Month: July 2019

In previous posts I’d written about the importance of deal flow. In other words to create a consistent flow of property opportunities to consider so that we don’t get in a position of trying to force fit one deal. [if you missed that one I’ll attach a link at the bottom of this post]

 

So, once you have your deal flow working, the next thing of course is to analyse the deals you select for your shortlist. Much of our desk based time these days is doing exactly this and with our focus being on the acquisition of mixed use buildings (ie commercial on the ground floor with opportunity to create flats with the space above) we need to take the time to break down the deal into its potential component parts, before piecing it all together to assess the full building/site.

 

Here’s a brief overview (no particular order and not going into massive detail) of the kind of analysis process we are going through with each short- listed opportunity.

 

ANALYSING THE COMMERCIAL PARTS

(Note the properties we prioritise are the ones in locations where we have some information about a brand looking to expand there or we have some information about a commercial tenant interested in leasing the vacant property).

 

#1 Overview of the area ie to get a sense of area population, state of the high street (ie occupancy of shop fronts, make up of nationals, independents etc)

 

#2 Break down top line figures on a spreadsheet 

-floor areas ie unit 1 is 57 SQM and 615 SQFT etc

-rateable value (you’ll find that here www.saa.gov.uk for Scotland and here https://www.gov.uk/correct-your-business-rates for England

-a range for market rent/SQFT in the area (we get that from commercial agents/surveyors)

-a range for vacant possession value in the area/SQFT 

 

#3 Calculate conservative end value 

-using annual market rent for your size of unit, we start by divide that annual rent figure by .10 (representing a conservative 10% yield) to arrive at a projected end value (we also speak to a couple of commercial surveyors to understand the range of investment yields they have used for valuations for bank lending in the area)

-calculate the money out at refinance ie at 70% LTV (loan to value) 

-gauge the monthly net income after finance interest

-derive a figure you would be happy to pay for the commercial part of the building ie working backwards from the amount that could be drawn down using commercial finance

-take into account all acquisition costs ie legals, commercial stamp duty/LBTT plus any remedial works to create a decent shell for incoming tenant

 

ANALYSING THE UPPER PARTS

#1 On the same spreadsheet list out the number of flats you can create with the upstairs space ie 1 x 1 bed, 3 x 2 bed etc and the associated floor space

#2 Assign an end value to your proposed flats

-we typically start with building up a list of comparables using rightmove sold prices in the area, and also properties currently for sale

-compare the size and finish of the properties (HINT if the floor space isn’t listed on rightmove you will find it on the EPC register)

-Next step is to call at least 2 – 3 local selling agents to get their take on end values to add into your spreadsheet

-Now you have a low to high range of end GDV (gross development value) for the flats you can calculate the amount of borrowing that can be drawn down at a 75% LTV. This figure will help inform how much you could allocate to the purchase and conversion of these upper parts

 

#3 Calculate your conversion costs to create and finish the flats

-this is the part where you will need to call upon your trusty builder in your power team

-unless you have a description of works you’re not going to get a line by line accurate estimate but you can at least collect some ballpark figures and layer in some contingency

 

#4 Calculate your cash flow opportunities from the flats

-a lot of this will likely be informed by your local knowledge of operating single lets/HMOs/SA in the area but you will definitely want to build out cashflow projections of the various options onto your spreadsheet

-speak to 2-3 letting agents to seek both demand and market rent insights

-speak to SA agents/operators seek both demand and booking revenue insights

 

#5 Piece all the information together and consider all the inputs/outputs and exit options

-You will want to look at key figures like: 

-total money required to buy and create desired end options

-total money out from refinance

-equity created

-monthly cash flow

-overall return on capital employed

-You’ll want to compare the pros and cons of all your possible exit options (and you will want multiple exit options) ie to create higher value and sell on, to refinance and cashflow or to do a hybrid of both

-This of course will be heavily informed by your knowledge/research at the demand end of whatever it is you are looking to create. That’s where you really want to be starting from, the source of demand and end user/audience you are going to be serving. 

 

There you have it, a simplified overview of what we’ve been working on.

 

I’m curious, for those who read my posts, do you prefer reading most about tactics like above, or other topics related to property investing like personal development, mindset, productivity, or something else?

 

Link to post titled “THE IMPORTANCE OF DEAL FLOW FOR INVESTORS” 

http://adaeroproperty.com/the-importance-of-deal-flow-for-property-investors/

It’s probably fair to say that most people in amongst these property communities are here to learn, to grow, to become more, to become the kind of property investor they aspire to be.

As such we will be investing time and attention into learning – to reading, listening, watching webinars, attending live events and courses etc.

Over the summer holidays in particular we can probably allocate more time to reading, whether it be with a physical book or with audible.

So to that end it’s important that we don’t just consume information, and that we don’t just know it, but rather we use it and grow because of it. Wouldn’t you agree?

Some people have the belief that you are either a quick learner or you’re not, but that’s not true. Research has proven that learners are made, not born. So, here are 8 tips I curated from Darren Hardy that will massively improve your learning capacity:

#1 BECOME COMFORTABLE WITH THE STRUGGLE OF LEARNING
We can all recognise that in modern society technology spoils us with instant answers at our fingertips, so can be that anything demanding us to think hard almost seems like an offence to the brain, like having to calculate yield and return percentages when we have a calculator on our phone.

When we are learning something new the brain has to work hard to literally be ‘re-wired’ and create new neurotransmitters (chemical messengers). It’s your brains equivalent of going to the gym to workout, which is what can make learning feel like mental hard work. But that hard work is what makes the muscle grow and pay dividends. So the message here is to accept that mental pain, and remember the old adage no pain, no gain.

#2 BECOME MORE CURIOUS
Our traditional schooling system told us what to learn and what questions to answer in order to be ‘right’ and achieve a good grade. As opposed to discovering the new or different by going off-piste from the syllabus. Hardy encourages us to break free from that way of thinking by questioning everything, challenging assumptions and challenging ourselves to ask better questions. This practice will gradually lead to learning more, not only that but identifying opportunities to solve problems and create value.

#3 HAVE A GOAL FOR YOUR LEARNING
What exactly are you trying to learn? Because we are bombarded with information and sensory input overload through all we see and hear, our brain has to deal with that data in some way. That’s the role of our RAS filter (Reticular Activating System) and without a focus the brain will filter most things out so our heads don’t metaphorically explode with information. We have to proactively tell our RAS filter what we want to learn so it will find it for you, show it to you and store it for you. When we give our brain a learning goal, it will go to work for you and massively enhance your ability to find what you’re looking for and learn.

#4 LEARN IN FOCUSED SESSIONS
Studies have shown that learning in concentrated sessions of 30-90 minutes is optimal – anything less is not enough to hit deep focus and bed in what you’re learning, anything more is too much to take in at one time. I’ve personally adopted Darren Hardy’s practice of 30 mins learning (on the subject matter I want to grow knowledge or capability in at the time) as part of my morning routine, before I get started on the day’s business.

#5 SPACED REPETITION
In other words learning in chunks spaced out but with regular frequency, rather than cramming it all into one day. For example 5 sessions of 60 mins per day over the week is better than 5 hours packed into one day. The spacing gives your brain time to digest what it’s taken in and for the neurotransmitters to reset ready for the next session.

#6 GO DEEP VS WIDE
It’s much better to go deep on one subject than shallow on a wide variety of disconnected subjects. If we go too wide we are in danger of ‘over learning’ ie taking on board ‘not useful now’ information that will overwhelm you. That will actually hinder the learning process and your retention.

#7 REFLECT, REVISIT AND REVIEW TO IMPROVE
If we really want to learn something it requires us to revisit and review it several times. Repeating information over periods of time sends a stronger signal to the brain to retain it for swift recall. And just like creating a new path through long grass, you need to travel it over and over until a clear pathway is created and the ground has been well trodden.

#8 TEACH SOMEONE ELSE
Darren reminds us that, ‘you don’t really know something unless you can explain it convincely to someone else’. When I hear new wisdom nuggets that I value, I’m regularly sharing them with my wife and kids before anyone else. It may bore them or inspire them but if they don’t understand then I know I need to go back and revisit. Getting what you think you know out of your mouth and into the head of someone else is a whole different level of knowing. This is often referred to as the protege effect. [HINT- I’ve just revealed a little selfish reason for writing this blog post :)]

So there you have the 8 step formula for optimising your learning this summer, and hopefully well beyond.

What other learning tips do you take advantage of?

You’ve been pushing hard the last few months working towards your big 2019 goals – now that summer is in full swing are you taking some time out or are you worried about taking time away in case you fall behind?

Now I’m sure that many reading this don’t need to be told to take a holiday, but how many of you take that holiday and then struggle to actually switch off from your property business?

It’s all too easy for us to fall into the mode of trying to ‘outwork’ the next guy or gal and keep pushing through with grit and a string of late nights at the desk. This is OK at times but the longer term result is willpower depletion, motivation depletion and reduction in overall effectiveness.

This is where summer holidays can really come to the rescue.

[As a quick bit of back context it’s important to understand (I’m sure many of you do) that our mental energy and willpower is a like a tank of finite resource that gradually depletes over the course of the day/week/month.

Our ability to solve problems is directly related to our mental energy. So if our mental energy and willpower is depleted, you can guess what happens to our problem solving ability!  Specifically, our ability and strength in these 4 key areas dramatically reduces:

-thought control -i.e. your ability to avoid rabbit holes, bright shiny objects

-emotional control – i.e. your ability to control your mood and choose positive thinking

-impulse control- i.e. your ability to resist temptations

-performance control – i.e. your ability to engage in focused problem solving, perseverance]

So now you know a bit more of the neuroscience behind what’s going on with the grey matter when we push hard on the work front, what can be done about it on holiday?

Here’s the ONE-TWO punch suggestion I got from my business psychologist mentor and have been using for several summers:

Punch #1: Come up with bold ideas over the summer – this might be ideas to do with how you find that first JV partner, how to double your SA portfolio in the next 6 months, or introduce a new revenue stream idea. Here’s some ideas to fuel the creative and strategic thinking that you struggle to do when your head is in the ‘weeds’ of the day to day business:

• Read (holidays are a great time to give yourself permission to read for way longer than usual, so use the time to fill your head with the right “ingredients”)
• Have conversations with interesting people (you never know who you’ll meet through travel, events, dinners, sport, picnics etc so look for opportunities to tap into smart people, be open to alternative expertise outside of your industry, you may not have to look any further than a family member at a BBQ!)
• Be open to tangential connections (mull things over, give yourself permission to think creatively and laterally- new holiday environments are great for helping with this)
• PLAY! (literally, feed your mind the problem, go have fun being where you are and fully engaged in the activity (I find tennis and snowboarding are great for this, and in the summer water sports are great too:)) then leave it alone for your subconscious to get to work on coming up with some solutions.)

Punch #2: How to replenish your energy tank and build back up the discipline muscle:

• Sleep (holiday is the perfect time to let your body wake up naturally in the morning)
• Get your diet right (yes enjoy your food and drink but use the luxury of time during the holidays to choose and prepare healthy meals/snacks that don’t peak and trough your blood sugar like processed foods and refined sugars)
• Don’t make big decisions (i.e. put on hold big decision making that may stress you out until you have replenished the tank)
• Spend time on “Implementation Intentions” (if/then planning – these are v powerful but a whole post in themselves, if curious learn more here http://99u.com/articles/7248/how-to-use-if-then-planning-to-achieve-any-goal or here http://www.developgoodhabits.com/if-then-plan/ )
• Transmute R&R into motivation (if you truly let yourself indulge in some downtime, you’ll probably find you naturally become motivated to get stuck into some meaty work again- this really works!)
• Give your Inner child gratification (this is a big one. In other words, if you’ve been pushing through and working hard for weeks it means you’ve probably been suppressing your inner child i.e. that part of you that just wants to go outside and play. This uses up tremendous willpower. So, let your inner child out, kids are great for helping you with this so get out to some waterslides or the beach with your kids and say yes to playing with them and letting your own inner child out.

I’m personally fascinated with this behavioural science/human performance stuff so I do hope it’s useful to others out there.

Until next week, happy holidays, and do share what you do to hit the reset button.