Monday, 9 February 2015

A tale of two neighbouring mansion flats, separated only by £800,000.

Either I just turned down one of the best opportunities of my short and not exactly glittering career as a 'doer-upper'. Or I narrowly missed a bit of a financial disaster.

The trouble is, I'll probably never know which of these is true.

It all started two weeks ago on a tour of potential new projects.

We'd turned up at one flat only to quickly realise that, although an interesting property, it offered no potential to turn a profit.

The disappointed agent soon worked out what we were searching for and said he had a 'doer-upper' just round the corner; an unmodernised mansion flat where the owner was prepared to do a deal.

It was in a 1930s block, so not pretty from the outside. But the common parts were smart, there were liveried porters manning the gates, private car parks and some effort at gardens.

Inside, the apartment was exactly what a 'mansion' flat should be.

A wide,very solid front door, a spacious hall, floor to ceiling windows, 4 bedrooms and 1700 sq ft of communally heated space.

All it needed was a fairly substantial makeover to turn it into a truly wonderful flat.

If it had been in Knightsbridge or Chelsea or Mayfair we'd have been looking at a £4m - £5m property. But we weren't.

We were in that no-man's land between Kensington High Street and Hammersmith. Sometimes called West Ken, or maybe Baron's Court, or even Kensington Olympia.

It's a peculiar, and often forgotten area, perhaps wrongly defined by the appalling nature of the North End Road - a strip of ugliness that reminds me of a desolate northern town where every shop is either boarded up or so down-at-heel you aren't sure if it's in fact still open.

Turn off the northern end of this road, however, and you immediately find yourself in relatively smart, wide streets of mansion flats. Some of which wouldn't look out of place in SW1.

It's important to have an immediate sense of the potential in any prospective property. I actually need to like it; not just see it as a financial transaction. And in this department the flat scored highly.

But this wasn't entirely my money I was thinking of investing. Indeed, it wasn't any of my money!

So the numbers had to work as powerfully as the emotional pull.

Again, on the face of it, these looked pretty good.

It transpired that the next door flat, which is identical in size and configuration, had been completely renovated and is now back on the market at a staggering £650,000 more than the apartment we were looking at. There couldn't be a more exact comparable.

By the time we'd negotiated the asking price down by £150k, this gap increased to a whopping £800,000.

At this point it looked as though we were sitting on an incredible opportunity. The seller had agreed our offer, the money to buy was largely in place, I'd even had my builders take a quick look and give me a ball-park makeover quote.

I went to bed that night relishing the thought of getting stuck in to a new project. But when I re-booted the laptop at 5am the next morning a nagging concern had taken the edge of any excitement.

I spent the next two hours checking and re-checking the sold and asking prices of all other flats in the area. Especially those in this particular block.

None of them had achieved (or even asked) anything like the per sq ft value being demanded for the neighbouring flat.

Even allowing for its superficially lavish refurb, there seemed no logic as to why one flat in the whole area was asking so much more than any other.

We'd already done this research once, before making an offer. But then we'd had a conversation with the agent for the 'expensive' flat and had been swayed by his well argued optimism. He even seemed to have a buyer about to make a very decent offer.

But the more I looked at the situation, the more implausible the price gap seemed to get.

Either this whole area was due a revaluation upwards, or this particular agent was trying it on.

The truth is probably a blur of both of these.

Given its relatively central and very convenient location, this area is definitely undervalued. (If this part of North End Road had a Waitrose, prices would be up before you could say "decaf extra hot skinny latte.")

Most properties are marketed by one smallish local agent who plays safe in terms of valuations, whereas the agent marketing the more expensive flat is a 'global' high-end network used to selling to less price conscious international buyers.

One is probably marginally undervaluing the area, the other is slightly hyping it.

So, where did that leave me?

Well, somewhere rather less comfortable slap bang in the middle.

If we couldn't get near the higher valuation, then the new higher SDLT rates, financing costs, refurb, legals and sales agent costs would mean the whole exercise was riskier and much, much tighter.

In which case, I'm out. (As any self-respecting Dragon would say.)

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