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  • Property-a-holics

    Off plan through Investment Co

    Hi all

    What a very fine forum this is.
    I know I'll be able to learn a lot from the collective here!

    I'm trying to decide what to do and would be very grateful for opinions:

    I've been speaking to a well known property investment (portfolio building) company (think 3+1 plan) who have presented me with an investment.
    This is a one bedroom flat off plan in a development in Wembley NW London.
    The developers price is apparently 395k (I kid you not) and the investment company have secured 6 units at a 12% discount (so around 347k).

    I can see a load of money has been spent (and is continuing to be spent) on regeneration of this area, and the fundamentals are all sound (close to transport, jobs, amenities etc).

    Only thing is, I think the price is SO far above the going rate for the area that even factoring in that it's a lovely smart new building with concierge, private cinema, gym (high service charges?) etc it still seems over priced to me.

    I called three local estate agents who all said they thought the prices were unrealistic.
    But then I suppose they probably would say so as I might then end up buying something else through them.

    I know that these will get snapped up (they had a batch of 8 a couple of weeks ago and they all went) so someone thinks they're a good idea.

    But it also bothers me that the investment company charge their finders fee (2.5%) not on the price you pay, but on the un-discounted developers price.

    They're holding one unit for me but only until tomorrow and I think I'm leaning towards letting this one go.

    But would be really grateful for any of your thoughts on this.

    Thanks so much!
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    Hi Jon,

    Welcome to Property Tribes and thank you for the kind comment.

    We have another recent discussion which might help you make up your mind.

    London new build - price premium?

    I just did a quick search on Rightmove for one bed flats in Wembley and the most expensive was £350K, which suggests to me that the price you would be paying is actually not discounted at all. So you will be paying an intro fee for a market value deal.

    It's a dangerous way to start with an investment by over-paying imho.

    Something that sounds very similar - off plan with concierge and cinema - is listed on Rightmove at £330K. See >>. here.

    That makes your deal sound very expensive - more like Islington prices - and the service charges are likely to be very high as well.

    Don't be fooled by sales speak that they all sold - it's meaningless if they've sold to people who have not done enough due diligence and have paid over the odds! Smile

    It's also worth bearing in mind that, when these flats come to completion, there is, in my opinion, a strong chance that valuers will down value them, meaning purchasers will have to put in a lot more money to complete.

    I would look in the area for a second hand new build flat or possibly house that is more realistically priced.

    See also - How to BTL in London

    Hope that helps?
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    Hi Jon,

    Last year, here in Hong Kong, I saw extensive and very expensive newspaper ads extolling the virtues of an off-plan luxury development in Wembley, and frankly a native of that area would barely have identified with the picture painted of the locale. Granted, it may not be the same build, but if it was marketed in Asia then investors here probably account for that first batch of sales you learned of. Given that new kennels in Battersea Dogs Home would sell readily here, it's a highly misleading indicator of sentiment.

    Heed Vanessa's advice!

    Glenn
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    Vanessa, thank you so much for your very thorough and generous reply.
    I had spotted that one at Cedar house for 330k.
    There are others like it too. I gather they're all re-assignments from investors who got in early when the prices were lower.

    But your words make a lot of sense and support what my instinct was telling me anyway.
    I'm going to walk away from this one, and feel good about it too.

    Right now, my focus is on reading and learning as much as I can.
    I have three BTLs in London with very low LTVs so will definitely be in a position to start expanding the portfolio (after a little refinancing) but I want to do it in a considered careful way and not make stupid mistakes.

    We are all slightly less smart than we think we are. Some of us are lucky enough to know that.Smile

    Thanks again for your input and advice. I really am hugely grateful.

    Glenn

    Thank you so much for your input too.
    As you'll see from my reply to Vanessa above, I shall totally be heeding her kind advice.

    There is a lot of money going into Wembley and the area will certainly be desirable.
    I can see genuine demand for these properties in the future.
    However, for me, it's just about the numbers.
    If the deal was 300k I'd probably go for it.
    I also think it's pretty unsettling that the finders fee is based on the developers "list price'.
    Not liking that.

    Thanks so much again.
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    Hi Jon,

    Glad to have helped.

    If the flat I linked to is a re-sale from an earlier investor, then what it sells for IS the market value of those properties. This sale will down-value everything else on that development, regardless of what people have paid for off-plan.

    There is no reason on earth why a second hand flat (that is not even built yet) is £70K less than a "new" one.

    All those re-sales will determine the market value as they will provide the comparables for valuation on completion.

    The one at £330K is a MUCH better buy than the ones you are being sold, but even then, I think it is over-priced.

    When it comes to valuation, the valuer will value the property at the market value, or the purchase price - whichever is the lower.

    Therefore, people buying over-priced off-plan flats like these may well have a nasty shock on completion and end up having to put in much bigger deposits.

    I am glad you have walked away. You have likely saved yourself thousands of pounds.
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    Thanks again Vanessa.
    I think I was heading in the direction of walking away anyway but needed a little push.
    Much obliged!

    Apparently taking on one of those assignments would involve having to pay back the original investor their deposit on top of the asking price which would push up the actual cost but not the valuation.
    These really are shark infested waters eh!
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    Hi Jon,

    We spoken on the phone and I thought I would just note a couple of key points from the conversation for the benefit of the crowd.

    My advice bearing in mind your budget is to initially look for a 2-storey house close to your local station that you could do up, add bedrooms to and rent out to professionals as a high quality HMO.

    That way you should get the benefit of great cashflow and some good capital growth from a Commuter London location (Commuter London forecast to outperform for the next few years as young professionals, first time buyers and investors are priced out of more central locations).

    But to design the property so that you can tweak it back to be a classic family home (and provide it dressed beautifully with Vacant Possession) before you sell it - if you ever sell it.

    You could then look to speculate a bit more on capital growth either by investing in off-plan (bearing in mind you might have to complete on some/all of them) and/or investing in someone else's development project taking care to ensure you have a solid return and reasonable protection/recourse against the risk of it going wrong (development can be a risky game).

    IMHO a portfolio designed to provide a balance of income and capital gain is generally the best route. And ultimately if you develop/acquire some to sell/trade and some to hold then you can progressively grow your portfolio, your net assets & your net income without necessarily building up an ever increasing debt pile.

    Kind regards,


    Wink Martin
    www.inspiredassets.com
    www.inspiredhomes.uk.com
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    Hi Jon,

    I am interested as to why you have considered the off plan route?

    Is this something that you did with your other buy to let's or is this a change in strategy.

    I don't really like new builds as in five years time the shine you pay a premium for wears off and there are now newer properties to compete with, but that's just me.
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    Thank you Martin and Lamsnakes for your input here.

    Martin, your suggestion sounds very sensible. I'm actually looking into the feasibility of this at the moment.

    Lamsnakes, I hadn't considered off-plan until recently. It was suggested as a good strategy by the investment company (read property club) that I was talking to.
    I've now pretty much decided that it's not the route for me.

    I can see how some people do well from this by taking advantage of the developer's price increase strategy (whereby the developer will increase unit prices regularly throughout the lifetime of the build process). But as you rightly point out, one is paying a premium for shiny and new, and also (1) the list prices (in this instance anyway) look VERY inflated and make absolutely no sense in the context of local comparables, and (2) the finder's fee is based on the list price (not the actual purchase price) and as such is similarly inflated in my view.
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