The Man Who Bought A Flat Without Seeing It.
Following on from last fortnight’s blog, a bit of background:
We’d been hoping to buy a top floor flat very cheap (£30K, MV £70 – £75K when finished but needing some work), because no one else could get in to view. It’s a long story but basically the estate agent lost the keys to their own Sitex steel door, so we’d got in, bought the other flats, and put our own Sitex door on. The Agent refused to share the cost, so we’d refused to let them in!
The repossessing bank changed agent, who found a buyer almost immediately, offering £41K. They were close to exchange when we realised what was happening. Presumably the first agent hadn’t passed on our offer for £25K so they didn’t tell us. Also I wasn’t convinced the offer was real, not a ploy to get viewings without paying towards the door. The buyers of the basement flat then offered £43,500 and clearly soon there wouldn’t be much of a deal for anyone. Surprisingly the seller refused as they were so close to exchange!
So, four days ago I finally met the man who beat me to the deal – by buying blind! I’ve never met anyone who’s done that before. He’d paid £41K, with absolutely no idea what was inside. All the utility connections had been stolen for scrap, and needed reconnecting through the lower flats, which he doesn’t own. Squatters had got in through the roof and not replaced the tiles properly, so there was water damage to ceilings, as well as kitchen and shower units stolen…
The estate agent told us the buyer didn’t want to pay towards the security door ‘or anything else’, or to speak to us after we’d left contact details. I was apprehensive he’d be a slumlord or just very awkward. But I also suspected the agent was being untruthful, wanting to keep power by preventing direct communication.
So when he loped up the steps and energetically offered his hand with a nervous smile, and introduced himself as John, I felt reassured. He felt apprehensive too. The agent had lied to him and hadn’t told him we’d offered keys if they paid towards the door. He was worried he’d need a court order for the keys!
He’s a bit naïve and inexperienced but basically a decent bloke who was desperate to buy and took a big chance. He got a good price and will probably make a decent profit. When they started bidding up the price I stepped back. I like near-certainty of a big profit, with minimal risk, so £41K was near the limit of what I’d pay. I think prices of cheap properties in cheap areas will slide this year, and it needs more work than the other flats. But he was overjoyed and said it wasn’t as bad as he expected! He was talking of fitting an expensive kitchen and engineered wood floors, spending £20K plus, as the agent had told him it was an up-and-coming area and worth £85 – £110K!!! All lies of course, but he didn’t know how to access Land Registry data and had believed them! I told him he’d never get his money back if he turned it into a luxury flat in that area, and to do it nicely but cheaply for less than half his £20K.
As a small investor I certainly don’t recommend buying blind, unless the four walls and site alone are worth significantly more than the price. It could have been ruinous for John if the place had been a shell. Bigger investors who can afford to play the numbers game could make it work. They’d need to work out the average renovation cost of properties bought blind, and subtracted that from the offer price. Then if they did enough blind deals they should average a profit, even if they lost money on some deals. I’m not in a position to do that just yet so have to be a lot more cautious.