Rent-to-rent is considered to be a creative property strategy, as similarly to lease options, we can get to control and asset we do not and make a profit it from it. This is because we do not have to take and finance the purchase of the property. My guest this week is a lovely lady, by the name of Kemi Egan. She has a remarkable story of how she got involved in property from a pretty dire situation. She was too poor to declare herself bankrupt after a business failure and had even become homeless as you will hear. However, by adopting the rent-to-rent strategy she started to turn her fortunes around. She is now a successful property businessperson and a millionaire to boot. So it is very much a Pursuit of Happyness story in real life…just as Chris Gardner from the book and film of the same name.
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To receive a free copy of Kemi Egan’s book The Power of Real Estate Investing referencing The Property Voice to by visiting this link: www.kemi.gift
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Education: http://freedomacademies.com/
Investment: http://freedominvestment.co.uk/
Social media: Twitter @KemiEgan & Kemi J Egan on Facebook
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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 it’s a pleasure to have you join me on the show again today.
We are making giant strides forward in this series now and these next two weeks we will be looking at one of the current buzzword property strategies…rent-to-rent.
Rent-to-rent is considered to be a creative property strategy, as similarly to lease options, we can get to control and asset we do not and make a profit it from it. This is because we do not have to take and finance the purchase of the property.
My guest this week is a lovely lady, by the name of Kemi Egan. She has a remarkable story of how she got involved in property from a pretty dire situation. She was too poor to declare herself bankrupt after a business failure and had even become homeless as you will hear. However, by adopting the rent-to-rent strategy she started to turn her fortunes around. She is now a successful property businessperson and a millionaire to boot. So it is very much a Pursuit of Happyness story in real life…just as Chris Gardner from the book and film of the same name.
As you will also hear, Kemi is very much a real person, who is herself and solves problems for homeowners in an ethical way. Let’s have a listen to our discussion now.
Richard: Well I’m very pleased to say I’m joined by the delightful Kemi Egan today on the show and Kemi, we go back a while now it seems, and you reciprocated in inviting me on to your podcast a little while ago, so thank you for that, first of all. Hello and welcome to the show, the Property Voice podcast.
Kemi: Hey, thanks for having me, it’s always great to catch up and we had a lot of fun last time, so I’m a bit excited for this one.
Richard: We did have a lot of fun, I think we digressed quite a lot so it might be par for the course with this, but, you probably know, but just to set the scene a bit for everyone. We are in the middle of a series at the moment looking at financing property, but especially creative financing techniques. I’ve always been impressed with how you started, and we will get into that in a second, and you have gone on in property and particularly on your focus and using creative financing techniques. If I’m just broadly describing…it’s using other people’s money, or not using so much of your own, and not using traditional mainstream lenders like buy to let mortgage providers, that sort of thing. So, that’s a context if you like, where we are at and we are talking to a number of people, who are what I call Subject Matter Experts, in their field, and you are certainly one of them. If I can label you as Rent to Rent, I know you have got a much broader remit than Rent to Rent, perhaps you can share a little about that as well. Wouldn’t it be great to start off by just telling us a little bit about you, give us an intro, bit of background, in particular Rent to Rent…I’m really keen to hear about your story as well, if that’s ok?
Kemi: Of course! Thank you for that warm intro, it does really good for my ego so thanks for that! But yeah, if anyone hasn’t heard about me before, that’s quite likely, I’m Kemi and I started investing, must have been about 8 years ago, or so now. And essentially, I did the right thing, I say in air quotations, and went to uni, got my degree, got my Masters degree, and everything was seemingly great. I opened a healthcare clinic, because that’s what I wanted to do, help people, and basically the only thing I had ever been any good at. So, I opened this healthcare clinic, and if anyone has ever opened a brick and mortar type of business, you will know that they just sap cash out of you. And I spent thousands and thousands of pounds on directors’ loans, credit cards and guarantees and all sort of things setting up this practice that I was hugely proud of. It was the best thing I had ever done. I was just ecstatic. And it went really well to be honest, really quickly I was earning 6 figures, we had a great business, and everything was going fantastically. But the flip side to me being great at what I did—I was a physio, was that I knew nothing about business. And about 85-95% roughly came from insurance referrals. So, if you had an accident at work, or if you had a car accident, you were sent to me to make you better and I billed the insurance company. Which is fine, until insurance companies don’t pay you for between 3 and 9 months. So, you do all of this work for 3, 6 or 9 months and then finally they pay you. Once you have got over the first hump and you have cashflow to start with, these obviously become regular, so it’s less difficult, but what happened is, you may have noticed a small thing, called the worldwide economic crash happened. A lot of these insurance companies went bankrupt, overnight they went into administration and they disappeared, so all of the money that they owed me for the last 9 months’ work, vanished and 90% of my clients and my caseload went overnight as well.
Richard: Wow…
Kemi: Yeah, that’s the word for it! In hindsight, I would have done better in my business and the fact that I had 90% of my income coming from the one place, would have concerned me, but hindsight is a wonderful thing. So, very quickly things got ugly, as you can imagine. I still had all of these set up loans to pay back, I still had all of these bills going out and I had just nothing coming in. So, I started off doing what we all do, selling off everything I had, my car, books, cd’s, clothes, shoes, carpets, just anything and everything, but it wasn’t touching the debt. It was enough at all, it wasn’t even enough for me to live on, never mind keep on top of all the extra bills. So, I was faced with a decision. And, the crazy thing I then learned is you actually have to pay to go bankrupt. So, I was losing money, hand over fist, it was just pouring from me everywhere. My first gut was to go bankrupt, but I didn’t even have enough of the cash to go bankrupt, so I gave up my home and moved into the practice. I was sleeping on a blow-up bed in the back room of this office, like a 60-70 square foot room, there were no windows. And I had to sneak across the road to the Community Centre to shower and the only thing I could cook, was things I could make in the microwave in the office. So, it all got a bit ugly. The great thing about that was, that it was a turning point in my life. And you often find, I’m sure you do Richard, when you are working with your clients and talking to people in general, something happens to make them look at different incomes streams or look at property. And after a few months of crying into my wine and deciding that the world was unfair and why me? It occurred to me that people were still making money in this time. There was the recession and yes, things felt like they were out of my control, but there had to be a way, there had to be something. So, I started googling, and I’m really fortunate, that the things that came up when I googled how to make money fast, were in and around property. And, the stats that we all know about people in the Sunday Times Rich List, are either making the wealth or holding their wealth in property, how you could use different strategies to make money when you didn’t have any, which obviously for me was crucial at the time. And all different things that I’d never even heard of, came up. And that was the first time my eyes were really opened to property. I started googling and I found all of these things out, and I did what I tend to do, I’m a bit of a nerd, I love reading and I love studying. So, I read everything I could get my hands on, there was a library not far away and I started reading books on wealth creation, on self-development, on property investing, read autobiographies on successful people. And I started absorbing all of these things that, for some reason, we don’t feel is important to teach in schools. And then I made kind of the decision, right there, that my life was going to change and I wasn’t going to stand for this anymore. And actually, within 12 months of making that decision, everything was different. I was making more money than I made in my actual business. I had a multi-million pound property portfolio, I had raised other peoples’ money to do a million pounds to buy it. And, my life was transformed, and I am really fortunate now, that we fast forward. I am founder of a couple of companies, we have got Freedom Investment which is our hands-free investing side, property side if you will. Freedom Academies, which is the training side where I can get to share everything that I am so passionate about, as you can probably tell. And I have a lot of fun!
Richard: You do! And, we swap notes and stay in touch, which won’t be necessarily apparent to everyone listening to this now. We are normally a lot chattier, but with your story, I just wanted you to bare that out, sorry to make you bare your soul and take you back to that place. I think what’s really significant—I don’t know if people realise what you said but you were effectively homeless weren’t you? You moved into your office and lived there and had to go and shower across the road. It’s such a powerful turnaround. You mentioned a turning point in life and yours it’s such a powerful story in its own right and so I wanted people to understand that. But, people don’t necessarily have to literally to be homeless to have a turning point in life, do they, there could be other circumstances which make them think, it could be just quite simple, they have just run out of money from investing, traditional investing that is, to have a turning point in life. And that’s what I wanted to get onto to now, is that, when you started out, you didn’t have a lot of money to invest yourself did you?
Kemi: No, I barely had enough money to pay the rent on the office.
Richard: So, I guess, I have framed you as being a specialist if you like, in Rent to Rent as a strategy. Was that one of the first strategies that you employed at that time?
Kemi: It was, yeah. I didn’t know to about Rent to Rent at the time, I didn’t know about these fancy terms like creative finance and things. But, what I knew was, I do what other people tell me to do, I’m a very A-Z person, if you show me six steps and tell me this is how you will get there, I will do it. I have got no interest in reinventing the wheel. And, what I was reading, was essentially about entrepreneurship, and it was taking things of low value to high value. And it was helping people that are struggling with something and making it better. And I remember meeting property owners, meeting landlords that were tired and frustrated and the monthly rent was barely making them any money. Just thinking, hang on a second, this would be great for buy-to-let, or this would be great short term accommodation. But I didn’t have the raise to cash to buy it and although we had raised some joint venture finance and I had some cash, still it was very limited. And obviously, I was being tested, I was new to this industry so people weren’t as confident in my abilities to deliver as they are now. So, I wanted to take advantage of these opportunities whilst creating a win/win situation for people, while I didn’t have any cash. What it made sense to do was actually to pitch this to owners. And say listen, I think you are missing a trick…you can do this and you can do that, you can convert this, from very little cash, I’m prepared to do all the work and how about we both benefit from this? And the thing I think that is really special about Rent to Rent and creative stuff, is you get to be entirely creative, there are no boundaries, there are no walls, no one can tell you what you can and can’t do. You have to go into it with a view of how can I help the homeowner, how can I create something that is appropriate, affordable and great for the tenant and then how do I benefit from that?
Richard: That’s something I want to pick up on later, the benefits to all the parties, but let’s just go back to the fundamentals if you like. Rent to Rent; how would you define it, what is it, as far as you are concerned at least?
Kemi: Ok, so I think it’s one of the best strategies for adding value to the market. I mentioned quickly, you get to help everyone, but if we come back to that, it’s essentially taking an asset that is pretty under-utilised at the moment and maximising the value you can get from it. So, traditionally, if you have a look around at Rent to Rent and if you do it, people will talk about taking, maybe a 3-bed house, and changing that to a 5 bedroom multi-let. So, you will have 5 individuals, rent their bedrooms and sharing the communal space. Which is certainly one aspect. But you are essentially taking a rent or a lease from the property owner and then doing something creative with that property to increase the value it brings in, so you can pay the property owner and you make some money in the middle. So, the multi-let strategy is one, another strategy is to take a property in a fairly popular area, maybe near a town or a tourist attraction, different things like that, a big factory and take the lease from the property owner and then list it on short term accommodation, so, booking.com, Airbnb, using these sites that are now out there to maximise the income to you and far more as for a short-term accommodation, than you would for a long-term rental. And the great thing is, we are now entering this sharing of economy. A few years ago, all of this was a bit odd, no one had really heard of it, it didn’t make sense and everyone was a bit kind of cagey. But now, with Zipcar and Uber and Airbnb, kind of the hard work has been done for us. But, marketing for it as an idea, is done for us. What we have to do is go out there and show our professionalism and our ability to deliver. And how we can actually add value to the homeowner. It’s not a hard sell, like it used to be.
Richard: Yeah, I think you make the key point about adding value, and also, you doing the hard work as it were. So, a lot of homeowners, whether that’s landlords, or private homeowners, they don’t want another job, so what you are bringing is, you will effectively take that work from them to create this value, and your margin in the middle is comparing, let’s say a mortgage, payment or a standard rental payment compared to a higher level of income as a result of it being a multi-let or a short-term let, or something like that. But, there is work to be one to make that margin, isn’t there?
Kemi: Absolutely, and sometimes we will have a landlord that will say to us, well wouldn’t I just do this myself? And, my kind of, go-to answer is, well you are doing it yourself, are you having a good time? Invariably, it’s a no or we wouldn’t have got in touch so, if then I make that you have got 3 tenants to manage and not 1, do you think you are going to have 3 times as much fun and you will have to be really clear about the value you will add. And, often it’s not just the income and that there are no fees etc. But it’s that you are taking the stress and that’s what they really value. Like you said Richard, they don’t really want another job. For us, for me, I really love property. So, show them what you do to help them and help them see it from their side of things as opposed to just, well hang on, why are you making money from my house when you shouldn’t be.
Richard: Yeah, and I guess there will be some that will say, I can do this myself and they will just go and do it. But there will be others, and there is some pain or hassle or some other inconvenience that they want to get rid of, maybe there is lots of voids, maybe they need to do a refurb, who knows. But, you take away all that hassle because often people make a decision emotionally and then justify it rationally, don’t they? So, you can’t say well actually, I’m just so fed up with this, will you just take away this problem and I will be very happy. But they usually say, I know, it’s all about making money, they will justify it rationally, let’s put it that way. Getting into the nuts and bolts a bit more, a Rent to Rent deal; how would it work in practice? What are the sorts of parameters that you would tend to get involved in? and, I know you are going to say, well it depends, but typically, what are the sort of things that you do, how do you construct a Rent to Rent deal, generally speaking?
Kemi: Ok, so, the first thing I am going to look at, if I take a traditional Rent to Rent deal, so, I’m going to lease a house that a property owner has been renting as a single family let and I’m going to let it as a multi-let. The first thing I’m going to look at it, is where my profit comes from, because I don’t do the property owner or the tenants any service or any value if I come up with a deal and it all gets agreed and three months down the line, I figure out that it makes no money and I can’t pay it. So, when I’m figuring it out, I will agree to pay the property owner an amount of money, there will be no maintenance, no management fees and essentially, they have no responsibility for that property. So, I have to build those fees into a figure. So, let’s say, I don’t know, the rent is £700 per month as a single let, that’s what they have been achieving at the moment, we add in 10% maintenance and let’s say 10% voids, it shouldn’t be anywhere near that but, worst case scenario, so you are about £840. You are then going to have, say you will have that as 5 tenants, you got to add in some Council Tax, some bills, some Wi-Fi, no-one can live without Wi-Fi anymore. And let’s say that £840, plus all of that, gets us up to…£1500, I’m pulling these figures from the top of my head. The difference between that £1500 and the gross rent that the 5-room rental should bring in, needs to be a minimum of one and a half to two rooms clear profit. So, put it another way, each of those rooms has to rent for £500, to get sort of, £2500. So, yeah, one and a half rooms gets us to about £750, which would give us, £1750, is what we can afford to spend, does that make sense?
Richard: Yeah, it makes sense. What I actually like about that is, you are converting it into how many rooms give you a profit as well.
Kemi: Yeah and that’s a really clear way to do it. So, one and a half should be your minimum and two plus is fantastic. But, the point with Rent to Rent is you are putting in a little amount of money, if any at all. And you are meant to make money from it quite quickly. So, I always get really stressed when I hear about people who will put in £10000 plus, especially in London its quite easy to do, and then they are only making a £100 a month. You have lost the point and the value of the strategy. So, you want to make any investment back in, ideally, 9ish months.
Richard: Certainly, within a year.
Kemi: Absolutely, yeah.
Richard: Yeah, and what about cost of getting involved in the deal? What sort of things might people have to think about? Will they have to pay a deposit to the landlord or owner? For example;
Kemi: Occasionally they might do, I think that often depends on how well you position yourself as an expert and knowledge. We rarely, rarely pay a deposit, unless there is a really good reason for us wanting that. You can take insurances out, and they are really great for negating those costs. The landlord might say, well I want a deposit, well actually, what if I take out a rent guarantee insurance for you? You know, that might cost me £30 or £40 quid a month, but that’s essentially, your deposit covered. Are you happy with that? Generally, they are, all they want to know is that they have got some kind of buffer, some kind of guarantee there. So, you have taken down a deposit, that might be 1 month, 1 and a half months, so, £700-£1000 using our previous example, down to £40 a month or something. Which dramatically lowers your entry costs.
Richard: That’s a good idea.
Kemi: It’s brilliant. Oh, I love insurances, we have insurances for boiler repairs as well, and often in cases we get the landlord to pay for that, and it’s like £15 a month and that covers the boilers and the plumbing, and all of that. So, you don’t get any horrible surprises. The other thing I should say, is when I say we will cover the maintenance, we will cover usually, anything that is not structural. So, windows, walls, roofs, is there problem. And, things like general wear and tear type things, so if the shower needs replacing, that still belongs to the landlord. But, you know, the door handle comes off, we will cover, the tap leaks, we will cover that. So, all the day to day things, they don’t have to worry about but if something breaks that would generally add value to the house or forms the structure of that house, they still take care of. And they are entirely happy with that, that is standard anyway.
Richard: Yes. And what about when you get rid of the front end, what about conversion costs or refurbs if the property is not quite up to scratch of what you are intending to use it for?
Kemi: Yeah, so generally now, I’m quite happy to pay for a light refurb, it kind of seals the deal in a lot of cases if you say to the landlord, not only am I going to do this but I am going to paint the house from top to bottom and maybe replace some of the flooring. Well at first I didn’t have the cash to do that. So, they had to cover that cost and that probably lost us some deals, so you have to look at that from your own financial perspective and what you can do. But, sometimes what we will do is say, listen, you need some walls, you some fire doors, that does add value to your house. In reality, if you wanted to, you could go for a commercial mortgage or you could have your house revalued, based on what we are doing, so really that should be your cost. And if they say I can’t afford and you feel that’s genuine and you are able to and happy to, you might pay that up front but take it out of their monthly payments over the next 12-18 months. And again, they are quite happy with that, they just don’t want to pay anything up front, no one likes putting their hand in their pocket, they are no different. If actually they don’t have to but they are getting the security of a job well done but they are getting a slightly lower income for a while, they are fine with that.
Richard: That sounds like a good plan. I don’t know about things like, if you are doing a short-term let in particular, HMOs similarly, you are going to have some costs to kit out the place as well, aren’t you?
Kemi: Yeah, for sure. So, staging is crucial and that will enormously effect the amount of value you can charge per night for the accommodation. And there are lots of ways that you can help them in that. Again, talk to the landlord, ask them if they are prepared to put in. If it doesn’t have white goods in, are they happy to do that. And perhaps, you in turn, the rent will pay them slightly. If they put in a nice fridge, a washing machine, a tumble dryer and whatever the big bits are. Well, maybe we will pay them an extra £30 a month over the next 5 years that you have the contract. So, naturally, they quickly do the sums in their head, that’s made them an extra £3000, they are happy.
Richard: Yeah. You mentioned contract loan, I meant to ask you that. So, if you are talking about things like; looking to break even in around 9 months’ type of thing, how long, typically how long would you want you want to enter into an agreement with the owner for?
Kemi: Ideally, we go for about 7 years. Think the minimum we will do is usually between 4-5, you have got to make it—you have a couple of things to bear in mind. Firstly, security of the tenure for the tenant, so you can’t have a really short-term contract, and take an AST for a tenant, knowing that actually you might not have the house in 18 months. It’s fairly disingenuous and unethical. So, you need to make sure you have got it for a set period of time. If you are getting your costs back in 9 months, in reality, you want to make 4-5 times what you have put in. so, you want 3-4 years, to make some money back and actually make that a worthwhile investment of your time. And, in my experience, the landlords, they get a little bit twitchy at 7. It’s really funny, I’m not quite sure why, and at 4-5 they are quite happy. So, you might do a 5-year lease with a 3-year extension, assuming everyone has fulfilled their obligations. And, I think when you know what the difference is between 5 and 7 years, there is obviously something logical in that, they feel it’s too long.
Richard: It’s the 7-year itch, Kemi, I think probably. Could be! I just made that up, no idea.
Kemi: But, yeah, whatever that is and you know, a great way to get around any question they have, is ask them the magic question…what would you like to happen? They will come up with all kinds of objections, that hadn’t even crossed your mind to start with. And you are like, is that even a thing? My answer is always, well what would you like to happen? You know, they say well, what if you disappear off the face of the earth? Ok, valid point, what would you like to happen? And as long as it’s reasonable and it makes sense, put it into the contract. Someone saying, what if your company goes under, ok, what would you like to happen? And it was something along the lines of at the first, they wanted to put in the contract that, at the first awareness you have that your no longer liquid, you hand the property back and you have to give notice. Ok, fine, put that in, that’s reasonable. But just ask these landlords what they would like to happen, sometimes they don’t even know, they are just throwing it out there to see what you would say, and you can go back with a constructive answer, they are happy. Sometimes they do have something in mind, and like I said, as long as it makes sense it actually solves the problem that they think they have raised. And if you don’t think it’s unreasonable, put it in.
Richard: Some really valuable things that you mentioned there. Such a powerful point to say in a conversation isn’t it, what would you like to happen? What you are doing and the whole point of creative financing strategies, is you are providing solutions. Well, you can’t solve what you don’t know is a problem, can you? And equally you might suggest something, which just misses the mark, as far as the other person is concerned so. I think that’s such a powerful, it’s one of the sentences I have just written down. Definitely will use much more. What would you like to see happen? Very good.
Kemi: And the really incredible thing with it is, that we have secured deals, paying less than other people have offered because we are prepared to do that. To have the conversation, to ask what would you like to happen? How can we make this work for you? To actually solve the problem, you know the fantastic thing about creative financing strategies and the thing that I think is a challenge with them is, that you can get into it with no money. So, occasionally, you will see people out there that just want to make some cash, they want to make a quick buck and they are not interested in providing value. Which does the whole industry a disservice. But, if you are the person that goes in and you are educated and you know what you want to do, and more importantly you actually want to help and you want to solve the problem. You will stand out a mile.
Richard: Yeah, and I think conversely the other thing I have heard a lot of people doing is, signing up to say a one year contract, and then really speculating that if all goes well it will be extended, that kind of thing. And I just keep thinking to myself, that’s not a sustainable business model. So, I’m glad you said you aim for a good chunk of time really. You need that and also as you say its an unethical position to adopt for the tenants who are going to live there.
Kemi: Yeah, and I’m glad you mentioned that as well, you know, for everyone listening, please don’t speculate. If it doesn’t make sense on paper it will not make sense in real life. Don’t try and go, well if I can just kick £10 here and shave off £10 there, if a deal is that tight, it doesn’t work. Don’t do yourself the stress and the pressure of having something that just doesn’t do the job. It’s there to make you money. So, if it doesn’t work, then either offer them the best you can, try and be a bit creative, instead of doing a multi-let, would a short-term let work? Would that get you where you need to be? Or walk away. But, just don’t, for your own sake as well as the landlords and the tenants, don’t agree to something you can see on paper isn’t working. Don’t get on board, don’t speculate. It will burn you in the end.
Richard: Totally agree, very sound advice. Just while we are talking about creative financing generally, and I don’t want to pigeon-hole you totally, as just solely Rent to Rent. What other creative financing strategies or themes do you get involved with? And do any of them spring out in your conversations around Rent to Rent, for example?
Kemi: Yeah, absolutely and I think the thing that we do, that I think you do as well Richard. When we are sourcing for leads, when we going out and we are doing our marketing and we are trying to attract deals, I’m rarely specific about the type of thing that I will offer. So, we might send out a mailing, you know, we are looking for properties in your area, do you have anything available? We might put out that we want to rent something in the area, all different types of marketing strategies, and actually when the lead comes in, the first thing I will say is, what would you like? What’s your ideal goal? I’m here at here end of the phone, you are sat there, you have got this house that’s empty, what do you want to happen to it? And then we will fit the strategy to, as close as we can, to what they want. A lot of the times they do want shot of it, but you know, there is still a business for us, so we will pay a bit less than the market value, maybe they are not ready to do that. So, we will tie in a Rent to Rent with a Purchase Option. So, they have guaranteed rent in the meantime, they don’t have the stress, but in a couple of years we will buy it from them at a price they want. And they are really happy. Sometimes, someone is half way through a refurb, and actually they have over spent, or they thought they would get a mortgage and they won’t. So, we will come in and we will slightly tweak the refurb to make it a multi-let, when we think it is at the value that it needs to be to get that money, we will do an Assisted Sale with them, or that will be the contract that we set up in the first place. So, you know, we are going to multi-let this for 18 months, when we think the market has done what we needed it to do, or whatever has happened then we can sell it and we will give you the investment back that you made into refurbing that house. Bu, it comes back to the things we were talking about before, actually adding value and solving problems, and looking at everything as a stand-alone. You know, to start with you might not want to have all these strategies, because it’s a lot to have in your head, and you want to know your theme really well before you add 3, 4 or 5 more strategies to it. But, if you can have an overall knowledge of them, or an awareness at least, you can at least sell back... say listen, we have got someone here who wants an Assisted Sale, or his house needs 10k spent on it and actually there is a good chunk of change in this. Sell that deal on, make yourself some money, put it back into marketing to find the deals that you want.
Richard: Very good. It’s all about solving problems. It’s interesting what you say about general marketing, not necessarily highly targeted, you are just looking for people to reach out and say I might have a problem with my property, can you fix it for me, or words to that effect. So, that was really interesting. Specifically, with Rent to Rent though, when you started out, a few years ago, you talked about there being a recession at the time. Rent to Rent resonated for perhaps for a number of different reasons back then. Do you think it’s still relevant today? Is it a viable, sustainable strategy going forward?
Kemi: I really do, and I think, especially at the moment with the tax changes and the uncertainty we have got in the market, it provides and even greater opportunity for it, because we, as humans, we love certainty, we knowing what’s coming in, we like knowing what’s going out, we like knowing what’s happening and definitely don’t like when things are up in the air. So, at the moment when you have got amateur landlords, people who maybe own, 1 or 2, or bought one, moved out of it and now they are left with this house. They are reading the headlines that say property prices are going to plummet, rents are going up or down, taxes are coming in. What they want is someone to say to them, listen, for the next 4 years we will give you this each and every month, you don’t have to think about it, you don’t have to worry about it and that just gives them that level of certainty so that they can plan, manage their life and do whatever they need to do. Now, that said, in no way…there was a recession and prices were lower so it was a lot easier to tie in options. Now, unless you are doing marketing in certain parts of the country, obviously, the South East, London, the prices are flying up at the moment, most people don’t want to do that because they don’t need to. So, look at your area, consider what value you can add, so in the South East, short-term rentals are huge. People are renting out their homes, their flats, their whatever, for short-term an that’s where you get to add value. So, again it comes back to looking at the market place and seeing what problems you can solve. At the moment, the big problems we are solving are; certainty, we are giving people certainty. In some cases, we are seeing landlords that have read about this Airbnb thing and they are interested but they don’t want to be ripped off, and they have had all of these kinds of things going on, so we are actually dealing with them, and one having a fixed rent, will say listen, we will do this, we will fit it into our business and then we will take a cut of the profits. They love it, because we have got a vested interest in maximising how much money comes out of that property, they love it because they are getting more money than they were before. So, you get to, again, look at the market, look at the individual, figure out what they want and then give it to them.
Richard: Yeah, what I was going to say there was, you have kind of got a couple of flavours, just to the owner, certainly with Rent to Rent, it was pushed out on the circuit, was you pay a fixed rental to the owner of the property, whether that’s a landlord or a private owner, so they get that certainty with that fixed rent payment. That’s the win for them. As you just added, this sort of JV model, so, you are allowing them maybe to participate in some of the upside of your value creation. It’s not just a fixed potentially lower, guaranteed rent model, that you are offering in that situation. It could be more of a variation, let’s be in this together. You can participate in the profits of my hard work almost you know.
Kemi: Exactly. And you will see them, kind of physically taking, almost a step back, and they are like, oh, ok so you are not just trying to rip me off for everything I have got, you are genuinely in this to make this work. And you can stand there, hand on heart, look them in the eye and say yeah. Let’s do this together. Like you say, you can benefit on the upside and see the benefit as we create it. The same as you were saying before, when the market changes there are a few things that don’t change and…landlords. when they are fed up, they are sick of it, they didn’t get into this in first place, it wasn’t what they wanted someone gave them the house, or whatever happened, the market doesn’t change that. The market doesn’t change whether or not, a lot of…we have actually just done an audit and actually a lot of our leads come from women that have been widowed, and statistically we know, women outlive men. And their husbands or their partners have invested in property, and now there are left with this house that is probably a bit unloved. It needs a bit of love and bit of paint and tidying up, they don’t have the confidence to go out there and work with trades, they don’t really want to and they feel a bit bad selling this thing that they have been left, so it works really well for them. So, while the market changes, people and human nature doesn’t.
Richard: So, I was going to ask you actually, where do you find these types of property, you kind of hit on a couple of potential avenues there already. So, as you mentioned, widows and tired landlords could be some rich pickings I suppose. That’s a light phrase for it. But, what about other areas, how do you go about finding deals?
Kemi: Yeah, so another one, is properties that are already multi-lets, that coming up to the summer holidays when they should all have been re-let for the next season or next semester are still on the market. Because that tells you it’s probably not in great condition, or the landlord isn’t being flexible in something, there is something up with that property if it’s not let and it should be let to students by now. So, that’s where we find a lot. We find a lot from properties on the HM Register. They have been converted, they are fully licensed but the license has come in as have other regulations and the landlord is just a bit… we find them in free newspapers, you can still turn to the back of a page and see that there are houses for rent, which I think is hilarious and brilliant. But they are people that are trying to avoid fees, whether that’s because they are tied into an ugly mortgage and they have got really high interest rates, they need to maximise as much as they can. Or actually, they are just really acutely aware of the value but they are trying to avoid letting agents’ fees, so they will market themselves individually there. Gumtree is obviously a huge, but please I beg of you, for anyone that’s listening who is going to go on Gumtree, do not send the message with something like, ‘Hi I am whoever’, and there are two messages. ‘If I offered you cash, what is the lowest you could take’ and the second one is ‘Would you be interested in re-letting for say 3-5 years with an option to buy it at the end, let me know’. Because I’m not quite sure where these messages are coming from, I think maybe someone is telling people to do it, but anyone who puts their house up is getting 30-40 of these, automated not personalised, they are not getting any attention. Pick up the phone and say hi, I have just seen your property is for rent, is now a good time to have a chat, be a real person and you will really stand out. Secondly, if there is no number on there, send them a message, ‘Hey it’s Kemi, just seen your property for rent, is there a good time for me to give you a call’ and start the conversation. Not these pigeon-holed messages that don’t really say anything other than I have got a plan I’m not going to tell you about.
Richard: Yeah, so, be a human being, even. Start to build a relationship. This is a theme that’s running through your answers Kemi, I’m kind of noticing that, you are putting the other person at the centre, you are finding a solution to their problems, you are treating them as an individual, you are bespoke and tailoring. You are building a relationship to build trust. If I am right in picking those elements out it sounds to me like that your approach and there is a lot of valuable information that’s coming out, so thank you.
Kemi: The first reason is because I was once told, by a marketing guy, that something like 60% of deals are done after the 4th touchpoint and I went back and had a look and that was true in my business. But the only way you get to have 4,5 or 6 touchpoints, conversation whatever with someone is when they like you and you are going to have a conversation. So, if you are turning people off or they are immediately not liking you because you are straight to the figures, then you are doing yourself out of potentially 60% of profit in your business. And the second thing, is that, as humans, we are all pretty selfish, we all think the world revolves around us, and ours are the only problems out there. So, when you are talking to the homeowner, they are thinking the only thing that matters right now, are me, my money and me. If you go, turn up and you are thinking the only thing that matters is me, my money and me, you are going to butt heads and it’s not going to work. If you turn up and agree with them, you are absolutely right, this is what we are going to talk about, you are the concern. Suddenly, they will think, "Oh, she cares, he cares, this is interesting." and they want to work with you. And it’s a really cheap way, it doesn’t cost you anything, of getting a whole tonne of more deals across the line.
Richard: Yeah, I think you are making such relevant points. I got a Facebook invitation the other day to connect with somebody on Facebook, I would normally try and see if they were in a similar field to me before I just accept people as connections that I don’t really know. So, I could see there was a property interest, so I thought, yes let’s connect, you know. And then within a minute I had an email in my inbox, pitching me for some super-duper type of opportunity. To be honest, I normally just ‘unfriend’ immediately, but in this case I thought, I am just going to write back and say, do you normally find this approach works for you as a marketing angle?! Connect to someone on Facebook, a few minutes later hit them up with some sort of investment proposition, and they just came back and said ‘No, not really’, I was like…! To be honest, we are still friends now, because I appreciated their honesty, but I am not sure I will be rushing out to engage with them. I just have a couple of questions that I want to combine for you that I had in mind, and one is, because we do digress, the two of us, I know that, but…an two; I wanted to ask you; advice for people that might be starting out with considering Rent to Rent as a strategy and also things to watch out for, downside risks, ‘gotchas’ that sort of thing…I don’t know if it’s fair to lump those two together but see if you can just give us a top line view on that, it would be great.
Kemi: Ok, so, I will do the risks and stuff first of all, because there are risks. And, a lot of the time people might think that they don’t have any kind of liability, that nothing can come back on them because they don’t own the house or whatever else. And that entirely incorrect. So, make sure that you are legally covered, make sure you have got a legal agreement that covers the points and the only thing really that causes discord in relationships is ambiguity and grey areas. So, just bullet point everything, make sure it is out in the clear, if it’s the first time you are having a lawyer draft an agreement for the first time, a top tip is having the terms agreed already, and use a property experienced lawyer. So, send them a note saying, this is what we have agreed already, please create that. And don’t let them cause problems, by going back and forth and interfering like some lawyers do. Make sure you are covered legally, make sure you have got your appropriate insurances and you are registered with the Property Ombudsman and those kinds of things. They don’t cost a lot, and actually they making their money back, by making you stand out from the crowd, from all the jokers that rock up with dirty shoes, trying to just do a deal. You turn up, appropriately covered, being able to demonstrate that you stand out from the crowd, right away. The biggest thing and I see it time and time again is, don’t be optimistic, do your numbers, if it doesn’t work on paper just don’t do it. They are probably my top 2 or 3 kind of risks to prepare yourself. And the second thing was for people starting out, wasn’t it?
Richard: Yeah…sorry. I threw two at you at once, sorry.
Kemi: That’s ok. So, the first thing is, have a portfolio, even if you haven’t done a deal yet, even if you haven’t done anything yet, you can still have a small leather-bound or whatever, folder essentially and you can put in there a friends’ case study, JV partners case studies, if you don’t have any of those, maybe somebody you are friendly with has some, or create some assessments. So, you can go into the property owner or the letting agents and say, listen we have carried out some case study research in your area and this is what we can achieve in your area. So, you are really showing how professional that you are, you are showing that you have done you research, you are showing them what’s happening as opposed to just wandering in off the street with an idea. As soon as it’s in a folder, you really have a sense of authority and people listen to you. Second thing is, have an online presence, I use and I love ClickFunnels because you can systemise so much from it and you can have a really professional website for peanuts. But the thing about websites and website presence is that you have a decent email address. I genuinely received an email from someone not that long ago, not to digress, but it was something like…gonnabeabillionaire@something.com I was just…I struggled to take that one seriously as well. Pitching me something as well, I think it was an investment opportunity. So, a genuine professional email address. Be professional in your approach, is another top tip, you know, you can be authentic and you can be real, I hopefully I sound real, because I am, but that doesn’t mean you get to be lazy and unprofessional, it doesn’t mean you get to turn up looking scruffy and unprepared. You don’t have to be necessarily, top to bottom in suit, but you do have to look appropriate and professional. You know, property is someone’s biggest asset, if they are going to trust you with it, you have got to look the part to a degree. Don’t lie, people are going to see right through and just be ethical and honest in everything you do, it might cost you a couple of deals, it might take you a couple of months longer to get to where you want to go. But the reality is when you get there, you will speed past the people that created their business on sand and it has now come down crumbling around their ears. And I know when I started, I remember looking at some people and thinking, how are they there already, and one by one they have gone out of business, and while I am not particularly happy for them, that I don’t like to see, it reaffirms the importance of building a real business that has got a foundation that is going to see you through the next few years and however far you want to take it.
Richard: Well, that’s so powerful and I totally resonate with everything you said in that last summary about being real, authentic but being professional and equally having strong values, being ethical and honest and perhaps it might cost you short-term but it’s going to pay off long-term. It’s all about sustainable investing so it’s great to hear you say that. I could carry on talking to you for ages, for hours in fact, but we need to keep the listeners in mind and draw a line there. Perhaps as a slight conclusion, is there anything that potentially you would like to make available to listeners of The Property Voice that you think Kemi, that they could value and appreciate in this context.
Kemi: Of course, and thank you for inviting me on again Rich, I have had a huge amount of fun, thank you to all the listeners, I hope this has been valuable for you and there’s something in there that you can take away and implement. And just as a thank you to everyone really. I have got a copy of my book, The Power of Real Estate Investing, I released it last year, went to Number 1, we have had something like 20000 copies worldwide which has been a little bit incredible. But, you can grab a free copy of that at www.kemi.gift grab a completely free copy of that just as a huge thank you for your time.
Richard: Well that’s great and I have read your book and it’s a very good read, very compelling, very powerful read. Your story and what you have gone through there and some tips of how to grow a property business as well. The link is going to be in the show notes. Is there a good way to get hold of you as well, I know you were kind of saying goodbye there, but before we wrap it is there anywhere we can point people to if they want to find out a bit more about you and reach out?
Kemi: Yeah so I am quite fortunate, I have got an unusual name, so I am all over social media, Kemi Egan on Facebook, Kemi Egan on Twitter, sensing a them there…drop me an email as well, kemi@freedomacademies.com comes straight to me. So, no one else will see that, comes to my email address and then my two sites if you want to have a nose around what we are up to we have got freedominvestment.co.uk and freedomacademies.com so, come over, say hi, I would love to hear from you.
Richard: And I am sure people will get a lot of value talking to you Kemi, we certainly have on this episode and other courses as well, so I am expecting a lot of people to reach out to you for that. But, I just want to say thank you very much for all the valuable insights you have given on the show today and I think if I could just take away one overriding theme, I think a couple actually, one is to be authentic and be yourself but equally, put the other person at the centre. That seems to be your approach, conscious or otherwise I think. But, finding solutions and putting the other persons’ interests at the heart of everything you do, you probably won’t go too far wrong if you do that. Thanks Kemi. I really appreciate you being on the show again today. You never know, we might try and get you back another time maybe, but thanks again, really enjoyed talking to you.
Kemi: Awesome, thank you!
Richard: Bye-bye
Property Chatter
Interview with Subject Matter Expert: Kemi Egan.
Resources mentioned:
To receive a free copy of Kemi Egan’s book The Power of Real Estate Investing referencing The Property Voice to by visiting this link: www.kemi.gift
Kemi Egan’s contacts:
Education: http://freedomacademies.com/
Investment: http://freedominvestment.co.uk/
Social media: Twitter @KemiEgan & Facebook
There was so much I could take away from this discussion with Kemi. The two big take aways were about approach: be a real human being and be an ethical problem-solver. This is all about relationships and values and so that resonates with me a lot.
Aside from that, there were plenty of nuggets dotted throughout the discussion that I would even suggest you listen to it again to capture them.
Rent-to-rent as a property strategy is where we can get to control a property without owning it by changing its use to create additional value and profit, such as by turning it into a multi-let or short-term let.
In addition, some additional tools in Kemi’s problem-solving toolbox that she brings out depending on the answer to het key question ‘what would you like to happen?’ include: rent-to-rent with a purchase option, an assisted sale, a delayed completion or even a JV with the property owner. This is why having a solution-oriented approach is so essential, as different outcomes may result from an owner’s stated wishes, which might be rent-to-rent but might be something different too. That’s the trick with creative property strategies…being creative and matching the right problem to the right solution. Of course, rent-to-rent is an active property strategy, where we are being rewarded for our time and knowhow, even if we no or little money to put into a deal. This of course is why it has become a popular strategy for investors with no or little funds of their own.
Don’t forget that Kemi mentioned that you can get a free copy of her best-selling book The Power of Real Estate Investing, the link is in the show notes, along with the other resources mentioned.
This is a part one of my discussion about rent-to-rent. Next week, we drill further into the discussion and see how we can combine strategies for maximum profit using a creative financing technique as we explore rent-to-rent using serviced accommodation.
For now though, let’s leave the discussion there until next time.
As always, email me personally if you want to talk about anything from today’s show or more generally in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net
Other than that, I would just like to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.