Over time we have grown to appreciate the importance of having a pipeline of deals and to have patience not to force things. Our mentor Paul has reminded us of this on several occasions.
And the last couple of weeks have been a very real reminder of the up and down journey to source and secure a satisfactory property deal.
This week we had to draw the pragmatic conclusion that a particular development site for 11 apartments was not going to be viable for us to proceed with. When you invest so much time into the diligence of a deal, you like the area, and even get to know the vendor it can be a difficult decision to say no and walk away. Difficult as it is to fight the temptation, there is no point making decisions based on the most optimistic of outcomes for a site. That wouldn’t be safe for you as the developer or the JV investor putting the money into the deal. It has to present a good enough exit from a worst case scenario and for this particular deal, it sadly didn’t.
On another hopeful looking deal -a shop and upper scenario – it’s also been a bit of a rollercoaster. The property has been on and off the market the last few weeks, an initial low offer from us has been rejected and now we’ve learned that the vendor may look to retain it and do a deal with a family member instead. We will have one last attempt at that one and then will have to move on.
Whilst it would be nice if everything that makes our shortlist for serious diligence could come off, it’s just not realistic. However, we do have 3 other opportunities going through the deep analysis stage and we’re confident that we will uncover more in the months to come too.
So, what’s the point in sharing all of this? People only want to hear about amazing deals coming off and success stories, right? Well, not always. It’s great to share news of deals coming off but from my experience people also want to hear about the deals that don’t come off and the lessons along the way to the ones that do.
The below is by no means an exhaustive list, but here are seven key points that Chris and I keep front of mind along the property investing journey:
#1: You can’t be too emotionally attached to any one deal and you certainly don’t want to stay down and disappointed for too long when a deal doesn’t go your way (that could hold you back from seeing the next opportunity)
#2: The antidote for deal disappointment is to have multiple deals to consider, hence the importance of DEAL FLOW
#3: Having a selection of shortlisted deals to consider will prevent you from becoming too emotionally invested in any one deal. With only one deal on the table it can bring about a sense of ‘this has to work’ and that can lead to force fitting, irrational thinking and accepting unnecessary risk.
#4: A decision to proceed with a deal can’t be based solely on the most optimistic outcome playing out. It’s wise to bottom out multiple exits and to see a way to be satisfied with a conservative/secondary outcome.
#5: Deal flow comes when you can be clear about the end audience you are serving, be clear on the kind of properties/sites that meet your range of criteria, and you know the input activity required to uncover the kind of deals you seek.
#6: Getting to a no decision on a potential deal should be framed as a mini victory in itself – it should serve to refine your analysis skills, validate what you really want from a deal and get you a step closer to the good deals.
#7: Keep a record of the deals you have shortlisted and analysed because they may just come back round and present an opportunity to acquire cheaper/or create more value than you previously expected. [Our current prime contender on our development shortlist is a site we first identified over 18 months ago].
In closing, it hasn’t been all setbacks, this week has been shared with some great successes e.g. 1) we picked up the keys for the completed purchase of packaged SA we are doing for an investor client and we already have corporate booking for 1 month+ ready to check in next week; and 2) our latest R2R SA went live and secured 2 weeks of summer holiday bookings within a few days.
What have been your highs, lows and lessons on the property deal front recently?