http://www.ispeech.org/text.to.speech
The Property Voice Podcast - Series 1: Episode 4
If the last couple of weeks have been cruising at high altitude, this week we get closer to ground level; as we look at how to determine what makes a good property deal for us. Having some pre-determined criteria to evaluate an investment opportunity and some measures of what that looks like financially is what this week’s show will address. So, seat belt signs are on – we are coming into land!
Podcast: Play in new window | Download
Resources mentioned
- Property Investor Toolkit – here is the book link on co.uk & amazon.com in case you would like to get yourself a copy to accompany this series
- For some further reading on these research and due diligence, visit the following posts: Get Rich Quick, Research Trades People, Property Club Scams, Become a Property Millionaire, Richard Brown Property Geek Interview, Property118 Research Tool, Location Research, Experience & Wisdom in Property and of course, The Property Voice Resources
- Your Voice – one-question survey on who will lead the next Government from May
- Shout Out – the online game of Cashflow will get you gripped with the principles of wealth creation Rich Dad, Poor Dad style. It is both fun to play and educational too!
Today’s must do’s
- Develop your ‘just right’ porridge recipe that peels away the layers of the onion in property research and due diligence
- Subscribe to 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!
- Rate and review the show on iTunes…this helps us to get noticed and that means more people can get to hear our property content and join in…thank you for those that I have…we see ya!
- If you would like to, grab yourself a copy of the book: Property Investor Toolkit (link in Resources above)
Get talking!
- Join in the discussion, either here in the comments section below, or anywhere else on the Blog
- Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page
Transcription of the show
Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and it is a privilege to have you join me.
Myself and casa are not in the same place at the moment; so it is just me again this week…so, I hope that’s OK with you?
OK, on with today’s show…here is what we have coming up. We have Property Chatter, where we will be taking a deeper dive into looking at our deals with property research. Then under the Your Voice segment, I am going to share the current results of a one-question survey on who our audience thinks will occupy Number 10 next month. Finally, the Shout Out. Now I was tempted to keep this all to myself but what the heck…I have a link to a very addictive and yet educational game that I will share a little later, so make sure you don’t miss that one.
OK, so let’s get started!
Property Chatter
Today’s topic is: Property Investing Research
It’s funny sometimes to understand how other see you isn’t it? Sometimes, we see ourselves the same way as others do but at other times their view of us may come as a surprise.
This happened to me when I was invited to be a guest on the Property Geek podcast by Rob Dix back in January 2014. Rob saw me as being strong in two main areas at that time based on my posts on the Scoop.it platform: strategy and research. I was not surprised to hear strategy mentioned, others had said the same. I was not expecting to hear research mentioned however. I am not really sure why but I didn’t. But it seems that Rob liked and appreciated my approach to research and due diligence at the time and of course I am no longer surprised to hear this word used along with my name in the same sentence any more…I do identify with this very much indeed.
Research and due diligence are two words that broadly boil down to the same concept in property: covering our backsides!
We need to make sure that we take adequate steps to look into the not only the deals we are considering but also the people we are dealing with in our property journey. A lack of proper research could cost us dearly. Equally, a point worth flagging right now is that too much research, can also cause us to procrastinate unnecessarily and that leads to what has become known as ‘analysis paralysis’.
So, we need to strike the right balance, such that we neither do too little and so get burnt easily or do too much and never really do anything at all. A property investor cannot be a property investor unless they invest in property and similarly, the investor that ventures too far into risky, unqualified ventures may find themselves washed up on the rocks at some point too.
My approach to research and due diligence
So what is my approach to research and due diligence in property? I like to come up with some kind of analogy to help describe topics, remember the ‘RIGHT Strategy’ from our opening episode for example? Well, today I hope I don’t make you cry as I am going to talk about peeling onions!
So, if you remember the exchange between Shrek and Donkey from the excellent film Shrek, you will know that Orges have layers just like an onion. As well as ogres and people generally having layers, so too does property research…for possibly one of the oddest analogies you might find in an investing podcast J
Layers…starting at the outside and working in as we get more comfortable. I adopt a 3-layer approach with my property investing typically. Layer 1 in a quick pre-screen. Layer 2 is slightly deeper, yet still primarily desk-based research and Layer 3 is deeper still and often involves other people to support my research efforts.
Continuing with the layers theme, if you remember, the sequence that I am advocating we follow, the ideal starting place for our property investment journey is with us: our purpose or reason why and our goals. Next is an ideal property strategy or strategies (not too many though!). Then we set some criteria and key performance indicators or KPIs. These are all layers of our approach and in fact, although not necessarily obviously the case, are also a part of our research approach too. By definition, we are deciding on what fits our preferences and what does not. This helps us to sort information from what is relevant to us and what is not.
I was pitched recently by a supplier, offering me access to off-plan deals across the world with the promise of riches of course! However, as I knew what my purpose, goals, strategy, criteria and KPIs are I already knew that these opportunities are not worth my time spent on undertaking further research. So I saved myself, along with the supplier a bunch of wasted time by passing on the ‘opportunity’.
However, another area that I am currently interested in exploring further is that of lease options. Lease options are a more advanced strategy that allows me to control a property without legally owning it. This has some advantages of course, not least of which no need for financing to be arranged. It forms a part of my leveraging goal to consider such creative strategies as it means more properties for smaller outlay. So, when a trusted contact (note that term) mentioned that they specialise in finding lease option deals and asked if I would be interested I said: yes. Now I am ready to peel off another layer from this onion I have been talking about.
Common areas that we need to research
There are no right or wrong answers necessarily in terms of where to start researching. However, there are some logical aspects of researching a deal that need to be considered once we know that the deal broadly meets our general direction, which are:
- The commercials of the deal
- The location of the deal
- The property itself
- Partners, suppliers and other members of the deal ‘food chain’ so to speak
I could make a case for starting with any one of these steps but it matters not as long as all are covered. Personally, I start with a small summary of the first three items, the commercials, the location & the property in my personalised Deal Criteria Checklist and support Deal Evaluation Spreadsheet.
By knowing what my criteria and KPIs are based on what we discussed in the last episode, I can quickly evaluate an opportunity at a headline level in around half an hour. This is my first layer of research when it comes to evaluating an individual deal and it gives me a go/no-go decision on whether I can proceed to the next step or not.
So, let’s call this step ‘deal or no deal’, even if later steps will validate a deal outcome or not.
My own personal approach to the ‘deal or no deal step’ means that I need to get enough ticks against some of my standard criteria, which are:
- Local area population size
- My STAR Criteria – quickly considering key aspects of schools, transport, amenities & revenue through jobs and inward investment
- Good local rental demand
- Opportunity to add value, now or later
- Opportunity to recycle my funds within a year say
- A minimum equity target
- My KPIs: ROI, net monthly cashflow & payback period are some of the top ones to consider here
The actual number on the list is around 10 items and so I am looking for a strong 8 out of 10 as a ‘pass mark’ to allow me to consider looking at the deal more closely.
That’s my first layer of deal research completed.
Peeling off the next layers of the onion
Assuming a property gets past these headline criteria then I would proceed to the next steps.
I would then start to work through a list of broader criteria in each of the areas I mentioned earlier, so the commercials or financials, the general location, the property itself and the people or organisations that I would be dealing with.
Some aspects will need more attention than others. For example, a repeat of a deal, using the same ‘power team’ in a familiar location will require less, yet still some, research than that for a new deal, in a new location using a new team. It sounds obvious but it is worth stating this, especially at the beginning.
Similarly, some investors target a specific area and do all of the research at the macro level for that area before drilling down to find individual deal opportunities – which way around is best for you will depend on your approach to self-sourcing versus outsourcing and investing in set locations versus broader locations.
Let’s consider some aspects in each of the broad areas now.
The Location
Starting with the general location, some of the things that we might wish to look into fall into level one and level two layers. A level one layer is still easily identifiable by undertaking some desk research using some of the tools that I will refer to later. A level two layer often requires looking a little further, possibly by engaging professionals to help us, such as solicitors and surveyors say, or by enlisting the support of other in some way, such as local letting agents say.
Level one:
- Crime rates, local demographics and social factors
- Drilling down further into my STAR Criteria, for example good are the transport connections and what is the employment rate?
- Alternate views of the property and area – maps, street views & Google Earth views
Level two
- Planning & licensing restrictions
- Environmental factors such as flood risk, mining area, refuse & recycling centres and such like
- Neighbours – state of their property, disputes, amenability to renovations / refurbishment and tenants.
The Property
Next, with the property itself. Again we could have two levels to consider as before – level one where we can check things easily ourselves using the Internet and the property details information, or level two where we may need to use others to assist us.
Level One
- General condition, lick of paint or complete refurbishment?
- The layout – is it optimised for best value? Could we add a bedroom, relocate a downstairs bathroom, extend, change use, etc.?
- Broadband speed and other utilities
Level Two
- State of the electrics, plumbing & heating, windows & doors, roof & guttering, etc.
- The structure – cracks, roof, additional works, full survey required?
- Outside and outbuildings – gardens, garage & parking, sheds & outhouses, etc.
Suppliers & Partners
Finally, we should always consider the people and organisations that we deal with. This is often one of the most overlooked aspects of the research and due diligence phase but one that can make all the difference.
Only recently, I saw news of fake solicitors scamming unwitting investors, some deal sourcers who take monies up front never to be seen again, or letting agents that pocket their client’s money instead of doing what they are supposed to do. These are scary stories and can make the headlines. News headlines do not always tell the whole picture though and the majority of the industry operates to good professional standards I have found but just as buying a used car calls for certain checks beforehand, so too should this be the case with a much larger investment in property.
Everyone involved in your property investment business should be screened, be they a tenant, supplier, professional adviser or other form of business partner.
So for suppliers & business partners and following our theme, we can adopt a two level approach to help peel back the layers.
Personally, I want to know who I am dealing with and depending on the level of engagement would consider vetting and validating many of these people using the following means:
Level One
- Referral and recommendation from people we know, or in my wider network, themselves with a good reputation.
- Undertaking a Google search on any individual and / or company involved (in the latter case, also the fellow directors / partners). Look out for negative press and use the word ‘scam’ or ‘review’ in the search term. Go at least 3-5 pages deep as some people are very good at burying bad news!
- Check on property forums for experience good and bad, noting that this is not always the most reliable source if you don’t know and trust the contributors
Level Two
- Meet people face-to-face and at their premises if possible to verify they are who they say they are and check the way they are organised
- Check up on duedil.com and / or Companies House as to current company trading position, any negative credit information and associated companies / directorships - look for patterns of corporate failure
- Do a mystery shopper exercise, especially with letting agents. See how they treat prospective tenants as well as landlords.
I was asked recently, how do you know who to trust when you are either new to property, or new to an area, or business supplier? The steps outlined above, whilst not exhaustive, will help to put your mind at ease here.
But so too could enlisting the support of a ‘trusted adviser’. A trusted adviser is someone that perhaps knows more than you right now – someone that can plug your gaps. It could be a friend, contact, existing business associate or a mentor of some description.
In my own case, I have a good friend that I have known for over twenty years. He is utterly trustworthy and also well versed in the intricacies of undertaking building works. I enlist his support whenever I am looking at projects that need work. He helps me to avoid traps before, during and after the project and has saved me money in the process but most importantly has saved me peace of mind.
So, I would recommend getting yourself a trusted adviser if possible, or if not follow the steps outlined and develop your gut instinct. Remember, that if it just feels wrong, then it is best avoided really.
To conclude, here are a couple of tools that I use to help me with my own research and due diligence:
- The property portals – Rightmove & Zoopla, these can help us in looking at individual properties and their local comparisons and also with agents and their performance criteria
- Dedicated property research tools like Property Wizza to assess general areas and the demographics of same
- Company look up tools like DueDil & Companies House
- Finally – Google is your friend…look beyond the first page though!
What I have attempted to do in this episode is to outline some of the steps we can and should take when undertaking our own research and due diligence. To follow another fictional character’s advice, what we might call the Goldilocks approach – not too much and not too little but just right.
Between getting the research ‘porridge’ just right and peeling back the layers of the onion gradually I hope that I have given you a bit of a flavour of approaching the topic of property research…did you see what I did there?
OK, so having mixed Shrek and Goldilocks into a podcast episode on property research, I would be interested to hear about your tales now… J
Why not pop over to thepropertyvoice.net and drop a comment in the comments box for today’s show with your top tips or favourite research tools? I would love to hear from you!
Your Voice
I must start today by briefly reading out a very kind listener review from iTunes. You have no idea how much reviews and ratings help to promote the show, so I am very grateful to those that do take the time to do so.
Here is a 5-star review from Mogsiemorris who says
“Great opener
Nice one Richard - a round the world - opening whistle stop podcast of property - liked the review of all the strategies. There really is at least one strategy for everyone - look forward to the next episode”
Well Moggsie, if I can call you that…thank you so much for those very kind words and of course the 5-star rating. I am both humbled and grateful to have you with us and I look forward to sharing more as we go.
I won’t bang on about reviews…too much…I am sure you know the score but if I could give you a short reminder that if you like the show, a review really can help to get the show noticed, so others can see it too…so write it on your to-do list and review away, we would love to hear from you!
Next up, Your Voice can be heard in many way apart from reviews. Following Andy’s SpeakPipe voice message from last week, I was inspired to create a simple one-question survey over at www.thepropertyvoice.net/blog the question is this: Which party will lead the next UK Government in May?
So far the results from several of you that have responded at the time of recording are:
A conservative-lead coalition with 71%
With both Conservative & Labour as outright winners level on 14% each
By the time you hear this, we will be just over a week away from the big day, so why not cast your vote and have your say. The big question is, will you be right?
Shout Out
As I mentioned at the start of today’s show, I was initially tempted to keep this resource purely for my own personal pleasure. However, given that I believe in sharing knowledge I have decided to let go of my inner child and instead share with you this excellent and compelling game.
It is an online version of the Rich Dad, Poor Dad Cashflow game from the Robert Kiyosaki stable. I did wonder how good it would be when I first tried it but it really does reflect many of the principles that RDPD outlines in the book and so it gives a practical and fun way to grasp some of the concepts.
I made it all the way through the game on my second attempt I will admit with you…mainly as I was adopting something of a reckless approach first time around. However, if you have ever played Monopoly, you can see the painful end slowly strangling you well before that happens and so I decided to take it more seriously the second time around. With a little more discipline and sticking to the principles of the book it should be OK to work out how to win at the game.
Be warned though – it is very addictive, so don’t blame me if you get hooked and idle away the odd hour or two will you?
So, today’s shout out is the Rich Dad, Poor Dad online game of Cashflow and why not I say?
OK, so that about wraps it up for another week, I hope that you enjoyed the show. Don’t forget to check out the show notes and get involved in the discussion over at www.thepropertyvoice.net. Don’t forget those Your Voice contributions either.
Until next time on The Property Voice Podcast…ciao-ciao