Soundbite: Just say yes! Some property deals that I would, or did do…and why.

After sharing some of the property deals that I recently saw that I would just say no to last week, a few of you asked to hear about some that I would say yes to instead.
So today, let’s take look at four real-life property projects that either I, or one of my private clients, said yes to recently. These include BRR, flip, commercial conversion and also an overseas BTL project that I would or did say yes to. You may or may not have said yes to any or all of these deals as we each have our own criteria. But still, it might be insightful, to hear about some of the analysis and thought process that I go through as something of an open deal critique.
Resources mentioned Property Deal Tips & How to Reach me By Telephone
Free Dom Tokens…might be worth something one day: Dominium referral link
Link to the Podcast feedback survey
Today’s must do’s Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!
Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try and feature YOU on the show too!
Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series
Get talking! Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net
Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page
Transcription of the show Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and as always, it’s a pleasure to have you join me on the show again today.
After sharing some of the property deals that I have recently seen and would just say no to last week, a few of you asked to hear about some that I would say yes to instead.
So today, let’s take look at four real-life property projects that either I, or one of my private clients on my recommendation, said yes to recently. These include a BRR, a flip, a commercial conversion and also an overseas BTL project that I would or did in fact say yes to. You may or may not have said yes to any or all of these deals, as we each have our own investing criteria, preferences and goals. But still, it might be insightful, to hear about some of the analysis and thought process that I go through as something of an open deal critique.
I am not sure whether I have trepidation or intrepidation right now, but let’s pick apart some of these projects that call for the rally cry…’Just say yes!’ right now then.
Property Chatter As I outlined last week, I do get to see quite a lot of potential property deals! Granted, it does seem that I say no most of them, most of the time, but I also say yes too you know! If you want to know about the types of ‘opportunity’ that pass across my desk and some of the principles that I personally tend to apply, then make sure you have a listen to last week’s show (Just say no!) before listening to this week’s Just say yes! alternative.
OK, let’s get into the deals a bit now then…
Deal Analysis Property #1 – Low cash left in BRR project with decent returns in Worcestershire
 
Description Value Purchase Price £72,000 (paying cash) Refurb £15,000 Other Costs (Incl Consulting Fee) £7,860 Gross Development Cost £94,860 Gross Development Value £100,000+ Cash Left In (After Refinance / Vs. BTL) £19,860 / £30,000 Rent per month / year £550 / £6,600 Net Monthly / Annual Cashflow £240 / £2,880 Income ROI (on Cash Left Invested) 14.5% Capital ROI (on Cash Left Invested) 15.1% Combined ROI (on Cash Left Invested) 29.6% So, why did I say yes to this project then?
Well, at the basic level with property deals, we make our money at three key stages: 1) when we buy, 2) through adding value and 3) upon exiting the project.
In this case, the vendor was looking to sell due to ill health and so just wanted shot of the property as quickly and as painlessly as possible. The property was not in great condition, it is a 1-bed flat, required a refurb and had a damp problem too. This created an opportunity for what is known as motivation and leverage.
Motivation came through the vendor’s circumstances, here ill health prompting the need for a hassle-free a sale.
Leverage came through the fact that the property not only needed improvement work, but remedial work as well to fix a damp problem. A lot of buyers, including investors, are put off by damp problems, but most of the time, this can be remedied quickly and cost-effectively. The agent already held a damp inspection and quotation, which helped us to both understand and quantify the extent of the problem, and to cost it into our calculations.
The property was not exactly the most desirable one in the block either. Whilst the ones at the front had expansive views over open countryside, this one had a rear-facing outlook without the same appeal. Needless to say, it still has a value both in the resale and rental market, so we could evaluate what that was and work back to what would be an acceptable offer price.
I put in a bid at £10,000 or 12.5% below the listing price on behalf of my client, and somewhat surprisingly we settled at £8,000 or 10% below the asking price. To be fair, the vendor was an experienced landlord and understood that the negotiating buyer was too, as I had put the offer in writing, provided solicitor details and proof of funds along with the offer. I had also built some rapport with the agent, which helped.
The tenant had agreed to stay on at the property whilst we undergo the improvement works and will actually assist us with some of the site deliveries and trade access too! He will move out for a short period of time whilst we undertake some of the most disruptive elements, which we will work around his travel and holiday plans and we will also put him up in a B&B for a short-time too. Apart from the on-site presence, we also get continued rent throughout the project, apart from a few weeks where he cannot live at the property. This helped to subsidise the cost of the project too, which does not usually happen with no tenant present as you might expect. However, I have worked this way with sitting tenants a couple of times now and it can work well for all concerned.
In terms of the end-valuation, I have low-balled this a little here and in reality, it could improve. For example, there are some recent sales in the same block at the £125,000 mark, although to be fair with better outlooks than this one. Still, there is hope that we could get, if not a value uplift on the refinance valuation, perhaps an equity uplift in reality.
The current tenant is paying £450 per month, but the market rent is £550 to £600 per month for a decent quality comparable. Here, we have set the market rent after works at £550 without a letting agent being required, as the tenant is already known and in place for some years, so should be easier to manage. We have therefore split the profit with the tenant as an added incentive for them to stay and assist.
After refinancing, the client should leave under £20,000 tied up in this BRR deal, versus around £30,000 for an equivalent ready-to-let BTL. This also includes our fee, so if he had found it himself and done all the work too, it would have been better…assuming he had the time, knowhow and inclination to do so, which he does not!
The resulting net annual cashflow before tax, using a limited company mortgage, is just under £3k per year, after allowing for ALL costs and provisions, or an income ROI of 14.5%. I mentioned capital and combined ROI earlier, which is essentially the projected equity growth based on a reduced cash left invested in this BRR project, versus a vanilla BTL equivalent.
All in all then a decent project for what should be a light touch rental property to retain in this client’s particular portfolio I think.
Putting it all together, the motivation and leverage at the front end, the opportunity to add genuine value, to work around a willing sitting tenant, that would stay on without the letting agent fees and the armchair-style investment that comes with outsourcing the project to a trusted third-party i.e. us, made it a yes from the client, and a yes from me too! To be fully transparent, there was a second flat in the same block that I had intended to buy myself and that’s how I found the flat for my client in fact. However, sadly I was gazumped on my purchase, as it was a corporate sale and I was outbid at the eleventh hour…so they in effect said no to me in the end! But, there we go…you can’t win them all can you?
Property #2 – Refurb & Extend Bungalow Flip Project in Cambridgeshire
This next deal is one of my own and despite presenting an opportunity to profit from refurbishing, remodelling and extending a bungalow to flip it on at a profit, also provided a completely new learning experience for me too! Talking of learning, this project is providing an opportunity for a couple of investment clients of mine to observe what I do on a property project through what I call Earn & Learn. More on that can be seen on our website, or just drop me a line if you want to know more about that.
Needless to say, the brand-new experience here for me was that the vendor managed to get himself put in prison, after I had my offer accepted! I can tell you that there is a lot of additional precautions that need to be taken in such a situation, especially as the vendor was convicted of ‘a crime of deception’ as I now know it is called.
Anyway, here are the headline figures…
Description Value Purchase Price £147,500 Works Budget £65,000 Other Costs & Fees £43,519 Gross Development Cost £256,019 Gross Development Value £285,000 Net Profit £28,981 Developer Cash Required £56,519 ROI 51% So, why did I say yes to this property deal then?
Well, the property listing gave very few clues due to a limited number of pictures and upon viewing it was obvious as to why! The place was in a right state, with existing tenants that had been there, along with a small menagerie of animals and plenty of clutter in one of those properties where you feel like wiping your feet on the way out!
The tenant here also wanted to stay on, much like the Worcestershire one I outlined just now, but there was no way in this case! Besides them clearly not knowing how to take care of the property, I was planning something more significant for this one.
The valuations in the same street for equivalent properties were not that stellar to be honest with you, but sometimes you do need to have a little bit of vision to see the possibilities. In this case, close by were some larger, nicely laid out and presented bungalows that were selling for well over £100,000 more than equivalents on this street in a done up condition. So, by extending and remodelling this property, I could create something far more desirable and saleable compared to simply doing a refurb alone. So, it was the end-value potential that was the main draw with this one.
However, I would also need to spend more money on the project to0. A £250k+ budget can be quite a chunk of change to find, but by using development finance, I could reduce my personal cash input down to around 20% of this sum. Contrast this to using say bridging finance, where I would still need to sink around £125k of my personal cash into the project instead of approximately half this amount at around £57k by using development finance instead.
In fact, this is the real key to this project…by utilising development finance, I could manage my personal cash input down and so the resulting cash profit represents a high cash-on-cash return than would otherwise have been the case.
So, by combining a vision for what the property could become, beyond just making it compare well to the neighbouring properties on the street and by utilising development finance instead of paying cash or vanilla bridging finance, I get to undertake a tasty project that returns a very attractive return, whilst not tying up as much of my personal cash resources as otherwise might be the case. This means I get to keep more of my own cash free to undertake another project as soon as I can find one good enough…and if I find another one like this, I shall grab it with both hands!
Equally, bungalows can often present decent opportunities to profit in property, as the resulting buyer is usually not that enthralled by undertaking a large-scale, remodel and development project in their own home…it is accessing the ‘grey pound’ therefore.
Property Deal #3 – Commercial Conversion & Development Project in the Midlands
This one is a super project, where you spend lots of time dreaming of and kissing a few frogs, before one finally turns up!
Commercial to residential conversion has been a bit of a thing for a few years now. This has been helped along by a few factors really. The biggest single factor is the change in planning guidelines that allow certain commercial buildings to be converted into residential property under Permitted Development Rights. Rather than requiring an in-depth planning approval process, where the decision is more like a ‘no, unless you convince us otherwise’ approach, PDR is more of a ‘yes, as long as you meet the guidelines’ approach instead.
Before I go too far, let me share some figures with you…it does become a bit more complicated here, however, but to simplify, here are the headlines…
Description Value Purchase Price £250,000 Gross Development Cost £773,214 Gross Development Value £1,042,580 Developer Funds Required £148,214 Development Profit / ROI £269,366 / 182% Funds Left In (After Refinance) Close to £o Gross / Net Annual Rent £80,700 / 33,282 Rental ROI Infinite (No Cash Left In) Ok, so let’s have a quick recap of this one then…
I bought this property, which is a former pottery building in the Midlands. It had an ‘as is valuation’ of £325,000 and so I was quite pleased to secure it a discount for £250,000. The developer that had bought it originally had taken it through planning and commenced work but had too many other projects on the go at the same time and so had become overstretched in more ways than one!
I have shown the project in its entirety here, although in reality, in will breakdown into three separate phases. Phase one will be to convert what exists already and phase two will be to rebuild an extension that used to exist. There is an existing planning approval in place for these elements, which consists of approximately 11 units in total. However, and in addition, there is a part of the plot that can be carved out, where additional planning for an extra two houses could be secured to achieve incremental planning gain and profit on the overall site.
The build phase will also extend across separate phases, which helps to reduce the time, complexity and financing of the project phase at the same time.
Whilst, I could potentially sell all or most the units once completed, or indeed off-plan, for a cool projected profit of around £270k, in this case my intention is to retain them in my portfolio after refinancing. This effectively would leave none of my own funds in the project for an infinite and attractive no-cash-left-in build-to-rent project. As such, I will also have an eye on specifying the build requirement to ensure lower operating costs on the units as I will be picking up the tab.
Finally, there is a housing association that has expressed an interest in taking some or indeed all of the units on a long-term lease arrangement, which would de-risk my rental position and management costs significantly too.
This one is still at an early stage and many of the numbers quoted are preliminary, so watch this space to see how it unfolds. I may open this project up to a few Earn & Learn investment partners at some stage, so feel free to register your interest in that if you would like to look over my shoulder on it.
Property Deal #4 – BTL Multi-Family Project in Chicago, USA
You may have gathered from last week’s ‘just say no’ episode that decent property deals are not always that easy to come by these days. A few explanations for that are that we have seen some tax and policy changes, such as the 3% SDLT premium for example, but also greater competition that has been driving up prices. Another limitation is the so-called ‘six-month rule, which can mean having to stay in a project for at least 6 months before even starting your exit sale or refinancing.
However, some of these restrictions do not always exist in the USA. The States also offers a different type of model, where in many places land values are lower and so added-value specification features of a property come at a greater premium. Then, in some cities, prices have not yet fully recovered from the previous pre-crash high as well. Chicago falls into this description quite well, therefore, and I have done a few projects there over the past couple of years.
Here are some numbers for one of my latest projects…
Description Value Purchase Price $65,000 Gross Development Cost $97,770 Gross Development Value $120,000 Developer Funds Required $32,770 Funds Left In (After Refinance) $5,370 Gross / Net Annual Rent $21,300 / $5,991 Rental ROI 112% I have to start by saying, this is truly exceptional to see such an ROI and there are some reasons for this.
Firstly, the seller was in a distressed state. A property had been converted from a single-family home to a duplex, which means split into two apartments. The project was a JV between the developer and an investment partner and from what I could gather, the parties had some kind of falling out, resulting in the need to liquidate the property in next-to-now time. In fact, we had to complete within 21 days all together, which gives you some indication of this driver.
When it was presented to us, the conversion was not done particularly well, for example whoever did it had separated out the two units in such a way that the ground floor unit energy supply was still servicing both units. This meant that we could not effectively make the tenants pay for their own utilities!
Then, one of the units was vacant and there was a vermin problem, among some other issues. So, whilst it now looks good on paper, there were quite a lot of things going against it, which when combined with the extreme time-pressure, lead to an opportunity to acquire the property at a significant discount too.
I like to say that we are rewarded the most for fixing the most problems and here there were problems, but they were not actually that significant in reality. So, by putting in place a good property manager, we steadily stabilised the property and rented out the second unit ready to enter into a longer-term financing arrangement.
Long-term financing in the USA for foreign nationals is not that straightforward, so what I have done for now is a medium-term, hybrid bridging facility over 3-years. This means I will need to refinance it in 3 years’ time obviously. But it cashflows very well, even after allowing a generous provision for repairs, maintenance and tenant turnaround in what can be a tough neighbourhood. My plan is therefore to set aside and save the rental profits to help pay down the debt, come the time to refinance in a few years’ time.
There is the overseas, different currency and tax element to think about too, so it won’t work for everyone I appreciate. But it works for me and it adds to my growing portfolio of USA rental properties, so I am pleased about that.
Overall, I said yes to this project for its high-yield potential and the opportunity to grab a discount below its investment valuation in return for being able to move quickly. I am not phased about taking a bit of pain to fix a few problems and this has been resolved relatively straightforwardly actually. Personally, I am keen to extend my country and currency diversification, which works well for me right now. The returns and entry level funding requirement are also particularly attractive here. I don’t believe these types of project are on every street corner by any means, but decent projects exist for those with the appetite to venture into new markets that potentially offer something better, or at least different to the UK in some respects.
Summary
I guess if I could draw some conclusions from these projects it might be these:
The ability to move quickly, often paying in cash, or using short-term non-bank financing, opens up discount potential on the way in.
Leveraging can reduce absolute paper profits, but can massively increase cash-on-cash returns at the same time.
Good deals are out there…they just take some digging out at times.
The ugly and unusual can provide unexpected and at times unreal returns.
Patience, resilience, and a solution mindset are a must to bag these sort of opportunities…it’s a bit like sitting at a water hole all day, waiting for that rare sight of a giraffe bending down to take a drink. It doesn’t happen that often is what I’m trying to say with this random analogy as I consider my upcoming safari holiday!
We get rewarded for fixing problems, and for using our imagination!
Right, that’s me done for another week. I hope that has been insightful for you. I have done a few not-so-good deals this year as well to be fair, so I don’t want you to have an image of Richard only does these crazy high-ROI projects…I often have to settle for projects at a far more modest rate of return. Mind you, I would probably do the Worcestershire type of BRR deal all day long…even if I am looking out for the Cambridgeshire flip, the Midlands conversion, or indeed the Chicago fire-sale project along the way!
Remember, the show notes can be found over at www.thepropertyvoice.net. Or, if you want to talk about anything from today’s show, the Earn & Learn facility, or just talk property investing more generally, email me at podcast@thepropertyvoice.net, I would be happy to hear from you!
Once again, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.
The post Soundbite: Just say yes! Some property deals that I would, or did do…and why. appeared first on The Property Voice.