I was chatting to someone on one of my Earn & Learn programmes the other day before the call got going in earnest. He has been trying to make an assisted sale strategy linked to high-end properties work for a couple of years now. The results have at best been mixed, with lots of hurdles or barriers to overcome.
This reminded me of the need to have
several tools available to us in our property deal-making toolbox, ready to
apply on the given project as it is required. Normally, I would encourage an
investor to focus on one strategy, but sometimes we do need to have a little
bit of flexibility, especially if we are talking directly to vendors and
potential JV partners. So, today I thought I would elaborate on what some of
these tools are, giving a couple of examples of deals that I am working on
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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.
I was chatting to someone on one of
my Earn & Learn programmes the other day before the call got going in
earnest. He has been trying to make an assisted sale strategy linked to
high-end properties work for a couple of years now. The results have at best
been mixed, with lots of hurdles or barriers to overcome.
This reminded me of the need to have
several tools available to us in our property deal-making toolbox, ready to
apply on the given project as it is required. Normally, I would encourage an
investor to focus on one strategy, but sometimes we do need to have a little
bit of flexibility, especially if we are talking directly to vendors and potential
JV partners. So, today I thought I would elaborate on what some of these tools
are, giving a couple of examples of deals that I am working on right now.
Property Chatter
& Learn investor has discovered, the assisted sale strategy has some
potential advantages and also some potential drawbacks too. On the plus side
and from his perspective, he would require less upfront capital and he should
have lower costs if he can assist a current property owner to increase the
value of their property, where they both share in the upside.
downside is that it can be a complicated strategy to explain both to vendors
and agents and so people often avoid complexity and so drop the deal as a
result. It is also quite good in certain parts of the property cycle, for
example in a flat market and more so where the vendor is in negative equity,
which is soon after a price correction.
then, the last couple of years were perhaps also not the most fertile in terms
of pitching an assisted sale strategy…but that might well change from this
year, depending how Brexit goes…so watch this space on that.
Property Tool #1 – Exchange with
with my Earn & Learn investor reminded me that since I have been ‘doing
property seriously’, which is around 10 years now, I have only just agreed my
first exchange with delayed completion deal with a vendor!
with delayed completion deal is the equivalent of an assisted sale but with a
different final exit route. The assisted sale results in a sale of the property
to a third-party as its name implies. Whereas, an exchange with delayed
completion project usually leads to the property investor taking ownership of
that property instead of a third party. What happens in the middle is often
does happen in the middle then? Well, usually it is either adding value or
would an exchange with delayed completion project be more advantageous? Well to
us, the investor, we won’t have to find a deposit and pay the full acquisition
costs on the project until final completion. We also won’t need to arrange for expensive
financing either. Then, provided we can agree ‘key access’ and permission to
undertake work on the property, we can go in to add value or fix the problem
between the exchange and the completion. This then allows us to arrange finance
once the property has an increased value or has had the problem fixed, which
often means an increased value or the property even becoming mortgageable.
agreed such a deal and it was the first one in ten years! I can’t exactly say
that I have been trying to agree exchange with delayed completion deals to be
perfectly honest with you. But I am educated enough to know what they look like
and when to pitch it as a potential solution, which on this particular occasion
property has been converted into an HMO, but sadly there are several problems
with the conversion that mean it is not fully licensable and so not sustainable
to operate. For example, there is no communal space, the property does not
comply with HMO regulations, there is damp in a botched extension, asbestos in the
garage and it resembles a kind of squat for all intents and purposes, with wet
laundry draped all over the place, excess paperwork creating fire hazards and
some cheap, grotty furniture in most of the rooms. As a result, out of 6
lettable rooms, only 2 are currently tenanted and the owner needs to spend time
and money they do not have in fixing these issues.
honest, if I were to buy this property, I would need to discount the purchase
price so much that it would potentially insult the owner. He is a good person,
who has been caught up in a bad situation through no real fault of his own and
I want to help him out, as well as me, into a deal that would work for me
commercially to create a win-win outcome for both of us.
with delayed completion was mooted as an idea. I believed this could potentially
work here, as the property owner is commercially aware himself and could grasp
the concept quite quickly, if not immediately in fact.
agreed a deal where I would have a 7-8-month gap between exchange and
completion. In between, I would have access to the property to be able to
address the issues, then re-tenant the property and finally get a finance valuation
it prior to final completion into my name.
have to buy the property initially and nor will I have to stump up expensive
short-term finance costs. Equally, I can defer some of the other costs and even
enjoy some of the income from the current tenants as I work around them.
gets the assurance of a guaranteed sale, where my deposit is at stake if I fail
to deliver and let’s face it, I am also adding value to their property along
the way as well. I can then afford to pay a better price for the property,
which also means less pain for the vendor too.
some things to consider and document, such as permissions, access rights,
ownership/payment of the improvement works, responsibilities, insurance and so
on. But with decent commercial awareness and a good solicitor, these issues can
be worked through relatively straightforwardly.
Property Tool #2 – Option Agreements
Lease and land options are another
tool that we can have in our property deal toolbox. An option is a one-way
right to buy a property subject to certain things happening, which may be
For example, with a lease option
agreement, you may agree to lease or rent a property for a set rental for a
number of years with the option to buy it for a certain price at the end of the
term. We might exercise the option to buy or we might not. We would probably
not if the value had fallen, the mortgage market had deteriorated or if you
could not raise the funds for the deposit for whatever reason. Ironically,
these are all reasons why it could put a vendor off as well!
With a land option, you may agree to
buy a plot of land or a property subject to you receiving planning permission
to build or convert the property into a more profitable scheme.
In both cases, the option mostly
benefits the person with the option perhaps more than the person granting the
option, so you can see why it might not always be popular.
Situations where it may be of benefit
to a vendor could include, where they do not have the time, knowhow or
knowledge to secure the very thing that could increase the property’s value.
Alternatively, where they have their problem resolved, such as an empty
property being 100% rented for several years with no voids, maintenance,
tenants or toilets to worry about, for example.
I recently had such a situation…
Ironically, I agreed a purchase
option deal with a property vendor 9 months ago, which seemed to go nowhere. To
be honest, I think the owner did not fully understand the arrangement and
equally the fact that it was an option and not a definite sale also put him
Nonetheless, I followed up, which if
you do not do anything else as a result of today’s episode is the ONE THING you
should ALWAYS do! Always follow up on your offers and negotiations, even if
Despite a dented ego, some wasted
time and a lost opportunity I decided to check in with this vendor…just in
case. They had undertaken some work to develop according to the planning
approval they had secured on the property. However, reading between the lines,
they had run out of funds and were at risk of losing a grant they had been
awarded on the condition the project is completed before the end of March. Now
they were truly motivated, some 9 months later!
OK, so I tried my option agreement
again, which would allow me to buy the property subject to a revised planning
application. Don’t tell the vendor but his planning approval is not the most
profitable one for that particular property. So, I wanted to improve the
outcome, but without the risk or owning the property and all that entails in
case planning was refused.
The owner was not exactly biting my
hand off though…again! So, I tried to better understand his position and why he
was reluctant to proceed. It seems he was torn. If he could complete the
project somehow, he could not only have a property that was then capable of
earning him money instead of costing him money. But he could also qualify for
the grant, which after all is free money isn’t it? But he had to spend money he
did not have and fast to realise that outcome.
The risk to him with an option
agreement was a lack of certainty, therefore. Of course, he did not say these
actual words, often people don’t say what they really want, so we have to read
between the lines, which is a skill.
Mmm…OK, so the option was not doing
it for him I pondered. OK, I thought, what about an exchange with delayed
completion instead then? That would give him certainty now wouldn’t it?
Nope…happier but not exactly happy
with that. It could have worked and arguably should have worked, I mean nobody
else was sniffing around his not-so-glam property and it strikes me that he has
lost the will and possibly also the funds to see his project through. Note, both
the emotional and financial reasons here.
However, just by going through these
steps with the vendor and crucially whilst also maintaining a good rapport and
relationship throughout, it set the scene for my final tool to be applied in
That final tool was…discount!
OK, so that’s not exactly a
sophisticated tool now is it…offering low is not exactly the most imaginative
or advanced technique I appreciate that. However, it was the most APPROPRIATE
tool to be used at this PARTICULAR point in time.
Now, I could be telling you about a
purchase option agreement, a conditional planning agreement or even another
exchange with delayed completion deal that I had agreed, when all I am saying
is that I got a discount off the vendor’s asking price instead!
But that is completely missing the
point! Without the tools that I applied previously and without the step-by-step
process and interpersonal skills deployed in the previous 9 months, along with
bags of patience, persistence and frankly a system, I am not sure that I would
even be able to pitch a discounted offer, let alone have it agreed.
You see, it was having these tools
available that set up this purchase.
Having just watched Novak Djokovic
beat Rafa Nadal in the Australian Open, Novak did not win all his points with
aces and return winners, did he? Instead, he set the point up by mixing up his
shots, also responding to his opponent and just hanging in the point at times
to be fair. Until, he was ready to play a winner or force an error in his
Don’t get me wrong, I don’t see myself
as an opponent in any property transaction. However, I still employ a variety
of shot selections to test what will work and what won’t in any given
situation. I wish I could tell you this is something you can instantly learn
and apply. But, just as Novak and Rafa have put in the time with their coaches
and on the practice courts, it is often the result of years of disciplined
learning, testing, failing and finally a correct application that leads to a
game, a set and eventually a match for us property investors I can tell you.
I wanted to tell you more…for
example, the latest Grade II listed property that I managed to secure from
under the nose of a local developer, who had offered on a property and had even
taken his builder on a second viewing, when I had barely seen the sketchy
report back from my Viewber proxy viewer that I paid £50 to see the property
for me…but time also is short. Suffice to say, it was all about positioning!
I will therefore leave it there for
now, for you to ponder what tools you have in your toolbox. I will just add,
that I am planning to run an Earn & Learn programme on one, two or even all
three of these projects that I referred to today. So, if you want to hear more
about my shot selection and the tools that I have in my particular toolbox,
then get in touch and we can talk!
Now, some people that are hearing
about some of these tools fairly regularly are my Apprentices, who are around
70 days into their 100-day programme at the time I recorded this brief update. So,
let’s hear a little from them and how they are getting on now then shall we?
Insert TPV Apprentices Report Back
I am so proud of these guys, for their
approach, commitment and results. They are a dream to work with, even though it
has not all been plain sailing. We are a tight little community and the guys
are even designing what follows on from the Apprenticeship themselves, which I
have no idea what that even looks like…so we shall see!
I have now filled 3 seats on my next
TPV Apprenticeship, which starts in March. That’s actually enough for in all
honesty, as I do live and breathe my Apprentices throughout the programme, I
can tell you and so it takes a lot of my energy and focus to give them my best.
However, I may have room for just one more on the next intake, and so, if you have been sitting there on the side-lines wondering if you should go for it, just as Martin, my third confirmed apprentice did recently, then I would encourage to reach out and at least explore the idea.
I am particularly interesting if you
are a woman, as we simply need more women in property! But guys, don’t be shy
in coming forward either. Of the 3 Apprentices confirmed for the next
programme, we have a twenty-something, a thirty-something and a forty-something
and in the current programme a fifty-something too, so age is no barrier. We
have 2 guys and one gal, we have some with a little money and/or experience
behind them and some without any at all to speak of.
My apprenticeship is different, whilst
there is a price to pay to have some genuine ‘skin in the game’, it does not necessarily
have to be a through formal fee. It can be through bartering or what I call a ‘value-exchange’
instead. I want my programme to be accessible you see.
Equally, you might just hear about
some of my apprentices becoming members of my extended team or even partners of
mine eventually too…this is more than a learning experience, it is an
opportunity to genuinely make a step-change in your property journey with me as
your guiding hand and a supportive peer group around you as do. I am not Lord
sugar, but I hope in my own small way, I am helping ordinary people like you and
me to realise their dream in property in a realistic and sustainable way.
I am not looking to scale this in a
big way, as I prefer to see big changes in a small group of people I know by
name. If you like the sound of that…then we really should talk!
OK, so that’s me done for another
week. Don’t forget the show notes are available on our website www.thepropertyvoice.net, including how you can reach me by telephone. Or, if
you want to talk about anything from today’s show, or just talk property investing
more generally, email me at
[email protected], I would be happy to hear from you!
All that is left 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.
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