In Post 4 – Monetising – we were projecting ahead to once a property is refurbed and ready, advocating that it’s important to start monetising it asap.
This post is how to do that.
Cash Exit 1 & 2
We have referred to working with the end in mind so it goes without saying that this important stage will have been worked out before.
CASH EXIT 1
Cash Exit 1 is all about monetising the asset quickly and for this, our strategy of choice is serviced accommodation.
As the refurb approached completion focus transitioned to these key areas of setting up for business, including:
- Furnishing for the end audience.
- Capturing quality photos for marketing (ideally professional)
- Nightly pricing across the year
- Creating listings on OTAs (online travel agents)
- Setting up the operations for running the property end to end from booking,
- taking payment,
- welcome packs,
- check-ins,
- end of stay cleans,
- and then ready to go again
- Maintenance management
- Revenue management each month and the accounting
Here is how the flat ended up after the refurb:
Because we start with the end in mind and de-risk the investment, the diligence at the front has informed what audience we are primarily serving and therefore many of the answers to the points above.
[HINT – we have tried both avenues of setting up properties- i.e. on one hand throwing up an SA unit and reacting to who comes in through booking platforms, and on the other hand identifying the guest demand first and then serving that specifically with the properties we bring to market. We know which we’d rather have].
SA doesn’t have to be the only cashflow exit 1, it is just our preferred option.
The whole point is that we want to have options.
Other investors may wish to simply single let via an agent, or even do the SA thing using an SA managing agent.
We like managing ourselves as it feeds into a later stage exit.
CASH EXIT 2
So this brings me neatly into Cash Exit 2 for the medium term and beyond.
Here we need to look at the money making operations and future options.
Looking beyond the immediate term, some investors may be thinking – like us – about developing their own in house expertise in running and managing serviced accommodation.
Moving from one to many SA units may be on the cards and if so it will involve refining the operations, putting systems in place, potentially hiring part-time, permanent or freelance team members.
An alternative medium to longer term option might be selling the refurbished property after a period of cashflow.
By doing this, the synergy of your monthly net profit from cash exit 1, combined with the capital gain of selling the property (after your refurb uplift), would for sure make a case for ‘The Whole being Greater than the Sum of its Parts’.
The investor may not want to sell, in fact, some people hate selling property, but you do need to know that if you needed to sell at a price with a satisfactory profit, any one of your properties could do that for you.
It’s such an empowering mind-shift – even if you aren’t planning to sell, only invest in properties that give multiple exits.
The lifeblood of any property business that wants to scale is positive cash flow and big chunks of cash.
Now you might go down the route where you sell one property for every 3 you buy, and that in theory can work, but it’s a bit too rigid for us, because how do you know/control which one will sell for profit?
Ideally, you keep growing and retaining your property portfolio because it is all working for you nicely.
When do people really need to sell a property?
When they need chunks of cash.
An investor may have a deal opportunity come up with they don’t want to miss out on but simply don’t have enough cash to get involved.
That is when they’d want to pick one/some of their properties, know they are going to sell for a profit, sell them and raise the capital to progress with bigger deals.
So yes, the payoff is a nice cash lump sum, but really, the underlying benefit is the peace of mind knowing that one can release a cash lump sum if and when they need it.
Creating cash to have options.
The point we are making is, you don’t have to sell them, you just have to know that you could if you needed to or indeed wanted to.
So, what Chris and I now do is only acquire properties where we set ourselves up with the options – either selling because it’s a great deal for another investor/a homebuyer or we can cashflow it ourselves (or even both).
And where this came from is that for months and months, even after we’d done lots of training, if we can be honest, we were just too scared to buy something because we weren’t sure whether it would sell for enough or not.
So we then naturally started looking for properties that we could either be turned into SA or that we could flip for a massive amount- the latter is what we couldn’t find unless we added even more of a premium somewhere – and THAT’s our system.
We force the value by how we refurb the property AND how we cash flow it.
In the next post we’ll summarise the key points and show you how to put together a mini action plan.