The importance of professional advice

By Camilla Dell

Investors in the stock market, or in assets such as art or wine, rarely hesitate to seek professional advice, so it is hard to understand why there are investors in the property market who fail to seek proper guidance – especially as it is likely to be one of the biggest financial transactions of their lifetime. The complexity of the London market in particular should not be underestimated, and there are certain pitfalls which homebuyers, particularly those from overseas, can avoid by employing a reputable search agent.

Firstly, there are subtleties in value that only those ‘in the know’ can understand. Value can fluctuate significantly from one area to the next, from one floor to another, or from one side of the street to the other, and independent search agents will not only be able to advise on these differences, but will also use honed negotiation skills to ensure properties are secured for the best possible price – at Black Brick so far this year we have saved our clients an average of 5% off asking prices. It is important to bear in mind that estate agents in the UK act on behalf of the sellers, so without seeking a source of impartial advice elsewhere, buyers have little way of knowing whether they are getting a good deal, or making a sound investment.

A common mistake that buyers make is relying on just one estate agent. In order to see a good selection of what’s on the market, it is important to cast the net wide and consider local as well as big name agents. The problem is that there are circa 80 agents covering the borough of Kensington & Chelsea alone, and it is unlikely buyers have the time or inclination to research all of these agents and their instructions, especially if based overseas. This is where search agents come into their own, selecting only the best and most relevant properties, and ultimately saving their clients a substantial amount of time and effort.

One thing that cannot be overestimated is the importance of building rapport with estate agents. For each new instruction, estate agents will contact those buyers that they consider to be most serious, and in the best financial position, first. Reputable search agents will often be their first port of call, as they are known to represent buyers who have already made a serious commitment to acquiring property.

Off-market sales are also an increasing phenomenon in London, with many properties being sold long before they hit the open market. Estate agents tend to favour some buyers over others so unless you have the time to build a good relationship with the agent, you can end up missing out on a significant amount of opportunities. Additionally, search agents will often be able to source properties completely off market – 12% of properties purchased for Black Brick clients this year have been off market.

Lastly, the process of putting in an offer can be a complex affair, especially for those unfamiliar with the market, and knowing the tricks of the trade can make or break a deal. When bidding with competition, the way in which buyers present themselves to agents and vendors can play a big part. A search agent will build up a buyer profile to show them in their best possible light, whilst also advising on the best team of experts – surveyors, valuers, lawyers and solicitors – in order to ensure the process progresses smoothly.

The London market is not only difficult to navigate, it is also extremely competitive. A buying agent will make the property search a much easier, more rewarding, and quicker process, whether looking for a home or investment opportunity, and will also give the buyer a competitive edge once the right property has been located. As with any unfamiliar market, the processes and protocols can vary hugely across the globe, and London is even unique from the rest of the UK, so taking professional advice is essential if you want to get it right.

Investment diversity

By Camilla Dell

Something we have all learned over the last two years, and most recently with the election result, is that nothing is ever certain. The mantra ‘don’t put all your eggs in one basket’ is now perhaps more relevant than ever, particularly where money matters are concerned. Property investment is no exception, and I, for one, certainly see diversity as the key to success in this sector.

At Black Brick, we have always believed that diversity is essential when it comes to investing in property, whether on a domestic or international level. Diversity minimises the inherent risk factor by spreading the impact of any change in demand for a particular property type or location. It also reduces the effect of void periods on income as it is unlikely all an investor’s properties will be empty at any one time. To this end, for instance, three 2-bed flats in different locations are a better option than one house of the same value. The key is to remember that, no matter how tempting returns may appear, it is never advisable to pile everything into one specific location or property-type.

The European debt crisis, which started in Greece, has already focussed international investors’ minds on the advantages of diversified investment portfolios, and the need for ‘safe havens’ is more prevalent than ever. Whilst property as an asset class seems to be moving higher up the agenda for investors, the unique prime central London market also offers the ‘safe’ long-term investment that is a necessity in any portfolio. As a result, buyers from troubled European economies such as Greece are currently looking to buy in London quite fervently.

The principles practiced by overseas investors – namely diversity and the importance of ‘safe havens’ – can be applied domestically as well as internationally. We often advise clients looking for portfolios in London to not only buy in established prime areas such as Mayfair or Knightsbridge, where values remain relatively stable and rental demand is high, but to consider secondary locations where the long term yields can be much higher. It’s all about balance, and acquiring a property in a prime area of London is very much the safe haven that we feel every portfolio should have.

As secondary locations, we would suggest perhaps Maida Vale and Shepherds Bush, which offer good value compared to Notting Hill and Marylebone. Also West Hampstead and Queens Park are a good alternative to the more established St Johns Wood and Hampstead. These areas share the same benefits as their more expensive neighbours, including good transport links, and trendy shops and bars, but are generally 20% – 30% cheaper.

In terms of type you can’t go far wrong with two-bedroom flats, which tend to be the best rental market properties. It goes without saying that they should be in good condition, and located in a safe neighbourhood with good amenities – lower ground floor and top floor flats without lift access should be avoided. New builds with porters, parking and gyms will always rent well in central London but may not appreciate in value as well as a period property, so you might want to consider including both types in your portfolio.

Put simply, choosing where and what to buy for investment involves identifying demand. This is what makes London a great place for investment as not only is there sustained demand from foreigners looking to take advantage of our good education system, but there will always be demand from those from other UK locations, as well as from overseas, who want or need a base in one of the world’s great cultural and business capitals.

New build v period property

By Camilla Dell

What makes a safer investment – new build v period property?

The question of what makes the best kind of investment is one that we are regularly asked by our clients – both domestic and overseas. In general our clients are inclined to favour new build on the basis that this is a style they are both familiar and comfortable with. They like the fact that everything is new and is therefore likely to be low maintenance and are sometimes also inclined to buy off plan, on the basis that prices could well increase as the development nears completion.

Proceed with care…

We are not averse to investing in new build property but always caution our clients to proceed with care. Statistics show that over the years and the changing property markets, it is the older, period style properties which have appreciated most in value. This is often due to the critical issue of location. Many new build developments, specifically in London, are located in less sought after areas such as Canary Wharf and the south side of the River Thames. When the market deteriorates, these developments traditionally get hit worse because of their location and the high density of units.

Location is the key to successful investment…

At Black Brick, we tend to advise our clients to buy for investment in prime central London locations such as Chelsea, Kensington, Hyde Park and Regent’s Park. Whilst it is accepted that you will get less space for your money, it is also true that the potential for capital appreciation is higher and there tends to me more regular and constant tenant demand for properties in these popular addresses. The infrastructure is so established with a wide choice of cafes, restaurants, cinemas and galleries…as well as good schools and transport links and plenty of green space.

Rental Yields…

Rental returns can often suffer in new build developments where there is a high density of units available at any one time which in turn forces rents to come down. If we look back over the years, it is the prime London post codes that have appreciated most in value when the market booms and even in more troubled times, there is less depreciation in values. At Imperial Wharf – a new build riverside development in Fulham consisting of a range of studio, one, two, three and four bedroom apartments and penthouses set within 10—acres of landscaped parkland, courtyards and gardens, there was a great deal of activity specifically from overseas investors during the boom period of 07/08. At that time, prices were achieving £1000 per sq foot but in the past 12 months, prices have dropped by 20% and unlike in prime central London , where prices are now just 4% below peak levels, have shown little or no signs of recovery. This is a good example of the problems which arrive where you have a combination of high density new build in less central locations.

Of course there have been some very real success stories in the world of new build, notably at The Knightsbridge Apartments where properties continue to sell at a premium but we believe this is largely because all the ingredients are in place. Namely quality of product and crucially… location.

Location Location Location…

This will always be the key to successful property investment. Everything from post code to the best side of the road or square is relevant and these ‘small’ details can often be missed. Taking advice from an independent buying agent will ensure you are well informed and fully understand the investment you are about to make.

Sealed bids

Camilla Dell, MD of property consultants Black Brick Property Solutions, gives her advice for buyers dealing with sealed bids.

Despite recent excitement about price rises, the truth is that this seeming ‘improvement’ in the market is a symptom of a distinct lack of supply. On a day-to-day basis we are seeing the result of this unbalanced ratio between the number of buyers and the amount of housing stock available – one of which is the noted increase in sealed bid situations.

Sealed bids have certainly become commonplace again, particularly in prime areas of London and in the £850,000 to £2.5 million price range, where equity rich domestic and international buyers are battling against one another to secure the best properties in the capital. At Black Brick we are not only able to advise our clients on how best to deal with these situations, but also add credence and advantage to their bids just by being on board. A buyer who has employed a buying agent will always be considered a serious buyer, as they have already made an investment towards their property search.

However, for bidders with or without an advisor in tow, there are certain things they can do to increase the chance of their offer being accepted.

It’s important to remember that the winners of sealed bids are not always the highest bidders. Sellers will not only consider the price, but will look at a whole host of other factors that demonstrate the quality of the buyer – the ability to proceed with the transaction, the availability of and dependence on finance, for example.

Making the bid

It is up to the bidder to develop an attractive buyer profile and these are my top tips for bidders:

  • A supporting letter from a respected conveyancy solicitor, written and submitted on your behalf, will present you as professional and serious. Details on your ability to proceed with the sale, for example whether you are a cash buyer or have finance in place, whether you have sold your current home or are bound by any rental contracts, should be included.
  • Provide proof that bank finance is already in place if you need it to make the purchase. A supporting letter from the bank confirming this will help to show that you are a serious buyer, and are ready to proceed with the purchase.
  • To show you are committed and able to proceed quickly, offer to put down an immediate non-refundable deposit if your bid is successful.
  • Appeal carefully on a personal level. If possible find out about the vendor and add details in your bid that might appeal to them and suggest common ground. A succinct statement on why you want to buy the property will add a human element.

How much?

The matter of how much a buyer should bid is a tricky one and one that buyers can spend sleepless nights worrying about. The most important thing is to remember that there is only one chance to secure the property. Therefore, unless the bidder is a developer, the true value of the property as ‘bricks & mortar’ can be difficult to determine, and it becomes a matter of how much you are willing to pay for the property.

Bidders should therefore put their absolute best offer forward, offering the maximum price that they are willing to pay, feel comfortable with, and can afford.

A neat trick is to try to ascertain from the estate agent how many other people are involved in the bid, and what sorts of buyers they are. Developers, for instance, will only bid what they feel the property is worth and will rarely go beyond that in order to maintain their profit margins. First time buyers may be in good position to move, but may be very dependent on bank finance. Cash buyers will be at an advantage often despite the price they are offering, so those bidders reliant on finance might like to raise their offer if they can, to help counteract this advantage.

Sealed bids are a stressful process for buyers, and as they are not legally binding, there is still the chance that the winning bidder can be gazumped. The faster that contracts can be exchanged and completed the better.