The five 2-bedroom terraced properties pictured, sold on one deed as one auction lot.
This property was valued at £238,500 in November 2010 at the bottom of the recession. A drive-by viewing shows that some repairs are now needed. The roofline is damaged in the centre of the terrace and the buildings are full of clutter. The properties were let to poor quality tenants by a poor quality landlord (I obtained this from local knowledge) and were occupied, the last until 10 months prior. The tenants “trashed†the properties. The landlords, had been an LLP (and for whatever additional reasons) went to the wall and the receivers had it. The properties went into auction.
In my experience, when a string of properties sells together at an auction there is a bargain to pick up. I had noted these five from sale boards within my close investment area. They were reasonably centrally located, only a mile or so from Swansea City Centre, I noted the sale with interest and put some investigatory work into it. In the event, a trio of investors I put together didn’t buy it. But I have no hesitation in sharing below with the reader a case example of the degree of work I will often put in for a client.
By my spot values it stacked up like this: Present value “done up†as they are (i.e. without improvements to uplift them) is £70K for each unit, times five = £350,000. I felt the particular and especial beauty of this deal is that there is present and available, Welsh Government 0% loan funding of up to £25,000 to refurbish potentially each of these five units. Therefore, this funding could immediately add value to the buyer’s spend to the tune of up to an £125K refurbishment fund.
The auction guide price was set at a low £125K.
“Measure twice, cut once†– quick calculation: taking advantage of the Welsh Government loan, there should be something in the region of 100% appreciation on capital here, and a potential, conservative £25,000 p.a. rental return. Assuming an initial cash outlay of £175K (my estimate of closer to what the property should sell at) that approaches a 15% yield! A better opportunity than most!
Further considerations are that there would be costs down the line to separate the properties onto 5 Land Registrations from the present single registration, but this is negligible. When I obtained the legal pack there was some contingent, unquantified risk presented, arising from some information absent from the pack (the receivers, as sometimes , being insufficiently assiduous) which we made a set-aside for and there remained good money in the deal.
In fact I had returned from one of my regular trips to England and realised with only a week to go that these properties were to be sold as one lot, not as five!
I have begun providing strategy training to a couple of newer investors, one referred to me and one self-referred (I have now begun doing more of this). I asked these two investors whether they have cash funds at present to put into what looks like a very good prospect. They were short, so I made up their number with an experienced investor who was prepared to make up the shortfall. In the outcome it was the experienced investor who called the shots, and determined our bid ceiling (which he chose to set low).
Then prior to the auction I produced for the trio significant reports: (1.) an eight page desk report. The data confirmed my spot value estimates . (2.) a builder’s report, similarly of eight pages. (3.) I obtained the legal pack ahead of the time that it was put into the public domain auction details (this was done by the auctioneers only just-in-time as it often is!) and the pack was solicitor-evaluated. And (4.) I liased with the grants office confirming the suitability of these properties for, and the availability of and the timescale of release of the loan funding for them. These things were supported by my background knowledge of the area, my view of it’s slight upcoming status, and produced my briefing to the client group. In fact, one unit wasn’t in too poor a condition and could be “cleaned up, done up and let†being my builder’s view. I further established that a rental of £425-£450/month could be charged for each unit in this fairly good rental-demand area (I in fact know this from my own database). My workings used the £425 figure.
It happened that we didn’t get the property, yet it was a good exercise for my trainees. My “experienced†investor presided and pulled out before where the auction hammer fell at just short of the £170K mark; the price crept up to a £169,500 sale in a fair-to-middling, but not too bullish room. I like to be present at auction to gauge the mood in the room, and if required, I’ll act as live proxy for a client (this is a point of contact superior to making a telephone bid, for example). In the present case, you win some, you lose some. You walk away from it and another deal will come.
So, that is what I do. If you’d like me to evaluate an auction property you’ve spotted in the area, please consult me. Or if you’d like to engage me on a remit of checking the South Wales catalogues for you (by necessity for cash buyers only, of course) please enquire. I believe the example above offered better numbers than I’ve seen for some while. Certainly, prepared and careful purchase at auction turns up bargains time-and-time again, and for that reason I do enjoy auctions so much!
