Month: April 2018

In Part 1 of this blog series we shared how for a period of time we were a little stuck and didn’t buy anything for about 2 years. However we’ve transitioned into the kind of investors who can de-risk the deal and buy with confidence. We introduced the 3 key areas we cover off to help do this and in this post I’ll run through an overview of that first main area – The buying.

This phase is made up of several steps which we’ve distilled below. It’s by no means an exhaustive list  but to serves as a reference point for getting closer to being that confident, de-risked investor.

Key areas to go through and put in place:

AREA & SOURCING

It might sound simple but the whole approach here is about thinking with end in mind and working back from those desired exits. Compare that with purely considering property that ‘looks cheap’ and you get a very different outcome. The first property I bought in 2007 was because it ‘looked cheap’. OK I had to cut my teeth on something but knowing what I know I wouldn’t buy it again.

Briefly on area – Chris and I both live about 45 mins from our nearest major city so have had the opportunity to consider the spectrum of city centre property right out to semi rural villages. The key things we have been looking for is to find the balance point between enough reduction in the price of bricks and mortar from city centre yet with enough surrounding demand and infrastructure to support a few exits. I’ll come back to exits in Part 4 but for us a major focus is serviced accommodation. We prefer outskirts and secondary towns to achieve this balance.

Briefly on sourcing – you could consider engaging sourcers, do the leaflet dropping thing and try to find the motivated sellers etc. The most straightforward, and the one that provides enough stock is of course open market property being sold by agents.

ANALYSIS AND VIEWINGS

Thinking with the end in mind you want to be asking yourself, is this to sell on straight away, to hold for cash flow and refinance, or maybe a hybrid to cash flow to recoup some costs for a period and then sell to release all your funds along with the upside of a light refurb?

We aim to minimise speculative viewing by having done all the desk analysis at home in advance. A simple spreadsheet with some formulas to work out rough total costs against various exits is all that it takes. Assessing as many reasonable comparables as you can is key to your understanding too ie previous sold prices in the area, what else is currently for sale, and getting that down to sales price per square metre where possible.  Go to viewings prepped with your own checklist of what you’re looking for so you can then do a more accurate costing of refurb works. We have found viewings to be a great opportunity to build rapport with agents and to tap into their local knowledge of what is underpriced, what’s in demand, reasonable end sales values etc.

FINANCING AND BUYING ENTITY

This will clearly be based on personal circumstances but it’s fair to say that investors have multiple options to consider to purchase a property (particularly if it’s under £200K):

-100% your own cash

-enough of your cash to put down a deposit

-JV loan

-bridging (whilst convenient, very expensive)

-unsecured business loans

Due to harsh tax changes over recent years there will be fewer investors buying property in their personal name these days. Yes you will have capital gains allowance when you sell (the first one at least, there’s a bit more to it than that), however limited companies or LLP’s are becoming more the investor norm.

WHO – KEY PEOPLE IN YOUR POWER TEAM

Builder – this is huge in being able to buy with confidence when starting out. Being able to walk round a viewing with a trusted tradesperson is significant – find a friendly builder or even JV with one.

Solicitor – good to start a relationship with a property solicitor rather than a generalist because as you grow into more complex deals you will need that professional support – all adds to buying with confidence.

Broker – as per the point about which entity you buy with, more often than not you will need a commercial broker.

JV partners – we have found the easiest place to start is friends and family who like the idea and security of property investing but don’t have the time or education to do it. Working outwards from there can become more natural with a few deals under the belt, getting out to property events/courses and talking about what you’re doing.

Estate Agents – start and build the relationship, treat them well and do what you say you will. This is easier when you choose to commit to an area.

Of course, over the years our feel for our areas has gone from nothing to something based on having viewed and analysed many properties. However what we’ve found is that once we committed to a few selected postcodes it becomes much easier to do the analysis and arrive at decisions.

In the next post we’ll look at some of the main considerations for adding value through the refurb.

CLICK HERE TO GO TO NEXT POST

 

Very recently Chris and I had shared that we bought a tired 3 bed property to refurb and flip. What we didn’t explicitly share is that we did so with total conviction and confidence about the end to end process and our exits. Reflecting on the last couple of years, we only wish we had the same confidence starting out. When we first formed our business partnership just over 2 years ago the plan was to buy and flip, and source packaged BTL deals for investors. How could we go wrong when we had my previous 8+ years of single let and HMO investing experience combined with Chris’ 15+ years in the building and development trade.

   

Here’s Chris (pic1) and me (pic 2) at our recent acquisition.

The thing is, we are both fairly risk averse people and when investing with our own, and potential investor money, we didn’t want to gamble on the hope of making money thanks to a fairly strong market and the hype that can come with our Scottish closed bid buying system. With that in mind, the solution had to be to buy below market value and then force the value with Chris’ building and joinery skills. (In hindsight we would have got away with doing that based on how the market has been since 2015, but hindsight is 20:20 isn’t it?). The reality however was that whilst we did put multiple offers in, there was no securing a property for below market value in the kind of areas we were focusing on. As educated property investors we couldn’t accept paying much more than home report value for a property, to then be constrained to only one possible outcome to really make any money ie sell it in a bidding war. The result, we didn’t buy anything for 2 years. Instead, we diverted focus to starting and scaling a R2R SA portfolio.

The SA portfolio has been and continues to be great for us. However, the aim was always to build up our own asset base and work towards the dual revenue strategy of a monthly cashflowing business (ie the SA portfolio) AND a source of periodic cash lump injections (ie from creating value and selling).

Perhaps we were too cautious previously, but it’s only reasonable for a property investor to want to de-risk a deal and have a few options to exit, right? It was just incredibly frustrating that our buying options (or at least the ones we could see) looked like roughly like this:

1. Force the value through refurb, but the only way to make more than 10% would be based on the ’hope’ that buyers get drawn into bidding a good bit over home report value.
2. If can’t sell hold for a while and let with cash tied up and unexciting returns in the single let market, combined with punitive legislation on the horizon.
3. Instead of turnaround flips consider a small site for build to sell where we essentially build in the 20%+ developer margin that one would hope however this would come with significant finance costs, development risk and the one exit of having to sell at the right price to cash out. The challenge we have found with many of the potential sites in Scotland that we have analysed is that the sales price per SQM is often not that much higher than the build cost per SQM. The result being that once you add the purchase of the land the deal either doesn’t stack or it doesn’t give enough margin to keep you safe.

 

So what’s so different now? Where has the confidence come from? A friend was asking about our journey the other day and it’s only when you get an external question like this that you stop for a moment and try to take a 30,000 foot view of your own situation. It was a very thought provoking question because on a day by day basis Chris and I have our heads in the detail of incremental progress, moving the property business forwards. This question made us take a step back and connect the dots in a more simplified overview.

What it boils down to are 3 key things or areas that we have gradually been able to refine and de-risk. Those 3 overarching areas lie in:

#1 the buying

#2 the converting and refurbing

#3 how we optimise the ways to monetise the finished product

Addressing these key areas effectively is what’s allowing us to de-risk deals and buy with confidence. In documenting our processes, we thought it would be a good exercise both for our own systemising, and for those out there getting started, if we elaborated a little on each main area over the next few posts.

 

Read the next post on buying here

My previous post covered an introduction to the Eisenhower Matrix as a framework to help conquer overwhelm and get important things done. As promised I wanted to post a follow up with a little more explanation and some pointers for implementing, if you’re interested.

Here’s a simplified explanation of the four quadrants:

1. Important and Urgent – for example a big direct booking that needs some fine tuning to get over the line, a hot prospect client/investor/property can meet you/be viewed at short notice
2. Important but Not Urgent  – doing exercise, business development long term planning, working on a project that will make your business scalable [many aspects of your big annual goals will sit in this quadrant]
3. Not Important but Urgent – various interruptions that break concentration, breaking your concentration to check every email and text the second you hear a “ping”, dealing with the person shouting the loudest
4. Not Important and Not Urgent – activities that just waste time, procrastination, going off on a web surfing tangent when researching properties, excess time checking the latest news, facebook updates

Needless to say, the first priority goes to the tasks that are both Important and Urgent. However as much as possible, the proactive person aims to spend most of their time in the Important but Not Urgent quadrant. These are the activities that can generate big results for you. [These are called Quadrant 2 activities-I like to challenge myself, and peers in mastermind groups, on how much time we are carving out for Quadrant 2 activities].

As the famous Eisenhower quote goes:

“What is important is seldom urgent and what is urgent is seldom important.”

Without being mindful to prioritise effectively, a property entrepreneur can very quickly fall into the trap of rushing to deal with all the Urgent tasks (including the Urgent and Not Important) while the Important but Not Urgent tasks get pushed down the list.

After dealing with your Urgent and Important tasks, your second priority should always be to invest time on the Important tasks that are Not Urgent. Only after some time in quadrant 2 should you move onto the urgent but not important tasks.

As for things in the 4th quadrant, well you really want to start dropping these. This is an opportunity to create more time for the important things in your day.

 

Building this into your life

Like all good habits, this takes a period of intentionally phasing it in. However with a little effort, the practice of consciously filtering your tasks and incoming distractions based on their importance, will result in you becoming more productive as you do less of the Not Important things.

Plan ahead and start with the tasks that are important. Mastering this practice will give you a powerful advantage and a feeling of control in all areas you choose to apply it.

Now, because I know that life and business can throw all sorts at us, here’s an extra little hint that I learned from my accountability coach – schedule in a daily “chaos hour” to your diary. Use this time to finish off loose ends that originated from the Urgent and Important things cropping up earlier in the day. If you’ve had a good day with no major interruptions then use this time for more Important but not Urgent activities.

Last week I wrote about reflecting on where you stand on your Q1 goals. With the Easter Holidays in full swing (or at any time of year for that matter) it can be a real challenge to feel like we are moving the ball forwards on our big property goals.

In our serviced accommodation business the daily operational demands fluctuate in volume but can often feel like we have to be focused purely on reactive tasks. In other words reacting to all of the day’s demands as they arise, such as incoming booking requests, check-ins, email, snail mail, incoming calls, interruptions, cleaner/maintenance conversations etc.

This modus operandi of best laid plans dissolving to stop/start execution and lots of reaction can lead to that common feeling of stress and overwhelm. I’m guessing everyone can relate to finishing a day’s work with a long list of outstanding to-do’s and a feeling of anxiety, that “I’ve got too much to do!” feeling.

For us running our SA business and Chris also running a large residential extension it’s so key for us to carve out regular time for the strategic and proactive things. One of those big proactive things for us right now is the 3 bedroom flat we’ve recently bought that we will transform with a full refurb and monetise via our existing SA model. Of course we want to monetise it quickly, but no one is screaming at is to do it. There’s no squeaky wheel as it’s all proactive stuff.

Chris and I were chatting with some friends this week about this balance of managing reactive and proactive tasks and it reminded me of the Eisenhower box. I discovered it several years ago and using the framework to plan my days has been hugely beneficial.

Everyone has 176 hours in their week, the major difference is how we choose to spend them. Choose being the operative word. Yes, you have a choice to re-frame your day and the way you operate.

Introducing The Eisenhower Box

As the name implies, this concept was originally credited to US President Dwight D. Eisenhower. In deciding how to prioritise his time across tasks, it is said he would ask himself two questions. First, is the task important? Second, is it urgent? Of course you will have to define your own meaning of important.

 

 

 

Using this framework we can categorise each of our tasks and projects into one of these four quadrants within a few minutes. Taking a proactive approach means we focus on the tasks that sit in the Important but Not Urgent quadrant.

In the past when I had found myself slipping into reactive modus operandi the feelings of stress and overwhelm creeping in felt horrible. That’s why I have found this matrix to be so powerful in re-framing the day or week with priority and focus. Even if it is just a 60-90 minute focus session in the morning (with the phone off) dedicated to a proactive project then incremental progress is achieved and I and I can feel good at the end of the day. So for example, these sessions can be blocked out for Chris and I to project plan the refurb to SA for our latest property.

There will always be those fires to put out and certain time sensitive tasks but you’ll be surprised at how these reduce when you work in a proactive manner.

 

[Image credit: Tools Hero]