Cheap Flat in Weston super Mare

Cheap Flat in Weston super Mare

We almost didn’t buy this one as it didn’t initially make my criteria of 30%+ below a conservative valuation, and minimum 12% yield. These criteria set a high bar, as I was 100% reliant on OPM (other people’s money), with all my own money tied up in existing investments. Therefore any deals had to be extremely good and virtually guarantee a big profit to any investors. Trouble was, they also meant I’d only bought one property for almost a year.

Things changed with a new investor and the idea that we’d make more money with more deals, even if each deal was less profitable individually. I was reluctant because more marginal deals are more risky with less ‘meat’ as a cushion if things go awry. Also, if we lost money on the first deal, we probably wouldn’t do business again. If we did nine profitable deals, then one went bad, we probably would. Hence I wanted the first deal to be very high profit and low risk. I don’t believe in the notion that high-profit = high risk and low profit = low risk. The way I do business it’s the other way round.

Outside decor a bit careworn

Anyway this was a one-bed ground-floor flat in Weston super Mare with a market value of £60 – £65K when complete, needing about £8K spending on layout changes and refurb. So conservatively £52K as it stood. It had been bought unseen as an auction repo for £56K by a trader who’d made a bad mistake. Buying blind is dangerous unless done in bulk and you can afford to play the numbers. I saw it posted on http://propertytribes.ning.com/forum by my friend Ant Lyons of YPN, who had already negotiated it down to £42K. It was unmortgageable having been owned less than 6 months, and in any case would be hard to mortgage with a purchase price of less than £50K. This meant Ant had changed his mind, so Ken, another friend, took it and negotiated it down to £41K. He asked me to look at it for him, and it became clear it had a number of other issues:

No management co as the director had absconded with funds.

Absent freeholder.

No linked alarm system (a legal requirement, it was in a block of 4 with one front door, and over three floors).

Dry rot damage

Dry rot.

With all this to contend with, Ken decided he didn’t want it either and with his blessing I took over. I wasn’t overly concerned about the absent freeholder or lack of management co as we are cash purchasers so didn’t need a mortgage straight away. So I neg’d it down to £39K for the dry rot, based on the estimates of two independent specialist contractors.

Then we investigated titles and there was no parking at the front in spite of appearances.

Dry-rot damaged plaster and wood hidden under the floor by previous owner – very naughty!

Further, the conversion to flats was granted planning in 1988. Flats in multiple blocks like this, non-compliant with 1991 building regs, are classified as a 257 HMO (house in multiple occupation) as defined in section 257 of the Housing Act 2004.

http://www.lacors.gov.uk/lacors/ContentDetails.aspx?id=16977

and

http://www.tmbc.gov.uk/assets/housing/Landlords_Guide_to_the_Management_of_Section_257_HMOs.pdf

They need a linked alarm system in every flat, which is expensive to install, and impossible without the cooperation of all flat owners. So we further reduced our offer to £34k, agreed at £36,500, and completed within 4 days. The vendor had lost £20K by buying blind, and said on the phone he “hoped he would never hear of Locking Road, Weston S M ever again!”

I’ll write about my first encounter with the owner of the other flats next week.

0 Comments

Leave a Reply