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As a result of a few recent conversations, the topic of being ready to do a property deal has been on my mind. Whilst we are in lockdown it seems unlikely that we can be ready to do business doesn’t it? However, that is not necessarily true...we need to be prepared in terms of satisfying ourselves on the condition of a property, along with the legal and financial aspects too. The financial elements can include working with private investors and that’s the emphasis with the second half of today’s discussion. Listen in to be ready for when the time comes to execute your next property project...whenever that may be!
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Transcription of the show
As a result of a few recent conversations, the topic of being ready to do a property deal has been on my mind. Whilst we are in lockdown it seems unlikely that we can be ready to do business doesn’t it? However, that is not necessarily true...we need to be prepared in terms of satisfying ourselves on the condition of a property, along with the legal and financial aspects too. The financial elements can include working with private investors and that’s the emphasis with the second half of today’s discussion. Listen in to be ready for when the time comes to execute your next property project...whenever that may be!
Property Chatter
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 again on the show today. Well, I'm here sitting at home, obviously. I've got a nice glass of red wine next to me, actually probably one of the better ones I've had for a little while so that's quite nice. Of course, we're facing another period of lockdown and, in all honesty, it's probably going to be a little bit longer than that as well. I think we're being eased into the situation, if you like, and I do recognize that you have to be led by the medics and the scientists, et cetera, on what to do.
Then, what's been on my mind, I guess, a little bit is I've had a few exchanges with a few people over the last week or so around the topic of ... Well, there's kind of two related topics. As a property investor and developer we should always be ready, ready for the opportunity that comes our way. I call it readiness, basically, just making sure that we are ready to go and to proceed with a project or a development or a property deal if it should land in our lap.
Now of course we're in difficult times. Things are restricted, financing is limited, people can't go and do visits and surveys and things like that. At the same time, there are going to be people who want to move, who need to move, and if a right type of property deal comes about then we should be ready for that just as we would at any particular situation. It might be that we need to be ready in a slightly different way right now. For example, trying to complete on a transaction when you can't actually get financing could be quite tricky, for example.
That led me on to thinking about working with investment partners, whether that's private debt finances or joint venture partners from a more equity point of view. I guess that's one way of getting ourselves ready so if we don't necessarily need a traditional mortgage or any other kind of traditional financing facility, it might put us in a better position to perhaps proceed on an opportunity should it come our way.
Now don't get me wrong, I'm not saying that when people are suffering that we should be focused on the wrong things. I am saying that we need to keep the wheels of industry turning. Some of the forecasts for gross ... Excuse me, GDP, let me say GDP, are a little bit grim for what will be Q-two but there is projected to be a bounce in Q-three, Q-four, and into next year as well.
In other words, a short shock shock, as I've been saying, and then something in recovery. I don't know, who knows, I don't know. The situation is that we need businesses to be successful, to be able to employ people, to be able to pay taxes and so on, so equally, people need somewhere to live. We are looking obviously to fill some of that void.
In my own case, I'm trying to counter balance parts of my income stream, which have maybe taken a bit of a back seat, let's say, or more than a back seat in some cases and so we need to counter balance that of course to be able to get through this period. There could be projects or opportunities that could emerge, not necessarily right now but soon, let's say that. I think it's going to take some time for the market, the property market to sense or reflect more likely what's been going on over these past couple months, really, but we should get ourselves ready to act.
Being ready is one thing. Perhaps using private finance, whether that's debt or equity is another thing. What I really wanted to focus on for the latter part of the conversation is really working with those private investors. I think some of the conversations I've had ... Actually, the feedback I've got when I give my impression has been somewhat surprising. Let me explain. For example, I've raised over five million pounds worth of private finance predominately in the last few years, actually. It's quite a lot of money, it is to me. It may be not to some but considering where I came from in terms of where I started, it's a lot of money.
We raised over five million pounds worth of private funds, as I mentioned. Now, if I tell you that the majority of that funding has come from three people predominantly, so the significant majority, about 80% has come from just three individuals over that period of time. That's the piece I think that's shocked people I've been speaking to about this. As we delve into this, what we learned is we don't need a lot of relationships to be able to fund our business, what we need is the right types of relationships and quality.
We're not always a good fit for everyone, and I think that's an important consideration. In terms of, "This is the holy grail, isn't it? Get private finance of some description and then you can undertake any property projects with relative ease." It's considered the holy grail but it isn't necessarily going out and mass marketing and trying to attract lots and lots of different people to work with us, and that's my key point really.
What we need to do is project ourselves in the right way and in the right communities to reach the right people who are going to work with us. Obviously, I talked about three people and those three people actually I've grown very close to over the years now that I've been working with them, as you might imagine. Of course, it's a business relationship or an investment relationship first and foremost, and I take that responsibility very, very seriously. I think that's part of the reason probably why I'm working with those three people because I do, I will put them ahead of myself, for example.
Some examples of that is I'll do extra due diligence on a deal that they're involved with, and perhaps I would be involved in. I think it's just going the extra mile really to protect their interests. I always seek to understand what kind of risk appetite they have, risk profile they have, what kind of security they might need. The three people I'm talking about are quite different, actually, in terms of their risk profile so what works for one doesn't necessarily work for your other one.
It's really a case of understanding their needs, understanding their issues, and then really fitting and matching the projects and the funding structures that I'm looking at to those needs. That's very much at the heart of what I do. I think the other thing is really just making sure that we are thorough and diligent in the way we approach them. We should have a deal pack or a development pack in order, we should have all the facts, we should have independent corroboration of our data.
It's not just an opinion, we should get market statistics, we should get professional opinion to support what we're saying in terms of our developments and financing projects or property projects rather, so I think there's that kind of it. We're talking about the relationship side of it, we're talking about the numbers side of it, we're talking about due diligence, we're talking about security and structure, and of course we've got the risk and reward trade off as well.
At the narrow end of the scale, someone who wants minimal risk and maximum security is probably not going to get the right or the same level of return potential, and I'll use that word deliberately, as somebody at the other end of the scale who perhaps is not necessarily ... They're looking for more return, let's say, and they'll compromise on some of the security and the risk level in order to get that sort of return, but of course it is a compromise, it is a trade off.
I think it's understanding who you're working with, understanding the project, being professional in how you put things forward, understanding that partner, and making sure there's a good fit. In other words, going out and just broadcasting. This is where this comes about because I received an email, I think it was late last week, from someone who was basically pitching me for an investment, and that's fine. They were pitching me, they heard that I invest in businesses and they sent me an email, but here's the thing, I didn't know who they were.
They knew me because they ... Well, they knew of me, let's say that because they listen to my podcast and things like that. They knew of me and I got this email pitch and it went into a level of detail in terms of the narrative in the email but it didn't have very detailed what I would call a business case to justify the proposition that they were putting forward. Now, this was really curious to me. I was like, "How can you just email someone?" If I tell you some of the detail that that individual was looking for me from a first email to fund, I think it was 140 or was 160% of the purchase price of a business they were going into. In return, they were offering me 25% of the equity, and there's just so many things about that I could talk about.
If you look at my LinkedIn profile I shared some of the lessons, actually, over the last over last week. First of all, do they know I'm an equity investor? Do they know what kind of return expectations I have? How do you justify saying to someone, "Well, actually this, I have 100% of the purchase price of this business that I'd like to get involved in and would you support me please? I'd like you to pay 160% because I want some extra. I've got no skin in the game myself and, by the way, I'm going to give you 25% of the equity in return." That's obviously quite a good deal, isn't it?
I think it missed the mark on a number of levels. Again, if you've looked at my LinkedIn profile, maybe I'll put some links in the show notes so you can just see it, it missed the mark on a number of different levels. First of all, they say in normal sales it takes about six contact points on average to achieve a sale. Some people may disagree with that, it's just some of the statistics, and I guess for a more complex sale it will be more contact points of course.
If it's an investment proposition it's likely to be at least double that. It's going to be much more significant. It's a personal business that we're in and if you're working with personal lenders, personal equity partners, then it's about forming a relationship with them, understanding their needs, then getting comfortable with you answering their questions. It takes time, it takes time to do this so it's really difficult for someone just to pitch, if you like, in an email and really expect to get a good result. I don't know how much success they'll get from that kind of approach.
I think there's nothing wrong necessarily in saying, "Hey, I'd love to talk to you sometime if you have a minute. This is the sort of thing I have in mind," without necessarily going into detail, in kind of a pre-qualification type of approach. Even then I would imagine that the percentage rates of success would be relatively limited. The point I'm really saying is that when we're looking for private finance it's not really a scatter gun approach that we need, it's a much more targeted approach.
Now, we can talk and position ourselves, and tell our story, and talk about what we're involved in. That's great, and what it will tend to do is it will attract people to us. Like attracts like, as I like to say. Too many likes in that sentence, I know, but like attracts like. If we're putting ourselves out there, we're talking about what we're doing, we're talking about how we do it, we're talking about who we are as people, then inevitably we're going to get an audience who are going to be watching what we're doing.
Of course, if we know people in our inner circle, our communities, our friends and families, for example, we may be able to initiate conversations. I'm going to say initiate conversations, I don't mean ask for money, that's not a very elegant way of doing things. I think if we initiate conversations, it's like talking about property, talking about investing, just generally having that type of conversation; which I've done with certain people in my network. What I tend to find is it evolves over a period of time and that period of time can be years literally.
I think it's a case of just communicating, putting ourselves out there. If you've got any kind of public profile, public presence, which could include social media, it doesn't have to be a blog or a podcast or a YouTube channel or something like that. If we've got any kind of public persona, we can be talking about what we're doing and people will be watching and people will be observing.
Those people, over time, if they decide that that's something that they'd like to pursue, they could reach out to us and connect and start a conversation. I think where I'm going with this is it's a case of just being calm and relaxed when that happens, not being desperate and just waiting for those particular moments. Putting ourself out there, putting our best foot forward, if you like, presenting ourselves in the shop window. The phrase is attraction marketing.
We're just talking about ourselves. We're talking about the opportunities that we're involved in, the projects that we're involved in, and naturally people will migrate to us. If they resonate with us, and bear in mind, we can't resonate with everybody. We are who we are and some people are going to appreciate that and other people not necessarily quite so much. I think it's a case of putting ourselves out.
This is my philosophy, I'm sure other people have different approaches, but in my case I think it's a case of putting ourselves out there and then we're going to get things back. Going full circle, so five million pounds worth of investment, could I have done it differently, could I have done it faster, yes is the answer. If we're going to go down the peer-to-peer or crowdfunding route, then maybe it's 1,000 here, 10,000 there, 500 here, 20,000 there type of thing, in which case that's a very different kind of proposition. That's more of a mass market type of proposition.
If you're talking about people who are putting hundreds of thousands, half a million up to a million into your investment projects, then it's a longer term relationship that needs to be cultivated. People need to see you, to know, like, and trust you, and that usually takes a period of time to establish so I guess that's the summary. It's unscripted, as you might be able to gather, this piece, this conversational piece, but I just wanted to share a little bit about being ready for when opportunities arise, generally speaking. That means having all our ducks in a row, so to speak.
Part of being ready is having our financing in place and part of having our financing in place is sometimes to have that private finance available to us, whether it's debt or, indeed, equity. When we're coming on to the debt or equity, it's usually, it's not so elegant to go knocking on people's doors and asking for money straight away. I've experienced that so many times now and it just doesn't work, frankly, it just doesn't work.
Very, very rare that you see that kind of situation. Of course, it will make the news or the social media feed if that's happened, of course it will but generally speaking I think it's more of a slow burn, slow cooker. Present yourselves in the best possible light, be authentic, be genuine, be honest. Present the data in the most efficient way. Be professional and be ready so when that investor approaches you, you may not even know that that's what they're doing. I was reading a book recently, it says, 'Don't judge who has money and who doesn't."
If people are connecting with you, you don't really know why they're doing it. Perhaps they're just asking for advice, perhaps they're just trying to find out who you are as an individual. Just being ready also counts with being ready to attract investment as well. I know it's a bit of a loose one but I think it's more of a conversational piece about being ready, having private finance, and then maybe how some of the ways in which we can position ourselves so that we can attract that private financing so that we get the right sort of people around us.
Just a few, doesn't need lots and lots of people, just a few really key people who we can then look after; and, in my case, the three people I was talking about have reinvested their funds with me on multiple occasions so that's another good thing that comes about it. You can have deep relationships, and a good connection, and a good professional investor relationship over a longer and extended period of time, which is a much more efficient way of doing things, in any case.
There we go. Hopefully, that was interesting or helpful in some way to you. I know that we're in these difficult times and I hope you and yours are doing okay and bearing up in these difficult moments. I've got one eye on the future, I'm hoping that future comes soon. I'm sure it's not going to be the same as it was. I'm not sure if it ever will be the same as it was but I hope you're doing okay. I just wanted to share that particular piece with you today. As I say, hopefully it was useful to you.
The show notes are going to be over at the website, the propertyvoice.net, I nearly forgot my own website address there, or you can email me, podcast@thepropertyvoice.net if you'd like to start a conversation. I look forward to hearing from you, if that's the case. I guess all that's left to say now is thank you very much for listening once again this week. Until next time on the Property Voice Podcast, it's chow-chow.
That's all from me this week, remember if you want to talk about anything from today’s show, or just talk property investing more generally, email me at podcast@thepropertyvoice.net, I would be happy to hear from you! The show notes can be found at our website www.thepropertyvoice.net
Thanks very much for listening again this week, so all that left to say is ciao ciao!