Adaero Property

This week I received a handy newsletter from our accountant summarising the key announcements from the Budget which will affect individuals and small business owners. I can’t take any credit for compiling this, that all goes to First Base Accountants, but I’m delighted to be able to pick out and share the most relevant points for people in property.

#1 Personal Tax Allowance to Rise to £12,500 One Year Earlier than Originally Announced – it will be applicable from 6th April 2019.

#2 The increase in the basic rate threshold will increase to £50,000 from next April has also been brought forward by a year. [Note this increase applies to non-savings and non-dividend income in England, Wales and Northern Ireland and to Savings and Dividend income throughout the UK. For those of us in Scotland we have to wait until 12th December to hear the update on Scottish rates.]

#3 Capital Gains Tax and Principal Private Residence (PPR) Relief

Where a main or only residence has been kept and let for a period before selling, CGT is due on the proportion of the profit or gain which relates to the period when the property was a let property, but it is not due on the period of time the property was the only or main residence.

The final period of ownership is always deemed to be part of the PPR calculation to allow for a period of time when the property might be empty, for example, whilst arranging for a sale. This period has been falling from its original 36 months, down to 18 months and Budget 2018 announced that from April 2020 the period will be further reduced to only 9 months.

#4 The Return of Allowances for Expenditure on Commercial Buildings.

For all those interested in commercial property, you’ll appreciate this one –

A new Structures and Buildings Allowance (SBA) will be immediately available on the eligible construction costs of new commercial structures and buildings.

The allowance is intended to give tax relief over a period of time for the construction costs of buildings intended for commercial use, for the costs of improvement of existing structures and buildings including the cost of converting existing premises for use in a qualifying activity. If the structure or building is of mixed use i.e. it has some residential element then the relief will be apportioned accordingly.

The relief will be limited to the original construction or renovation costs over a fixed period of 50 years at a rate of 2% per year. This will be granted regardless of changes in ownership.

#5 Capital Allowances – Temporary Increase In Annual Investment Allowance increase

The maximum amount of annual investment allowance has been set at £200,000 per legal entity since 2016.

Legislation will be introduced in Finance Bill 2018 to temporarily increase the AIA limit to £1,000,000 for 2 years years from January 2019 until the end of December 2020, before it reverts to £200,000. This was counteracted by a reduction in the yearly WDA (Writing Down Allowance) of integral feature from 8% pa to 6% pa from 1st April 2019

#6 Business Rates for the High St

The Business Rates for Shops, Pubs, Restaurants and Cafes will be cut by one third if their rateable value is below £51,000. It is estimated that will be up to 90% of all High Street retail properties. This cut will be for 2 years from April 2019 – a much needed help to encourage commercial tenants back into failing high streets and good news for commercial property investors in regards to increasing chances of filling your units.

#7 A Push to Electric Vehicles for Business

In order to encourage the use of electric vehicles for businesses the Budget 2018 gives 100% allowances for the expenditure incurred by businesses on the installation of electric charge point equipment.

Last week I shared my notes and lessons from a humble multi-millionaire I’d had the privilege to meet and speak to. That proved to be one of the most popular posts I’ve shared. Lessons #2 and #3 from him were about learning to frame your argument better and learning how to sell.

With those lessons still fresh on everyone’s mind who read the post, I thought you’d all appreciate this relevant follow up on the fundamentals of selling.

Whether property investors realise it or not, selling plays an integral part in many more aspects than first meets the eye. The ability to position your case and draw conversations to mutually beneficial conclusions features in nearly every stage of a property deal. For example, many people in these communities are getting involved in rent-to-rent for serviced accommodation. In this situation, you will be selling from beginning to end, from securing a property with a landlord or agent, to various aspects of setting up your operational power team (you’ll be selling the benefits of working with you), and of course the ongoing activity of building up your direct booking revenue.

Recently I listened to an interview with top sales trainer and author of High Trust Selling, Todd Duncan. That interview really got me thinking about the relevant take-aways for property people and I felt compelled to share some of the key insights.

So, to help you learn something new or remind you of something you knew but can now use, I’ve captured the fundamentals of selling and summarised the 7 habits as they relate to property investors.

Lets start with the fundamentals

Todd Duncan opened the interview looking at what changes have affected the way businesses sell over the years, in particular he cited changes in technology and social media. One thing however that definitely has not changed are the fundamentals of selling.

The fundamentals of selling that Duncan refers to are as follows:

1. Acquiring customers strategically
2. Optimising that customer’s experience
3. Retaining that customer
4. Cultivating the relationship with that customer
5. Multiplying the repeat and referral business from that customer

With the backdrop of these fundamentals laid out, Duncan then went on to tell us about how ‘successful sales outcomes originate from great habits’.

What are the habits that successful salespeople deploy daily that can accelerate anyone’s sales success…including property investors?

Duncan preaches that “If you want to make more money, you have to do more of what makes money.” Here I’ll outline the key habits he touched on and then take a quick look at how each pertains to the Property Investor.

1. Successful sales people sell most of the day. So if you want to increase sales, move the needle on how much time is spent selling.

OK, whilst these habits were discussed with the pure sales person in mind, what can still be transferred to the realm of property? Unless you have a pure business development role, you certainly would not expect to be selling to prospective clients for most of your day. That said, this first habit might challenge you to re-assess how you are spending each day and ensure that an appropriate amount of time is focused on the 5 fundamentals listed above. If you are buying property with JV finance it might relate to your activity around creating and nurturing those investor relationships. If you are a deal sourcer it will relate to more market making activity ie finding the deals and of course the buyers. You get the idea.

2. Top sales people do not do non-income producing things- they automate and delegate them to free up time to sell.

Clearly the essence of this habit is highly transferable to any profession. You could say that every task in the investment process is directly or indirectly producing income, and that’s fair. But what are the lower leverage tasks that you could delegate/outsource, and by doing so it would free up more of your time to action more direct income producing tasks? We all have the same 24 hours per day. Ask yourself, what could I do more of that would have higher return on time if I freed up just 1 additional hour per day? Then look at what activities could be delegated, outsourced, or even deleted.

3. Top sales people have tamed and managed technology, they don’t let emails interrupt them, don’t take general interruptions, and don’t schedule meetings that aren’t productive. (A study reported unproductive meetings cost US business $60bn a year in lost revenue).

This habit really hones in on the discipline piece. It can be very tempting for a property investor to go down an internet rabbit hole when researching property for sale and/or rent. That’s before all of your social media alerts pop up on your screens vying for your attention. Be disciplined to block out focus hours during the day where email, phones and social media are turned off so you can move the ball forward on important projects. Distractions and multitasking are major productivity killers. In fact, I read that multitasking can reduce the ability of a Harvard MBA to that of an 8-year-old!

4. Don’t do business with people who are high maintenance or whom you don’t like. Life is too short to do business with people you don’t like, deselect them in advance.

I know this habit is often overlooked by many an investor and SA operator, and to their own detriment. Saying yes to partnerships, clients, deals etc we know we shouldn’t have is a painful mistake. I’ve experienced it first hand as well as heard numerous stories from experienced investors about accepting JV investment or direct client bookings that they really shouldn’t have. In excitement of the moment it can be very challenging to say no to potential funds or to a nice direct SA booking. It’s a difficult juggling act but one that will pay off significantly both in terms of your sanity and your bottom line results.

5. Huge effort is placed on taking care of clients who already love them- successful salespeople invest significant time in nurturing retention and cultivation.

This is such a valuable point and indeed an area of common weakness across many industries. In fact, Todd Duncan points out that many in the sales profession make the mistake of spending too much time on trying to acquire new business alone and not enough on optimising the customer’s experience, which is what opens the gateway to retention, repeat and referral business. Ask yourself if you are you regularly making time to nurture relationships with great clients, or do they only hear from you in the context of asking for further investment or booking business? Think about what you can do more regularly that will strengthen the relationship with clients, JV partners and other key recipients of your deals/services/property. Quite often it will take less time and effort than you think, but it’s the quality and consistency that will pay off.

6. Following up is a big differentiator between average and great.

On a personal level, the idea of following up could mean simply returning a friend’s phone call, but from a business standpoint, follow-up means so much more. It’s a powerful, yet often overlooked tool, that can literally make or break business deals. The SA Operator or developer who is actively direct marketing or the developer who is progressing a site development deal will typically have multiple follow ups across different areas in order to keep their business/project moving. Then you have responses from internal team members or suppliers to consider. And what about your own invoices for services delivered or accommodation booked directly- those invoices need paid on time for your own business cash flow.

Any top performer knows that their game cannot be won without a disciplined and formulaic approach to follow-up.

Duncan reminds us that ‘The successful salesperson continues with follow-ups long after the amateurs have bowed out.’

7. Learn and practice, learn and practice.

This is a great point to finish on and it’s something that is best adopted as a true habit, rather than given haphazard attention. What’s interesting is that if you read the profiles of wildly successful people, these are usually the men and women who proactively embrace continuous learning, compared to those in the middle of their field who may not feel the need to learn and practice after reaching a certain level. Never let complacency set in.

Continuous learning is an intentional practice that top performers commit to so they can expand their skill set and stay at the top of their game in a changing environment. For a property investor the environment is changing and developing all the time and as such it’s crucial to stay educated and proactive for the longevity of your business and your bank account. Just look at legislation like section 24 and the recent HMO changes in England, changes that will prove costly for those be adjusting proactively.

Do jump and share some of the key habits you action each day in order to be a top performer?

How does someone go from simple middle class beginnings to owning a multi-million pound property portfolio, a plane and a boat (not a small one either)? Well, this weekend I was fortunate enough to meet someone who has done exactly that, and hear a little bit of the early journey.

It started at the tender age of six when young Jonathan, eager to earn enough pocket money to buy his first watch, was encouraged by his father to set up a car washing business. He’d learned how to wash the family car at home, for free. Now it was time to make the jump to washing neighbour’s cars and charge £1. Bear in mind this was at some point in the sixties.

At age 8 Jonathan had realized the importance of having a USP- he decided that since he knew how to operate a car he would offer to move neighbour’s cars out of the garage and onto the driveway to wash and shammy, and then move it back in. Very smart, and for that service it was £5.

By the age of 11 or 12 he was earning £250-300 per week and had a team of about 10 car washers (fellow pupils from his school). He quickly learned lessons in recruiting and managing a team too. In order to have 6-7 kids out washing he’d need  about 10 on the team to factor in no shows, availability etc.

Jonathan’s motivation to both save and buy the things he wanted was strong and as he grew older his interest transitioned from buying a watch to saving towards fast cars and boats.  LESSON #1: You need to figure out a solid reason for why you are putting in the hard work ie You need to find your hunger.

Jonathan’s father wisely directed him down the route of buying a property rather than see it ploughed into a car. So aged 15 and a half, he bought his first shop with flat above. Being only 15 and a half, finding a mortgage provided challenging to say the least.  37 banks said no before one finally agreed to a loan of £12K, so along with his £3K deposit (self earned) he could buy the property. With that many rejections he quickly learned how to frame a better argument and improve his pitch (LESSON #2).

So those were the very early years but that gives a little insight into the kind of resilient, determined and business savvy person he was becoming..

One of the key things that Jonathan alluded to along his journey was his determination to acquire both knowledge and skills that would propel him in business. Just one example of that was the importance of learning to sell, and his commitment to becoming the best person he knew at selling. LESSON #3 invest in educating yourself and learn to sell.

Buying and renting both commercial and residential property continued into adulthood, hence showing the power of taking action young and then refining through continuous action. Of course there were challenges; big downs and big ups along the way but as he shared, ‘failure is a stepping stone to success”. And with this in mind he learned the importance of having multiple exit plans vs approaching something with only one exit plan having to work out (LESSON #4).

Jonathan shared a brilliant story of one business experience that brought massive learns – it was a tea towel business of all things. I can’t recall exactly why tea towels but he tracked down and visited a low cost factory in Eastern Europe and signed a contract for 100,000 tea towels to be delivered to the UK.  Or so he thought. When the delivery came it was for 380,000 tea towels, and it was the first delivery of the total 10 million. Woops, an extra two zero’s were added without him realising. But he was committed by contract!

He now had to find a way to go out and sell vast quantities of tea towels. As he said, ‘Nothing gets you moving like necessity”. After multiple different trials and tribulations, his resourcefulness ultimately led to the creation of a business that was selling 8-10 million teas towels per year. LESSON#5: Never give up and be resourceful.

Some added bonuses that came from the after talk questions:

LESSON #6: On wealth Creation

The key to sustainable wealth creation and keeping your brain sharp is to have 1) a profitable trading business that also covers all your living expenses

2) a compounding property investing strategy at work ie to reinvest proceeds back into buying more high yielding property assets, rather than extracting and spending all the profits.

LESSON #7: On goal setting

In the spirit of Grant Cardone’s 10X Rule, Jonathan is a big believer in adding a 0 to your number based goals. The act of stretching your thinking to a 10X goal and then figuring out at several ways to make that happen, along with the time it will take, can push you to far greater clarity, alignment and success. If you fall short of that 10X goal, there’s a pretty high chance that you’ll be above your original goal.

LESSON #8: On habits

I asked Jonathan what single habit has he consciously implemented that has made the most positive impact to his results. Without hesitating he said it was to implement a morning health regime. For him it’s cycling about 20 miles a day come rain or shine.  This routine has multiple benefits -makes him feel energised, gives clarity of thought, provides a window of time to make phone calls, time to listen to podcasts, and of course the massive physical health benefits. I also learned that his favourite time to get work done in the office is between 5-8.30pm when there are no distractions.

What a pleasure to meet such a successful yet grounded and authentic person.

I know my kids will be inspired by me recounting this to them, and hopefully those reading this will be too.- to build the right foundations, acquire the right business and investing skills, to take big action and to consciously work on the mindset to turn any failures into the ‘stepping stones to success’.

Have you ever set a goal to read/listen to a book a month? Maybe you get through books quickly and go for 2 a month? [I’m talking non-fiction, learning related books as opposed to fiction].

We get so many great book recommendations from friends and mentors in the property investing community that it’s hard not to want to read everything.

I’ve always been a little envious of those who can read super fast as I’ve typically been a pretty slow reader. Looking back I realise that one of the reasons for this is a desire to go back over and really understand what I’ve read, and probably take some notes.

Since audible has come along it has helped many of us consume way more books than we previously thought possible. However, the challenge is it also means we go through a book so quickly that whilst we get a little entertainment, we can leave a lot of the true value from the book on the table.

Thankfully I have this niggly tendency, I referred to above, to want to understand what I choose to read to an implementable level. So whilst it slows me down it actually helps get the most out of the book. So when I heard the following 3 tips from Darren Hardy recently they really resonated with me. I take no credit for these (other than taking the time to share) but I keep them in mind to get the most out of my reading and thought others out there may appreciate them too.

TIP#1: READ WITH PURPOSE

When choosing a book, have a problem or key skill in mind that you are focused on mastering. Have a defined issue that needs solving then read with a mindset focused on finding those answers. You must then of course apply what you find out.

TIP #2: START WITH THE WHO

Instead of perusing the personal development section, find an expert in the area you want skill development in, then go deep with the content from that person – articles, books, videos etc

TIP #3: ACT NOW

Get out and do the things as soon as you have actionable advice. Act now and try it, review, try again and tweak things. Try to get good at the thing intentionally, push for excellence.

Can you see how if we apply this shift in approach to the books we read the outcome will be far greater?

One of the books we have really read with purpose and acted on this year is Profit First by Mike Michalowicz. If you’re interested, this will transform the way you handle your finances, both business and personal.

What books have made a big impact for you this year after reading with purpose and acting on what you’ve read?

This week marked a memorable milestone on the SA journey for Chris and I – we handed back our first three Rent-to-Rent flats!

In June 2016, after a few months of our heads were swelling with the ideas of several different exciting property strategies, we committed to focusing on Serviced Accommodation. A few weeks later, after multiple phone calls, viewings and rejections, we finally thought we had a tiger by the tail – our first R2R secured in the West End of Edinburgh.

This is the flat that marked the beginning of our SA journey. The unit we cut our teeth setting up for serviced accommodation – we managed to take what felt like an excessive number of hours to kit out the property (even though it came partly furnished), we had the place redecorated, we shopped around for living room items and we even bought and ironed new curtains. Photo evidence of the curtain ironing included.

At this point we hadn’t yet done a course (that came a couple of months later), but we were committed to taking action so jumped in. We thought we couldn’t go wrong with Edinburgh, our fine capital that brims with tourism in the summer months and still has a steady year round visitor and business travel trade. How could we possibly go wrong?

Without writing war and peace, here are a few of our key learnings that we hope can help serve those getting started in serviced accommodation:

• One bedroom city centre properties are one of the hardest types of SA unit to make profitable, Why you ask? The location and the size means the typical audience these properties serve are couples or friends on 2-3 night breaks. And for that market there are loads of options and competition from cheap hotel rooms to cheap one bed SA units run by the owner on a very lean model.
• The nature of multiple 2-3 night stays means more cleaning and linen costs per week (ie 2 or 3 changeovers vs 1 per week from a booking of 7 nights plus).
• August was amazing, but any wannabe can make money in Edinburgh in August. What happened in Oct, Nov, Jan and Feb wasn’t pretty, but we remained optimistic.
• As we scaled up to 4 R2R units within a few months, we soon realised that the booking revenue quickly exceeded the VAT threshold, meaning hello to an immediate 9.5% additional cost (at the point of breaching £85K, 9.5% is the rate on the flat rate VAT scheme for the first year)
• When you rely on booking.com to fill your beds, it gets pretty expensive to handover 15% of the booking revenue. Particularly when you know you have to also absorb 9.5-10.5% for VAT (which you SHOULD set aside each month in order to have ready to pay the VAT bill each quarter, or you face a large and unexpected bill).
• The nature of these one time city visiting guests meant we were capturing little to no repeat business and therefore direct bookings (and the associated savings) were going missed.
• We jumped in before fully understanding the legislation ie flats require planning for SA in Edinburgh and although it is somewhat of a grey area at the moment in regards to how it will be enforced, we just didn’t want to sit on wrong side of planning.

Reading the above may be enough to turn off those thinking about getting started in SA. That is absolutely not the intention. We have absolutely no regrets, this is the experience that got us started, from which came the lessons that led us to pivot and grow. I think it was Bill Gates who said that,

‘Early success is a lousy teacher”.

Had we been a run away success out of the gates, we probably would have over-invested into a location and model that was not sustainable. But of course we didn’t know that until physically testing it. [Quick caveat – our experience in the location mentioned doesn’t mean all one bedroom city centre SA units across the UK don’t work. I’m sure there are many locations where it does work, when you know the audience you serve and how to serve them.]

We have a huge amount of gratitude for our SA management agent who helped us get things set up in the early days and patiently taught us lots of operational insights that helped us set up in the out of town areas that we later pivoted into.

The days of seeking to quickly add vast numbers of SA units has been tempered in favour of quality growth. Our portfolio is now smaller, but as a whole far more profitable. This is where the old adage of ‘Revenue is vanity, profit is sanity’ really rings true.

Everyone in our team felt like month end really crept up and was upon us quickly this September. As we enter the final 90 day sprint of the year this week, what are you doing to review where you are up to and where you want to be when 1st Jan 2019 arrives?

I just spent 45 mins reviewing goals that were set at the beginning of the year and creating a plan that will bring a win for the quarter ahead.

Something I’ve been working hard on this year is to act on the wisdom that here is real power in advance DECISION making when it comes to simply getting things done. It’s a massive productivity hack because most of the energy and stress of your property entrepreneurship isn’t actually “doing stuff”… it’s deciding which stuff to do. Figuring it out, eliminating alternatives, prioritising… that’s the stuff that wears us out.

That’s why people like Steve Jobs wore identical clothes every day. Less decisions. I think Mark Zuckerberg does the same – ie by having a wardrobe of jeans and tees of the same colour/design.

Whilst it takes being really intentional, I’ve found that by using pre-decision on a Sunday night to get clear on the week ahead it avoids second guessing in the moment of each day. I learned this from a productivity coach years ago and practice the advice each week. When Monday comes it’s then just a just a matter of doing. Following through on what you said you would. You already decided. The hardest part (deciding) is over.

No need to second guess. No need to hesitate. Just get it done. Execution is everything.

So why not apply this simple yet powerful approach to finishing the year strong this Q4?

You may or may not remember I wrote a 2 part post in week #2 & #3 of this year about goal setting and implementing, link below

LINK BACK TO WEEK #3 POST

Here are four key steps from that post to help you DECIDE NOW what your Q4 will look like and how to stack the probability of success in your favour!

For each main goal/project run through these steps:

#1 What specifically needs to happen…to get started? To continue? To finish?

#2 How can you measure progress? (ie no. of viewings/offers per week. Booking revenue, occupancy by month..) When answering these questions think about what can be ritualised/repeated.

#3 What deadlines need to happen within 12 weeks? Think it through and allocate deadlines you can put into your diary.

#4 How can you stack multiple layers of accountability onto this project. In other words, who all can you inform, involve, make a pledge to etc that will help you follow through on your promise. Think mentors, family, advisors, peers).

12 WEEK PROJECT PLAN
The final stage to this is creating your 12 week project plan where you literally create a grid with 84 – 91 days and then populate it with dates, specifics and deadlines (as per your answers to the Q’s above) to work to each day and week. Schedule this stuff in using the mechanisms that work for you, phone, outlook calendar, a wall chart or whatever. Allocate sufficient time and protect it in your diary.

And there you have it.

Here’s to finishing the year strong

[Image credit: Unknown)