2m but would take over my life for 3 years. I wasn’t well capitalised so would be entirely dependent upon Glenn for funding, and if anything happened to him we had £1m of borrowing at 1% = £10k a month. I also wanted the time to hunt down more deals, that’s what really excites me.

 

yew-7.jpg.5fbe5507cdd71f6715b9c32799af5aThis may seem strange but until I’m quite well capitalised I’d rather crystallise the gain quickly to minimise risk. I’d rather gross a quick £250K/2 by doing a quick flip with no work, than £2m by doing major renovations a much longer hold. In terms of time spent there’s more value that way. Also far more can go wrong, the market can change, the money can get swallowed up in renovations or elsewhere, the previous owners could sabotage it if I was still involved, and it was just a lot of work refurbing houses, something I’d already been doing for 30 years. I wasn’t too bothered about letting it go because I know there’s always another deal out there and I don’t have to wring every penny out of every deal.

 

yew-8.jpg.1bf86e332f550f2276af2366bea9a5I still wanted to keep the potential building plot but I put out about the houses on my network for a quick buyer at £1.2m and one came back immediately, but he wanted some sort of creative seller-finance deal and it was all looking a bit complicated and not a quick exit. Then Glenn turned up with Edward Clynes who liked what he saw and a deal was agreed at £1.2m. I had to accept loss of control of the vacant land but negotiated a 20% overage clause on it, less than I’d wanted but I’m not grumbling. It’s the perfect investment – no money, no time, no work, only upside.

 

It suits Edward as he’s already a successful businessman in his own right, import-export and other non-property stuff. He had plenty of funds to see it through and was looking for a big project to manage and someone to work with to learn from and guide him through the renovation process and adding value. He’s since invited me over to see what he’s doing and he and Glenn are making a fantastic job of maximising the values of everything. One absolutely stunning change they’ve made to the large house on the left of the gate, just by cutting back the hedge to the south and fitting a huge set of four bi-fold doors to bring the light streaming in and reveal panoramic views over the fields. They expect to make much more than my estimated GDV of £1.74m by utilising good design and spending more than my £228k costing on works. £3.2m in fact, and that’s without the planning gain. Personally I think that’s optimistic, but I tend to underestimate GDVs as that way any surprises are good ones.

 

The real prize would be getting planning for another 6-8 units on the vacant land.

 

All the neighbours tell him they’re absolutely delighted and relieved to get rid of the previous owners and all their mess, they have a reputation for being unpleasant and threatening so I’m happy I did the right thing by removing the obstacle and enabling these houses to be brought back into good use.

 

I have permission from the people named to publish their names in this blog.

Rich G

This is a two for the price of one deal I did last year (2014).

 

It came through a professional sourcer who was having trouble shifting it, he’d heard I’d buy anything at the right price but was quite apologetic as he just couldn’t see a market for this, it was such a weird property. He thought it was partly a flat and partly a leasehold house tacked on the side with only one very large bedroom upstairs. They’d tried to sell with a traditional agent and failed. It simply wasn’t what any normal person would want. Then they dropped the price again from £150k to £130k and it looked like a lot of square footage for the money so I went to see it.

 

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It kind-of looked like 2 properties that had been joined together, a flat and a house. Talking to the owners confirmed this.

 

2-launge-showing-flat.jpeg.6164ba890b2efShe had moved into the flat. Then they’d got together as a couple and he bought the house next door. They’d made a hole in the wall between to join them together. The title deeds were confusingly drawn up including a crossover lease with the flat above, unusual for Bristol and that probably confused people. I got my solicitor to check and he confirmed they were indeed two separate properties! Wow!

 

They wanted to sell FAST, they’d already bought another house in WSM and had a lot of stress over it.

 

3-dorrwayblocked-off.jpg.420920d58915e11Back then there was still a SDLT threshold at £125k so I said I could guarantee a very quick cash sale at £125k to avoid the SDLT and they agreed. I felt very comfortable with that because the same size flat upstairs had been advertised at £145k and sold for £137k, so we were getting the house for free! Here’s the link on RM http://www.rightmove.co.uk/property-for-sale/property-41961562.html

 

5-house-kitchen.jpeg.5c662a1ec525bb82568We were supposed to get VP on completion, the last day for the auctioneer’s catalogue. But the sellers were still there! Apparently the sourcer had said they could stay an extra week after comp but had not told me to avoid jeopardising the sale. The woman seemed extremely anxious (as she had been all along) so I did my best to reassure her we wouldn’t be kicking them out, asking for a cup of tea as it’s a great way to get everyone sitting down which naturally makes people more relaxed. Also getting someone to give you something small is a way of making them value you as a person. And, I like tea! It was such a great deal I wasn’t going to make a fuss over getting VP a week late, but we missed the auction deadline so we owned the property for a month longer than was ideal.

 

8-other.jpg.9bfd270169ef3e19333737d6c6dcWhen they left all I did was spend a couple of days separating the two dwellings with a partition, and re-opening the front door to the house. That was about it, apart from getting black spray paint to mark a better layouts upstairs for 2 bedrooms, another window and a staircase with winders which take up less room. No need to actually do the work just make it easy for people to see the potential then let them do it themselves. The house wasn’t connected to any of the services either except sewerage, it’s a world of pain dealing with Transco so far better let someone else do that and throw it straight into auction.

 

9-upsairs-bath.jpeg.d094873505589262a640I got the agent who sold the flat above to market the flat. I motivated him by offering 50% extra commission if he could sell for £125k by a certain date, he thought I was his new best mate! He managed but sadly the buyer couldn’t get a mortgage so into the auction it went. I wasn’t happy about that as flats don’t sell well at auction but I needed the money for another deal. It made £105k in the room so someone got a cheap flat and I dropped £20k unnecessarily because the other deal never came about anyway. There is a learning there. Here’s the listing on RM http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=45299864&sale=51182684&country=england That’s the plasterboard partition at the back of the 2nd picture dividing off the house, and that’s my silver van in the last picture.

 

The house sold for £90,500 the flat for £105k so a total of £195,500 and gross profit of £70,500 from the £125k we paid – not bad for 2 days work. Obviously we had transaction and holding costs too. But my JV partners and I walked away with about £30k net each.

 

I drove past it recently, there’s a new window right where I drew it on the wall. The house has been extended. The flat looks like it’s been sold but there’s nothing showing up on RM just yet.

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Rich G

SUBSIDENCE (NOT!)

I love subsidence – or rather peoples’ fears about it, and I’ve done very well out of it. But when is subsidence not subsidence?

 

The asking price on this was £140k, we bought for £95K, did absolutely no work at all didn’t even go in the front door, sold for £159K.

 

1-backview.jpg.4c40452b33317ff47854e5de2It was for sale via a local estate agent but no one would buy as everyone thought it had terminal subsidence. It didn’t. One of the side-walls was peeling away because it should have had another house built up against it. All the other houses on the street were semis but for some reason this one never had the other matching semi built against it. Consequently what would have been the party wall had nothing to lean against so was moving away. Remedial works would be steel straps through the floors and ceilings to the opposite wall. Or by just taking the whole wall down and rebuilding on new foundations. It also needed a new roof and full renovation, much more than mere refurbishment.

 

2-cracks-over-door.jpg.c78512df1418f6b8dI offered £105k and at first the seller refused but I’m used to that. I don’t usually increase offers so just used the silent negotiating technique and walked away. After a few months and with no other offers they accepted, that was in early 2013. It was under probate so nothing more happened for about a year, when I got the call to say they were ready. Naturally I wanted to re-inspect the property to check condition, and the leaky roof was a lot worse. I felt sorry for the seller, he was worried the whole place was about to fall down. He practically begged me to buy it for just £95k. I answered “I’ll have to ask my business partner, it isn’t the property we agreed on” and tried not to look too eager. I’m sure I could have bought it for even less, but it was already such a give-away I didn’t have the heart to chip him any more.

 

3-door-frame-showing-deflection-of-wall.We completed in early 2014 and entered it into the June 2014 Maggs & Allen auction http://www.maggsandallen.co.uk/auctions/results-of-previous-sales.html It was guided at £95k, what we’d paid. There was strong interest due to the low guide so I felt confident we’d get £130k or so. But I made two schoolboy errors. The auction date was also the first day of the World Cup, I should have checked for coinciding events. And I allowed it to be listed as Lot 2. I’ve since realised lots 5 – 15 are better. Best to wait until the room has ‘warmed up’, but not until it starts winding down.

 

Auction day comes and I’ve arranged to meet Jonathan Stein there as we both have 2 lots in the auction. It seems very quiet and we’re concerned about that. So we split to opposite sides of the room to bid each other’s lots up to guide price, moving them on quickly. Anna Maggs the auctioneer doesn’t bat an eyelid, she sees all sorts of antics. Then Jon accidentally bids ON my guide so almost buys it!

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Except the bidding carries on… It reaches £130k and I’m starting to feel confident now, the anticipated price reached, phew! And the bidding goes on… and on… At one point Jon gestures at me in amazement but I keep a straight face, mustn’t give away that it’s my lot until it’s sold. It goes all the way up to £159K! Wow! This is EXACTLY the same house I paid £95k for not 2 months earlier.

 

The end buyer should still make a profit, spend £45K + transaction costs and it would be worth £250K easily in today’s market. But I don’t want to do the work. I love seeing what other people achieve maximising value and developing beautiful homes. It’s what I used to do every day for 30 years. But those strategies are low Return-on-Effort unless you can delegate massively. I don’t have the staff, not yet, I’m still just starting out so keeping it lean and mean.

 

5-tarpaulins.jpg.7c4ed0a4668dca2d50611c1Profit wise this runs close to the Bedminster Down Road one we sold earlier in 2014, in April, slightly less profit but as a fraction of purchase price slightly more as the numbers are smaller. Which is crazy as I bought that as a two-for-the-price-of-one deal and this was just a really crappy house.

 

Did I talk about RoE? No not Return on Expenditure, Return on Effort. The beauty of auction flips is they offer maximum RoE, much quicker than getting bogged down in planning and redeveloping, or extended refurbs. Return on Effort is more important than Return on Investment if you want to grow your business. With high RoE you have more time to chase down deals, that’s where the money is and that’s what I enjoy most. As the saying goes, you make your money when you buy not when you sell. There are many low-RoI strategies but they just look like work to me.

 

Oh yeah. Here it is for sale. http://www.rightmove.co.uk/property-for-sale/property-49655560.html

 

The BOGOF flip will be the next blog

Rich G

If you are considering investing or JVing with someone you should either know them quite well first, do some research on them, and preferably both!

 

Do you have friends or associates who know them and have done business with them already, or who can recommend them? Ask on the forum if unsure.

 

What is on the internet about them? Don’t rely on promotional literature sent to you, do a google search for their name + Beware of jumping to conclusions – I never was a mortgage broker and my middle name is not Granville!

 

Primary sources like government & police websites, court records, or the FCA and Fraud Office are most reliable. Good secondary sources like broadsheet newspapers or the BBC are usually reliable but often hastily written so occasionally get things wrong. Other tertiary sources like property forums may hold credible information but should be read with a fair degree of skepticism as it may say more about the biases and prejudices of the writer than the person being written about.

 

Ideally you should meet face to face as well as online. Ask yourself these questions

1. Do your interests align – do you both expect the same outcome from the project?

2. Do they seem trustworthy and honest?

3. Is there synergy between you? Do they have complimentary attributes that you don’t have that can fill I the gaps for you?

4. Do you get on – do you actually like them as a person?

 

Once you have all this agreed you need a JV contract. You can have this drawn up by a lawyer if you prefer, or use a template and adjust. It has to be clear, unambiguous and fair. A contract which can be shown to be unfair won’t stand up. Further, it has to accord with UK law. Statute law always trumps contract law.

 

The contract should specify such things as what each entity brings to the table, what each can expect at the end, and the likely duration. Also what should be done in the case of an over-run or a disagreement. Try to cover all possible eventualities.

It’s also wise to set out how often each party can expect to receive information and how much. Some may want to be totally armchair, others may want an update every week. Having been on both sides of this I know how frustrating it can be to put funds into someone else’s project then hear nothing for months!

 

SPECIFICALLY FOR LOANS

 

Have a contract with clear terms and a set repayment date.

 

Ideally take 1st charge on the property being bought or another property owned by the borrower. Check with Land Reg they are in the borrower’s name not a company name.

 

Another way is for the property to be bought in a SPV with shares jointly owned, or one person owning all the shares and the other taking 1st charge & a loan or JV contract with a PG (personal guarantee).

 

If other funding like bridging is also being used 1st charge may not be possible. 2nd charge may be adequate with sufficient equity and if 1st charge lender allows.

 

At Land Reg. you can also place a restriction on title to stop them selling it, and a unilateral notice. They can undo this in a month, but you will be informed to prevent it.

 

Take an unlimited personal guarantee. Get it signed with the lawyer who is doing the conveyance.

 

Be careful not to stray into regulated lending. Advertising lending below £25k is regulated and so is lending on a person’s own home. So don’t secure it with a charge on the borrower’s own home or it may be very hard to get it back.

 

Be wary of potential borrowers offering very high interest rates as it suggests desperation. These are rates above normal bridging rates 1 – 2% although for small loans below say £50k rates may be somewhat higher to cover costs.

 

This list isn’t exhaustive and not intended to constitute financial advice. Also speak to a lawyer and/ or IFA.

Rich G

FIRST AUCTION FLIP

The first auction flip deal I did was a probate house at 93 Robertson Road BS5 6LA. We completed the purchase on 19-12-2012 and completed the sale 19-03-2013.

It had a GDV of about £195k and went in the estate agent’s window at £160k. It needed a fairly serious refurb and had wobbly walls and sloping floors so that was far too high. By the time I viewed they had reduced that to £140k but the wobbly walls were still scaring buyers off. I offered £115k and they laughed, so I just said, “OK get back to me when you can’t sell it”. 3 months later, they did.

Every property I’ve ever bought has been as a result of bad marketing in some form. It was just a case of putting it in front of a different market. Buyers in estate agents are retail customers. They’ll buy easy refurbs, which means kitchen bathroom possible rewire possible D/G possible C/H redec floor coverings garden tidy. Not much. They are mostly domestic amateur renovators. Anything a bit challenging and they run a mile. So mention ‘subsidence’ and they are gone.

2013-01-26 15.08.10There was quite a bit of subsidence as can be seen from the angle of the curtains in the picture, but the walls were thick and after 30+ years as a builder I could tell that it was mostly historical, not ongoing. This isn’t usually a problem. The old thin glass was still there above some of the crooked door frames. This meant that they had lozenged early then rhomboid shaped glass had been fitted and nothing had changed much since then. Old glass is thinner and more irregular. Modern window glass is never less than 4mm thick. Also it seemed to be a problem with the building itself, typical Victorian shallow foundations, not the underlying ground. This is crucial. It’s usually possible to rectify a problem with the building but the underlying ground would be far more intractable and uneconomical outside of a few locations with GDV in excess of £10,000/ square metre. Therefore I always want a mining survey even if we have to take insurance on the other searches for speed. And a structural engineer’s report NOT a surveyor’s report. This only costs about £250+ VAT but is belt-and-braces to confirm what I already know, and if we are both mistaken I can claim on his PI.

2013-01-26 15.07.00I spent 2 days clearing out a lot of mess to create free movement between rooms make it look bigger. I also took all the doors off as they made the wonky door frames look worse. That’s all I did. Then I put it in the local auction with the best % record for sales in the room and set the guide as low as possible, the same as I paid so £115k. This is to make it look cheap in the auctioneer’s catalogue, create a ‘honeypot effect’, get dozens of people through the door to view and create competition in the room. The often higher you place the guide, the lower it will sell for, or it won’t sell at all. It has to look like it could be really cheap.

Auctioneers will typically allow you to set the reserve 10% higher so that meant a reserve of £125k which would have just covered our transaction and holding costs and we’d have broken even. So no risk except my time. I was very tense on the night, but the house made £141K in the room, so £1,000 more than they could have paid for it at the estate agent even before haggling! I was delighted!

2013-01-26 15.07.45So how is this possible? How could I buy a house through an agent, do almost no work, then sell it at auction for a lot more?

Auction buyers are different. They are looking for a wreck and a challenge to do up. They are:

1. Amateur renovators who watch and believe Homes Under The Hammer and think that because it’s in auction it must be cheap. They don’t need to make a profit and they don’t cost their own time. They would still have to pay transaction costs anyway, so they can pay more.

2. Buy to let people looking for a deal. The conventional wisdom is it needs to be a wreck to be a deal. The conventional wisdom is wrong.

3. Small builders who just want a project to keep in work and don’t necessarily need to make a profit either. I used to be one of those!

There can be a lot of competition for really scabby houses, the scabbier the better. I’ve seen people pay £125k for a house with a GDV of £140k and needing £45k work.

The best ones to flip are 2-3 bed terraces and semis, the market for these is huge. The reason is they are box-standard family homes, affordable and ubiquitous in every town. Done up, they will always sell if priced just a bit cheaper than similar houses nearby. So there is no fear of getting stuck with one.

4+ beds are harder to sell as the market is more limited and they are more a matter of individual taste. Until the right person walks through the door, you are stuck with it. Reducing the price won’t necessarily solve the problem, these are not ‘vanilla properties’ so someone has to fall in love with it to buy.

Flats can be OK as flips if they are a decent size, but are harder to sell at auction and go for a lot less money. If they aren’t family homes for domestic buyers they won’t appeal to the amateur renovators. If they are investors only that limits the market, and that reduces your return.

So if you want to buy a deal at auction, buy a nice house or a large house, or a good-sized flat.

If you want to buy a deal at an agent, buy a really scabby 2-3 bed needing full renovation, with title issues, no access to view or failed planning apps that you can re-configure. Don’t bother with easy £10-£15K refurbs, they fly out the door and there’s no money in them.

 

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