One of the great things about hosting a podcast is the ability to choose what I am going to cover...and sometimes to choose when to go live too! One day late this week, let's talk about going large, shall we? No, not large fries and a large drink...doing bigger property deals...that kind of large!
The basis of this episode is a conversation I had with Mike Hambright for the Investor Fuse Podcast a couple of weeks ago. On top of this are some further thoughts on the subject of what it takes to do bigger property deals. I hope you enjoy it!
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Resources mentioned
Link to Richard's full interview with Mike Hambright on The Investor Fuse Podcast & Mike Hambright's interview on TPV podcast.
Property Deal Tips & How to Reach me By Telephone
Link to the Podcast feedback survey
TPV Apprentice Programme info HERE
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Transcription of the show
Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and as always, it’s a pleasure to have you join me on the show again today.
One of the great things about hosting a podcast is the ability to choose what I am going to cover...and sometimes to choose when to go live too! One day late this week, let's talk about going large, shall we? No, not large fries and a large drink...doing bigger property deals...that kind of large!
The basis of this episode is a conversation I had with Mike Hambright for the Investor Fuse Podcast a couple of weeks ago. On top of this are some further thoughts on the subject of what it takes to do bigger property deals. I hope you enjoy it!
Property Chatter
So, to set the scene, we framed our conversation around an article that I wrote for YPN Magazine recently, called Going Large. Incidentally, if you didn't know this already, you can access all of the back catalogues of the articles that I write for YPN subscription-free just by asking my assistant (Karen) to grant to access. Just drop Karen an email admin@thepropertyvoice.net and ask to get free access to the YPN articles. besides being slightly freaked out that you know her name, she will gladly grant you access.
The basis of my conversation with Mike centred around an idea of mine that I call the 8 Different Types of Capital. These are Financial, Knowledge, Social, Emotional/Spiritual, Systems, Human, Brand & Natural.
However, in addition, I also wanted to talk a little about some other elements that allowed me to 5x my growth over the past 12-18 months too.
Leads: access to quality leads at the larger end of the property deal spectrum
Where do you find larger projects? Well, some are hiding in plain sight! For example, I am currently in the process of acquiring no less than 3 conversion and quasi conversion/development projects that are on the open market. Rightmove Commercial and the commercial agents are a good source for such opportunities and with people being spooked by Brexit right now, it has left less competition for opportunities with permitted development or pre-existing planning approval in certain areas. Another great source of leads of late has been referrals from people in my network, be they service providers (such as planning consultants, architects, etc.) or fellow investors and developers that know what I look for and that if I say I will do it, I definitely will!
Funding: access to development and equity finance at enough scale to be able to undertake these larger projects
We all know about BTL mortgages and bridging finance. However, none of these now-commonplace sources of ‘institutional funds’ provides funding deep into the conversion and development costs of larger projects. This is where development finance and equity finance come in to plug the gap unless we have a bottomless pot of cash that is! There are essentially 5 layers of funding in a larger conversion or development project: 1) Senior debt for purchase financing, typically mortgages and bridging at up to 75% of the purchase price, 2) Stretched senior debt, usually secured funding up 85% of the purchase price, 3) Mezzanine finance, taking the funding above the purchase price and into funding the works/development cost at a % of the gross development cost/value, 4) External debt & equity, typically from private lenders and investors, and 5) Developer equity, being the developer’s own cash equity stake. It is possible to fund a development project with less than 15% of the total development cost utilising many of these additional forms of finance.
Expertise: access to the skills and expertise required to deliver these projects safely and securely
As we move into larger projects, we will need a larger team around us too. This also costs more money but with a larger project, we also get a larger budget and so more opportunity to bring in and pay for additional expertise to support us. We don’t need to be the experts; we need to be able to bring in and coordinate the experts to support our development projects.
Some of the expertise we might need include:
◦ Acquisition & sales: estate agents & buying agent/sourcer
◦ Advisers & support services: solicitor, accountant, finance & insurance brokers
◦ Building & construction professionals: architect/planning consultant, building, structural, quantity & other specialist surveyors, project/site manager
◦ Trades and contractors: builder, bricklayer, carpenter, joiner, plasterer, plumber, heating engineer, electrician, painter/decorator, flooring fitter, door/window fitter, roofer, gardener/landscaper and general labourer...or a main contractor that can manage all sub-contractors
◦ Lettings & management (if planning to rent): letting agent/property manager & facilities manager with larger buildings
There are many ways to find such experts, such as industry and professional membership listings, social proof through review sites and recommendation from trusted public forums and sources. However, the best way to find such experts is through personal referral and recommendation, and remember that anyone you work with should have a track record that relates directly to your project at hand…a builder used to doing general refurbs and single extensions is unlikely to be as capable in dealing with a commercial conversion or new build development for example.
Systems: access to the systems and processes that allow us to scale
When I originally prepared this list for my Apprentice community, I omitted to include systems and processes. However, they play an increasingly important part of our business as we grow and scale. I am currently operating 8 different projects at various stages of the ‘development project lifecycle’. I could not do this without having development criteria checklists, project plans, cashflow forecasts, schedules of works, standard contracts and so on. This is perhaps my own personal area of development going forward as I step into more complex, larger projects, so is still one that I am getting to grips with…after all, we all have our personal growth development areas, don’t we?
Now then...there are three other elements of going large that I want to highlight...I did mention them in my conversation with Mike as well...
- Layering - this is where we add different elements on top of one another, such as financial capital to brand capital for example.
- Leveraging - this is where we can amplify or project ourselves by multiplication or even exponentially, for example by broadcasting our message through our network reach or being able to seemingly working 24/7 across different times zones as even when we sleep through systems for example.
- Mindset - then the really big one...removing the glass ceiling and replace our limiting beliefs with possibility thinking instead. Don't think things like 'I can't do this because', instead ask yourself 'how can I?' If we apply possibility thinking and elevate our horizon or scale of thinking, then something magical actually starts to happen. Bigger opportunities and solutions start to present themselves, people and resources start to enter into our lives and then the impossible begins to become possible too.
So, that's what has happened in my property business over the past year or so. There's no doubt there have been so growing pains along the way, which I will pick up another time. However, we are never free from struggle or challenge, no matter what level we operate at. I am just pleased to be in the position that I am, which is largely down to some of the content from today's show...and around 10 years of learning, experience, mistakes and good fortune from time to time too.
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!