Tuesday 20 June 2017
Is Buying Through Auction the Way Forward for Your Next Investment?
If you follow me on social media you'll probably already know that I was the winning bidder at a nice property in Crystal Palace yesterday. Instantly you may think "but you're a Clapham investor?" This is true, but as you will know from other project I have on the go one must look slightly outside of their core area to snap up a bargain or two.
The flat I put my hand in the air for is a short lease flat. Again, you may baulk at the thought of purchasing a leasehold with any less than 80 years remaining. There is, however, a little thing called the Leasehold Reform, Housing and Urban Development Act 1993. This little piece of legislation allows the leaseholder to serve notice on the freeholder that they would like to purchase a lease extension. Something the freeholder can then not refuse...! It's the legal equivalent of the gun to the head; quite contrary to olden days where freeholders would dig their heels in and either not sell an extension or ask for silly money.
Naturally nothing is free in life... This notice, under Section 43 (C)(2) allows the leaseholder to "specify the premium which the tenant proposes to pay in respect of the grant of a new lease." In layman's terms, make the freeholder an offer. Now this offer can be accepted or rejected; if it is rejected then a leasehold valuer will come in and value it and so forth, and you must pay both parties' legal fees regardless. BUT... fact remains that you could have a very amenable freeholder and they'd be happy to sell you a lease extension in return for a box of chocolates and a dozen roses... You never know! Worst case scenario you will have it valued and pay market rate for the lease extension. Nothing ventured, nothing gained.
So short leases are one way to outsmart the competition at an auction. More so than a straightforward refurbishment project, because everyone can do that and then it's a race to the bottom. When you start using "tricks of the trade" you will find there is a bit more scope for profit. Less bidders, and more sophisticated ones that demand higher margins...
If you are interested in learning more about auctions keep reading: My good friend Piotr Rusinek actually buys properties at auction for a living and he's putting on a day of auction learning this weekend! The day will include: how it's done, making savings on reading auction legal packs, using the EIGroup (the RightMove of the auction world) and an introduction to Jay Howard, Auction Manager at Auction House London! so click this link if you are interested in reading more about it and to book yourself on.
As always, if you are keen to start investing, or start doing something a bit more interesting with your current portfolio... Start the conversation on email. I'd love to meet you in person of course at this month's Clapham Property Meet, so do come along. We have a great talk on Planning and Lease options scheduled. Click here for tickets and more info.