Elizabeth Warburton:
Whether it’s to build a passive income or to escape the 9:00 to 5:00 rat race, more and more people across the UK are turning to property investing and development as a way of making money work for them, not for them working for money. It sounds easy. But property is not a game for the faint-hearted, with hundreds of thousands, if not millions of pounds at stake. The rewards can be great. But if it goes wrong, it can go very, very wrong. You often need financial experience and knowledge to take that deal over the line.
And that’s where we come in. In this series, we give budding property developers the chance to pitch their deals to our five seasoned property professionals, John Howard, Helen Chorley, Paul Mahoney, Nicholas Wallwork, and Ranjan Bhattacharya, or who we call our property investment angels.
Our contestants are in with the chance to walk away with the backing of someone who will bring both finance and experience to the deal. Will our angels be sending them up to the penthouse? Or will they be heading straight for the basement? I’m Elizabeth Warburton and you’re watching Property Elevator.
So, we’re here in sunny Hertfordshire for episode one, season two of Property Elevator. Our angels are ready, and our pitches are starting to arrive. There’s a few nerves around, but mainly a lot of excitement. Let’s see how they get on. I’ve got a feeling you’re going to enjoy this first one.
John Howard:
I don’t personally think you should come in here and be as ballsy as you’ve been, Matthew.
Paul Mahoney:
It’s probably worth giving us all a pack before you present.
Helen Chorley:
And why do you think you can get planning permission where they haven’t done?
Nicholas Wallwork:
With 315,000 in cash, you can easily fund this deal with a land and development loan.
Ranjan Bhattacharya:
I always like to get behind the story, particularly if it’s a half done project, and to find out exactly the reasons why it’s changed hands so many times.
Elizabeth Warburton:
Okay, Bobby, welcome to Property Elevator. It’s lovely having you.
Bobby Grewal:
Thank you for having me.
Elizabeth Warburton:
So, tell me a little bit about yourself. What’s your background?
Bobby Grewal:
I’m based in Birmingham in the midlands. And I’ve already got a portfolio of HMO properties. And that’s what I do mainly. So, buy to let and HMO.
Elizabeth Warburton:
Okay, so they’re kind of your main two strategies.
Bobby Grewal:
That’s my main two strategies, yeah. So, I’ve been a full-time teacher for 15 years. But I’ve been building up the property alongside. But only this year, I’ve left.
Elizabeth Warburton:
And gone full-time.
Bobby Grewal:
And gone full-time in looking after my portfolio, pretty much. The deal today is actually a pub. It’s a pub based in the Midlands. It’s on the market currently. There’s only half a building, really. So, it’s a bit of a development project. But it’s also got planning permission for 13 bedrooms, so HMO type thing. So, trying to step out of the HMO in terms of houses and trying to move into probably a bit more commercial, residential type setup.
Elizabeth Warburton:
Excellent. And what numbers are you looking at from the angels?
Bobby Grewal:
All the money, really. All the money, if possible.
Elizabeth Warburton:
As much as I can get.
Bobby Grewal:
As much as I can get, yeah. So, all the money. So, we’re looking at probably 300,000 is roughly the purchase price. And about 300,000 to develop. So, 600,000 in total.
Elizabeth Warburton:
Brilliant. Good. Great. All right.
Bobby Grewal:
So, see if they give it me.
Elizabeth Warburton:
Well, best of luck.
Bobby Grewal:
Thank you.
John Howard:
Bobby’s coming in to see us. And he is purchasing a pub to convert into an HMO. It looks like it’s a bit of a challenge.
Nicholas Wallwork:
What’s left of a pub.
John Howard:
Or what’s left of the pub. So, should we get him in and see what he has to say?
Bobby Grewal:
My name’s Bobby. I live in Birmingham. I live and invest in Birmingham, have done for a number of years. I’ve got a small property portfolio at the moment of mainly HMOs. But I’ve also been a full-time teacher at the same time. So, for 15 years, I’ve taught in secondary schools in the Midlands. But this year was my year to step out. Knowing what I know now with COVID, maybe weren’t the best idea, but it’s done and I’m out.
Bobby Grewal:
The deal that I’m looking for investment for today is a pub based in the Midlands, because most of my stuff is mainly HMO and I tend to buy stuff with the traditional, buy it with my own money and then turn it into an HMO and then rent it out. This is new for me. So, I’ve not done anything commercial. And it’s actually one of Ranjan’s YouTube videos. And we’ve had a bit of emails backwards and forwards.
John Howard:
Not that Ranjan again. I tell you what.
Bobby Grewal:
Yeah.
John Howard:
If we hear about his YouTube anymore, all going to walk out.
Bobby Grewal:
It was actually one of those videos that helped … It’s one of the ones he did with Simon Zutshi in the commercial stuff.
John Howard:
Did that inspire you?
Bobby Grewal:
Yeah.
John Howard:
That’s amazing. Fancy that.
Bobby Grewal:
Believe it or not, it did. It inspired me in a sense that actually, commercial, in the space that it’s in at the minute, with the planning laws changing and being so slightly laxed, this seemed a bit more. So, I’ve been looking. So, post-video, I was just looking at more options like this. And I’m getting a lot of them coming my way. So, this is one that I was interested in. The purchase price for this, it’s currently under offer. But the agents have told me that a purchase price of 325,000 pounds would secure it.
Bobby Grewal:
One conservative builder estimate estimates about 300,000 pounds to get it up and running. And then, yeah, post that we’re looking at about 80, 82,000 pound sort of net rental income, with a net profit of about 40,000 odd pound. Monthly net income, about 4,000 pound a month. On the sheet that I’ve given you, it’s 3,500 pound. But that’s because I’ve included voids and repairs.
John Howard:
Very sensible. Okay.
Bobby Grewal:
But I think once it’s fully let, it will be 4,200 pound net profit per month.
Paul Mahoney:
325,000 for the relatively rundown pub. We were just commenting, there hasn’t been a pint sunk in there for a while.
Bobby Grewal:
I think that’s happened is-
Helen Chorley:
There was a keg of beer though.
Bobby Grewal:
There was some kegs of beer, yeah.
Nicholas Wallwork:
Do you get free beer with it?
Bobby Grewal:
I’m thinking you do, yeah.
Nicholas Wallwork:
I’m in.
Bobby Grewal:
It’s fairly run down. And what’s happened is, in the last three years, I’ve been watching the pub for a while, but not really thinking about it as a project. A pub has opened up across the road. And that’s become a proper pub. The change of use, I’m hoping with the planning laws, we could use the commercial space downstairs for something else. And probably not wise to use a pub, now there’s an established pub across the road.
Paul Mahoney:
So, you said it’s under offer, the 325 would secure it. Would it be subject to planning?
Bobby Grewal:
No, it’s already got planning permission approved.
Paul Mahoney:
Sorry, it’s already got the planning.
Bobby Grewal:
Yeah.
Paul Mahoney:
Good.
Bobby Grewal:
It’s got planning approved for 13 bedrooms.
Paul Mahoney:
And you know the area, the rents?
Bobby Grewal:
I know the area, yeah, pretty well.
Paul Mahoney:
Yeah, okay. So, the rents stack up. That’s always good.
Bobby Grewal:
The rents, I think they’re conservative, because they’ve got en suites all built in as well into the rooms, into the plans. I think 450 is a good price. But I think we’ll probably be able to push for 500 pound per room for the double rooms.
Paul Mahoney:
And cost of the re-fur, where have they come from?
Bobby Grewal:
The builder that came and looked at it. And he said that we’re looking at approximately around the 300,000 pound mark. But because I’ve never done anything of this size, I’m just thinking, “Well, I probably should have got a few more quotes.” And that’s something that I can go back and do, definitely.
John Howard:
But you made a start, Bobby. And you’ve got to start somewhere. And I think that’s fine, you know? You’ve got a guesstimate, if you like. And then, if it looks like it works on the guesstimate, then what I normally do is, I then drill down further.
Ranjan Bhattacharya:
What’s the story behind this? I mean, the previous owner started the project and had not finished?
Bobby Grewal:
I think it’s changed a few hands. And I think people are starting the project and they just can’t afford to finish it. I think this project, only because I was looking at the council documents, I think he actually carries the same surname as me. But I have no idea of who the guy is. But yeah, I think he’s bought the pub. He’s literally just got the planning permission. It was granted on the 13th of July just gone. He originally put it in for 14 bedroom and that was rejected. And they said, “Look, we want it to be 13 bedrooms. We want you to introduce another communal space on the middle floor.” I think we could probably get another four bedrooms out of it. But that’s all maybe in the pipeline.
John Howard:
Exactly. Yeah.
Bobby Grewal:
That’s the potential.
John Howard:
That’s just a bonus, isn’t it?
Nicholas Wallwork:
I think it’s changed hands because everyone who buys it realizes it’s going to cost an awful lot more to do, and it won’t make any money. And that’s why they leave it.
Bobby Grewal:
Yeah, or they haven’t got the money to do it. Yeah.
Nicholas Wallwork:
One of the two.
Bobby Grewal:
One of the two. Yeah. Yeah.
Nicholas Wallwork:
You can always finance development work. If you own the site, you can finance 100% of the development costs. So, I’m not sure that that’s 100% correct, unless they’re highly unfinanciable. I think from my experience, 14 beds to 300 grand with a site that’s that derelict, it’s almost derelict. I mean, the roof is off, the walls are off. The internal shots are down to ground level, so you need to underpin those walls, screed floors. I mean, this is a serious amount of work. For the size of the property, my gut feeling would be that that’s really light on the conversion work.
Helen Chorley:
That would be my intuitive feel as well. We’ve got a good look at the pictures there. It’s certainly a big job. And somebody has started it. You’ve got the guide, and I agree with John. You have to go away and kind of get a couple of other builder quotes as well. But what you also need to remember and be wary of is, if they price for the job. And then all the kind of additionals get stacked on later.
Nicholas Wallwork:
Extras go on. Yeah.
Helen Chorley:
What you also, which you probably … I don’t know, maybe you have, maybe you haven’t got in there, is a contingency, because I’d want a hell of a contingency on that.
Nicholas Wallwork:
Yeah, you’ve done the right thing so far. But there’s an awful lot more analysis needed on the build costs, isn’t there?
John Howard:
Yeah, I think a little bit of Captain Cautious going on here, on my right hand side, I have to say, Bobby. Personally, the one thing I would say is, when a property’s been exposed to the elements like that, even though some of the work has been done, there’s some new joints in there and so on, you have to be wary that some of the work that’s been done may have to come out because it’s deteriorated because of the weather has got to it.
John Howard:
I personally think it’s a very ambitious scheme for someone who, by your own admission, you’ve been pretty steady and safe up to now. You’re a school teacher, all due respect, very intelligent. So, you’ve probably been on the safer side of life, rather than the-
Bobby Grewal:
With the residential side, yeah.
John Howard:
Residential. Yeah.
Bobby Grewal:
I’ve done re-furbs and stuff. But this is a different league.
John Howard:
Exactly. This is a really big step up. And someone with my experience would be looking at that and thinking, “I need to be on my A-game for this.” And I think, personally, I would be looking for a slightly less ambitious scheme to do as your next step up. I think you’ve gone from, out of 10, you’ve gone from being at four out of 10 speed wise, to probably nine.
Ranjan Bhattacharya:
This is a distressed asset. And I don’t see it as a distressed price. And that should be sort of factored in majorly. The other thing is, I always like to get behind the story, particularly if it’s a half done project, and to find out exactly the reasons why it’s changed hands so many times. If you’re going to take on a project for learning or whatever, make it be something that is worthwhile and really packs a punch and gives you something over and above what just buying three or four houses to get the same number of rooms added to the portfolio.
Paul Mahoney:
I think it would also be interesting to try to find out what the previous owner paid for it prior to planning, because you don’t really want to be on the backend of his uplift. And if the guys are right, he’s got this planning, tried to do it, and walked away because it’s not viable. Then you’re the loser in that game.
John Howard:
Bobby, I wouldn’t agree with that entirely, and I’ll tell you why, because in 1990, I bought 360 flats in West Brom. 280 of them had been bought six months earlier off Sandwell District Council for 75,000 each, the block. And I gave the guy 1.55 million for those two blocks six months later. Best deal he’s ever done and one of the best deals I’ve ever done. So, never worry about what someone’s paid for a property. It’s irrelevant. If you’re confident about what you can do with that property, good luck to them if they’ve got there before you and so on. But for me, this one’s a bit too ambitious.
John Howard:
However, I would like to keep in touch with you, because I do deals in the West Bromwich area and the Birmingham area. And I think we can do something together going forward.
Bobby Grewal:
There’s lots of stuff coming my way at the minute. So, I’d definitely like to keep in touch.
John Howard:
Well, I have no doubt we will, don’t you worry about that.
Helen Chorley:
Just one thing on that though, I think you almost certainly, when things come across my desk, I always have to ask, “Why me? Why is it coming to me?” Because if it’s been past Paul’s, Ranjan’s, John’s, Nicholas’s desk, and then it ends at mine, I’m probably not interested. So, just have a little bit of … Yes, we are the Captain Cautious kind of side here. But just have a little bit of, why has it come to you?
Bobby Grewal:
But also, I suppose, with the new planning changes, I don’t quite know with some of these buildings what I would be able to do with them. And I don’t think anyone really knows what they can do with them.
Helen Chorley:
I think you’re right.
Bobby Grewal:
And that’s where I’m trying to get first in and just try and make those moves, because people have-
John Howard:
Listen, you’re very investible. You’re bright, you’re intelligent, you’re decent, and you’re investible. And that’s really important.
Helen Chorley:
And this is ticking my … This spreadsheet with the numbers, with the breakdowns.
John Howard:
She’ll love that.
Helen Chorley:
I mean, that’s ticking all my boxes.
John Howard:
Helen will love that.
Helen Chorley:
Your return on GDV, return on cost, that’s all nice if those numbers are those numbers. And that’s where the risk is for me. So, it’s not for me. But great work, and I’m with John, you’re very investible. Keep going.
Bobby Grewal:
Thank you very much.
John Howard:
Nicholas?
Nicholas Wallwork:
I think it’s too risky. I think it’s too much work. I think it’s probably not going to be viable. But echo what the guys have said, you’re highly investible.
Bobby Grewal:
Thank you.
Nicholas Wallwork:
If you’d brought a pub that didn’t need all those external works, it was just reconfiguration and fire regulations to get it to the right HMO status, I’d be very interested. So, it’s not the deal. You would be. So, good luck for the future. And yeah, stay in touch with us and see what we can do in the future.
Bobby Grewal:
Thank you. No problem, definitely.
John Howard:
Ranjan?
Ranjan Bhattacharya:
Again, same for me, it’s not for me. But I’d just like to keep in touch and all the rest of it. But I would-
John Howard:
He’s keeping in touch with me, Ranjan, not you.
Ranjan Bhattacharya:
The comment I would like to kind of make, do bear in mind what I said earlier about, I’m not convinced that this is priced to a distressed asset rate. So, under the new rules that are coming out, there’s limited value, there’s limited premium to something that has that sort of permission, which you’re paying for now.
John Howard:
That is very, very true.
Ranjan Bhattacharya:
So, just bear that in mind as well.
Paul Mahoney:
Yeah, look, I think similar to the other guys. I like Birmingham. I have just bought a few properties in Birmingham. Our clients have bought a few hundred over the past year or so. I’d like to keep in touch, maybe something slightly more central to the city in Birmingham, I’d be really interested.
Ranjan Bhattacharya:
He’s keeping in touch with John and I.
John Howard:
I told you, he’s only keeping in touch with me.
Paul Mahoney:
And I think I could add value to you there, certainly from a marketing, sales, and layout perspective.
Bobby Grewal:
Thank you. Yeah, that’d be a great help.
Paul Mahoney:
So, keep in touch. But again, I don’t think this particular deal.
Bobby Grewal:
No, that’s fine.
John Howard:
Bobby, thank you very much for making the effort to come today. And I’m sure we’ll be doing business in the future.
Bobby Grewal:
Thank you.
Elizabeth Warburton:
Okay, so Bobby, unfortunately, we didn’t get a deal.
Bobby Grewal:
No, not today. Not today.
Elizabeth Warburton:
What happened? What did they say?
Bobby Grewal:
I think it was a bit too ambitious. I think they’re looking at the building, and because it’s half, it’s a derelict building, effectively. I think they thought that it would be too risky to them. But they’ve also said to keep their numbers and to keep their cards. And they certainly want to keep in contact with any future deals that come through, which is great news for me.
Elizabeth Warburton:
Brilliant, that’s really positive.
Bobby Grewal:
Yeah, great news.
Elizabeth Warburton:
What do you feel now about the deal? Are you going to still consider it?
Bobby Grewal:
I think I’m going to try and get the deal at a lower price.
Elizabeth Warburton:
Okay.
Bobby Grewal:
Because I think that’s what they were saying. They were saying it’s not derelict value. It’s kind of a good value, because they’ve got planning permission.
Elizabeth Warburton:
Okay, so go back, work on your numbers, and then-
Bobby Grewal:
Definitely. I’ll just put an offer in and see what happens. Yeah.
Elizabeth Warburton:
Okay, so we have father, daughter, James and Olivia with us. It’s great to have you both. Thank you for coming to Property Elevator today.
James Burt:
Hi.
Olivia Burt:
Thank you for having us.
Elizabeth Warburton:
So, tell us a little bit about the deal and what you’re after from the angels today?
James Burt:
Yeah, absolutely. So, it’s pretty simple. It’s a one-bedroom maisonette in Crawley that’s been on the market since December. It’s a repossession. It’s a bit dated, but the main reason it hasn’t sold so far, it’s got a short lease, 67 years left unexpired, which people start to shy away from leases below 80 years, as I’m sure you know.
Elizabeth Warburton:
Yep.
James Burt:
We’ve been told by the agent, it’s on the market for just under 150,000. The agent has intimated to us that we could pick it up for 130, maybe a bit less than that. So, what we’re looking for today, and the main reason is to get my daughter on the property ladder.
Elizabeth Warburton:
Nice.
Olivia Burt:
I’m a qualified nursery practitioner, so early years. I work with little children, hence the uniform.
Elizabeth Warburton:
So, you want a little bit of passive income as well on the side.
Olivia Burt:
Yeah.
Elizabeth Warburton:
Great.
James Burt:
Yeah, it’s a lovely job. But obviously it doesn’t pay a great deal. So, what we’re hoping to do is get Olivia on the property ladder today, with some help from the investors.
Elizabeth Warburton:
Okay, well best of luck.
Olivia Burt:
Thank you.
Elizabeth Warburton:
And I’ll chat to you when you get out. Fingers crossed.
James Burt:
Thank you. All right.
Olivia Burt:
Thank you.
John Howard:
We’ve got the Burt family coming in. And this is a property in Crawley. It’s a one-bedroom maisonette, I think. I think they’re getting a lease extension as well. So, nice that a father and daughter are coming in together.
James Burt:
My name is James. I’m a retail property consultant. So, I do work in property, but on the commercial side of things. This is my daughter, Olivia.
Olivia Burt:
Hi. I’m a qualified early years educator. So, nothing to do with property. But hoping to get my way onto the property ladder with my father to help me. And hopefully you guys as well.
James Burt:
And that’s the basic reason we’re here today. So, we’ve identified a property in Crawley, a one-bedroom maisonette. It’s been on the market since December. It’s a repossession. Hasn’t sold for a couple of main reasons. One being, it’s got a short lease. The lease has only got 67 years left to go. And it’s also looking pretty tired, as you can see from the photographs. It’s on the market for just under 150,000. The agent marketing it has suggested to us that we could pick it up for 130, maybe a bit less than that. The expectation is if we’re able to do that, renew the lease, spend probably about 10,000 refurbishing the property, there should be something like a 20,000 pound profit in that if and when we came to sell.
James Burt:
I mean, intention isn’t to sell. But once the lease is extended, property done up and remortgaged, and then give any monies that we’re able to, to refund the angel investors. What we’re looking to achieve from you guys is a 40,000 pound injection of cash, which would be the 25% deposit for the mortgage, along with 10,000 pounds towards doing the property up and renovating it.
John Howard:
Very good, as I would expect from a professional.
James Burt:
That’s very kind.
John Howard:
So, Nicholas, would you like to kick us off?
Nicholas Wallwork:
You said the end value’s 180, was it? Okay. And spending sort of 10 on it. So, about 40 grand equity in it.
John Howard:
You’ve got the lease renewal as well.
Nicholas Wallwork:
And the lease renewal as well, yeah. Okay, so maybe not quite that much. Okay. So, we’d need to leave a bit of money in to get the capital growth over time as well, potentially.
Helen Chorley:
So, expected purchase price is 130.
James Burt:
That’s right.
Helen Chorley:
Yep. Your lease extension, 18 to 19.
James Burt:
Probably 20 with fees, yep.
Helen Chorley:
Okay, and then 10 refurb. Okay, so 160 all in costs and GDV you’re expecting of 180. Okay, so that’s where your 20K profits is coming from. I’m just wondering about the … Kind of, what are your comparables for working out the net income?
James Burt:
I’ve got a couple of flats in that vicinity, one in Crawley, one in Horsham, which I let out. So, I’ve got a pretty good feel for the sort of rental income you can expect.
Helen Chorley:
Okay.
Paul Mahoney:
To make the deal work with an investor, I’d probably be going in a bit harder on the value, given the quality of sort of what the-
James Burt:
I’d rather-
Paul Mahoney:
… What it’s in, and also the short lease.
James Burt:
… Under promise and over deliver.
Paul Mahoney:
Yeah. So, I’d be going in a bit harder on that, trying to build a little bit more equity into it. It says cash buyers only on the ad. Is that just because of the lease?
James Burt:
Yep.
Paul Mahoney:
Okay. Sometimes that can be a red flag, because they don’t want surveys done. But it probably is just because of the lease in this case. It seems maybe the words are a little bit light on cost, just passed from my own experience. What are they based on?
James Burt:
Personal experience, to be honest with you. And the fac that we’re pretty hands-on. So, we do-
Paul Mahoney:
The work yourself?
James Burt:
Olivia’s boyfriend’s an electrician, for instance. Yeah, and we’re pretty handy with a paintbrush.
John Howard:
You want to keep him going for a while.
Helen Chorley:
Yeah, very handy.
John Howard:
If you don’t mind me saying.
Nicholas Wallwork:
At least until we’ve done five deals.
Olivia Burt:
Yes.
John Howard:
Minimum of five deals.
Paul Mahoney:
Yeah, I suppose my main concern about the works being a little bit light on and the current purchase value is, to replace a bathroom and kitchen and the carpets and paint and that sort of thing, I would have thought it would be more like 10,000 to 15,000, which almost wipes out your profit.
Ranjan Bhattacharya:
One thing I’m concerned about is the lease extension costs. How do you know that it’s 20,500? Because concern for me is, why hasn’t the vendor already extended it or arranged it first?
James Burt:
Well, as it’s a repossession, I can’t get a transfer of that ability to extend the lease. So, worst case scenario, I’m going to have to wait for two years before I can renew the lease. So, that’s why I’ve taken a sort of more long term view. If we’re able to get a better mortgage product, obviously we’ll pursue that. That’s something that’s certainly worth having a look at.
James Burt:
But the other aspect of the matter is that, in terms of the figure, the 20,000 pounds. That was literally just putting the numbers into the lease advisory website, which in the pamphlet you’ve got there, you’ve got those figures there.
Ranjan Bhattacharya:
I mean, that’s generally a little bit of a concern, because it all depends on whether the freeholder is willing to sell it. If they are not, then you can end up paying a lot of legal costs and surveying costs, because they can request a valuation done. And these costs can easily go up. It depends on if the freeholder is not willing, the costs of that will go up quite a lot.
John Howard:
That’s a very good point. You’ve really got to sweat this deal more. So, you’ve got to work harder at it, because at the moment, it’s not really good enough, even … And I say even for you. I don’t mean that derogatorily. Certainly not good enough for us, I don’t think. Maybe one of us will step up. But you need to just sweat it harder, get a better deal out of it. And the basics you’ve done are good and they’re right. So, really, what you need to do now, I think personally, is go back, try and get it for 125. Do you know who the freeholder is?
James Burt:
No.
John Howard:
Okay, because, like Ranjan says, that is an issue. I would have thought 20,000 to renew this is a bit heavy, because we own a lot of freeholds. So, all the time, we’re getting people asking us, “Can we renew the leases?” And so on. And I would have thought, for something on a value of 125, 130, I’d have thought 20,000 is a bit steep. It should be a bit less than that probably. You might be able to negotiate that down.
James Burt:
In all these figures, I’ve been realistic, erring on the side of caution.
John Howard:
No, you’ve done just the right thing. I completely agree with you on that, you know? You’ve come in here in the right manner, in the right way. I just think that, certainly for me, if we start off with me, I just don’t think there’s really enough meat in it for me to invest this time. However, what I would say is, you’re on the right lines, you just need to be a bit greedier and try and widen that gap between what you’re paying for it and what it’s going to be worth when it’s done. But I just think, for me, if you came here saying there’s a house and there’s three flats, then I would have been more interested than I would with just the one. I think you’re just being a little bit too cautious.
James Burt:
Yeah, I fully accept the fact it is a pretty simple oven ready deal.
John Howard:
And that’s great, because if you’re not successful today, I’m sure you’re going to help Olivia and put the money in for her. And she’ll be doing it herself.
James Burt:
I wish I could. If I could, I wouldn’t be here.
John Howard:
On that basis, it’s the right one to do. But for me, I can’t talk for the others, but for me, it’s just not really big enough today.
James Burt:
Okay, thank you.
Nicholas Wallwork:
For me, I think you’re making a mistake that a lot of investors make. They look to invest with their heart, rather than their head. And I think you’re looking for a home for Olivia and a way to get her into her first home, rather than helping her with an investment that makes money, that she can then use that money to take the deposit to buy the home she wants. That would be my approach. So, I would forget about living in this one. You might not have the right deal here because of the lease extension complications, costs, uncertainty. Look for a simpler deal you can go and make 20 or 30 grand out of. Flip that deal within six months. And then use that deposit to go and buy your home.
John Howard:
I don’t think she can buy a simpler deal. Very simple.
Nicholas Wallwork:
Well, look, this is complicated because it’s got a lease extension. You don’t know what that cost is going to be.
John Howard:
That’s the margin. The lease extension, if there’s problems, that’s where you make your margins on the problems.
James Burt:
Of course, of course.
John Howard:
So, I tend to disagree with Nicholas on this, surprising.
Nicholas Wallwork:
Well, maybe think bigger then, is maybe what I mean as well, you know?
John Howard:
Yeah, I would agree with you, think bigger.
Nicholas Wallwork:
Just a slightly bigger property, we might have been able to invest in it. Forget about living in it because you don’t want to buy a four-bed house to live in. But it might have had enough margin for us to be interested, for you to make some money when you sell it.
John Howard:
Yeah, that’s a fair call. Fair call.
Nicholas Wallwork:
And then you can go and buy your home or do another couple of deals, you know? I’d say, forget about buying your home for now, do three or four deals, make 100 grand. And then go-
John Howard:
Live at home, it’s the cheapest thing to do.
Nicholas Wallwork:
Live at home, pay no rent, get free food and laundry. It’s perfect.
John Howard:
It’s perfect. Why move?
James Burt:
The problem is, we live in a nice area in Twickenham.
John Howard:
I’m sure you do.
James Burt:
And getting anything around there is just an arm and a leg.
John Howard:
Yeah, I know. I appreciate that.
James Burt:
And so, to try to get Olivia on the ladder, she’s having to look in less affluent areas.
John Howard:
I understand that. And she’s doing just the right thing in that respect. Helen?
Helen Chorley:
I do think you’re on the right lines. I like that you have been conservative in your approach. I’d rather see that than somebody kind of come in with inflated figures and trying to do something beyond their means, albeit with the guidance that you’ve got, which is absolutely invaluable, and with Nicholas, that I actually think you could do something a little bit bigger. The yield and the kind of timeframe don’t work for me. But I can really see that this is going to be the start of something for you, so I really wish you well. And you’re both sensible, you’re investible, you’re looking at the right things, you’ve presented it, got kind of all the numbers. So, find something bigger and come back next time.
Ranjan Bhattacharya:
I started just out of university. I had five investment properties while living at home with my dad. Just turn them over, generate the cashflow. Then go for … So, I think that’s it. And to do that, you really need quicker deals that you can just turn around quickly, get your money out, get your cash pot, before then going in. So, it’s like … I think you’re playing golf and trying to do a hole in one. Take a few shots to get it in the hole. I love problems where I know I can fix them with absolute certainty. And for her, because I am a freeholder and I get a lot of people wanting to extend their lease and buy the lease. I know what I can do if I’m unwilling to sell the freehold to slow the process up. And if the freeholder’s not willing and you haven’t had a talk to the freeholder first, then the costs and the time can go up dramatically to secure that extension before you’re able to remortgage it and all the rest of it. That’s the thing.
John Howard:
It can, Ranjan. But normally if you say to a freeholder, and you and I and others sitting around here are freeholders, “Here’s 18 grand.” “Great, can you send it next week? We’ll get it signed.” You know? So, on the whole, people are fairly positive about it. And actually, if this freeholder was on the ball, they would be buying the property off-
Helen Chorley:
That’s a fair point.
John Howard:
They’d be buying the property, refurb, because they can add that extra value themselves for nothing. So, probably you’ll be okay. But I would always find out who the freeholder is before you commit.
James Burt:
Right, okay.
John Howard:
So, you know and you’ve spoken to them and they wound decent or they sound like they’re going to be a load of hassle, then maybe walk away. So-
Ranjan Bhattacharya:
That’s good advice.
John Howard:
You know, information, knowledge is power.
Ranjan Bhattacharya:
Yes.
Paul Mahoney:
So, I suppose, just to echo some of the things that have already been said, and add my own little touch to it. First off, I agree with what Nick said. If you were thinking about this being your home at some point, get that out of your head completely. Investing and personal preferences should be completely separate. Investing should be unemotional, commercially minded. And your home is a personal decision. And you should be trying to make the money to buy the home and make the personal decision.
Paul Mahoney:
With regards to the deal, I think it’s something that maybe could work if you were doing it on your own. I don’t necessarily think it works bringing an investor in because the margin is not big enough. If it was me doing it and it was a lease extension and a refurb, I would want a much bigger margin than 7%. I’d be aiming for 20-30% because things are going to probably come up and cost you extra money than what you expected. So, that’s my take on it. And for that reason, it’s not for me.
John Howard:
So, thank you very much for coming today.
James Burt:
No, thank you for listening to us.
Olivia Burt:
Thank you.
John Howard:
This is just the start. You’ve got a great mentor.
Helen Chorley:
You have, yes.
John Howard:
And a great financier as well.
James Burt:
If only.
John Howard:
So, don’t worry about that. You crack on and I know you’re going to be successful. And if you come with our next series with a bigger deal, I’m sure we’ll invest.
Olivia Burt:
Thank you.
James Burt:
See you then.
Elizabeth Warburton:
Okay, so unfortunately, no deal.
James Burt:
No.
Olivia Burt:
No.
Elizabeth Warburton:
That’s a shame, I’m really sorry.
Olivia Burt:
That’s okay.
Elizabeth Warburton:
What feedback did the angels give you?
Olivia Burt:
They suggested maybe come back next year with a bigger project, with a margin to give them bigger profit, sort of.
James Burt:
What we’re trying to do it obviously get Oliva onto the ladder. So, the deal we presented was maybe a bit Mickey Mouse for those guys.
Elizabeth Warburton:
Right, maybe.
James Burt:
And we came away with some good advice though in terms of how to possibly make the deal work in a better way. Maybe we should have been a bit more aggressive with our figures. We didn’t want to not deliver on something.
Elizabeth Warburton:
You wanted more of a conservative [crosstalk 00:29:51].
James Burt:
So, there’s still options. Yeah, exactly. Maybe that was an error on our part. But we got some good advice. And if we do pursue this ourselves, they’ve given us some really good tips to try and make it work in a better fashion, yeah.
Elizabeth Warburton:
Brilliant. Well, best of luck with it.
Olivia Burt:
Thank you.
Elizabeth Warburton:
You’ll have to let us know how you get on. And if it goes through.
James Burt:
Thanks, Lizzie.
Elizabeth Warburton:
And yeah, you’re more than welcome back onto the next series, as the angels have said. Matthew, welcome to Property Elevator.
Matthew Peet:
Hello. Thank you for having me.
Elizabeth Warburton:
Where have you come from today?
Matthew Peet:
I’ve come from Essex today.
Elizabeth Warburton:
Okay, not too far then.
Matthew Peet:
Not too far, no. Hour drive, so it was all right.
Elizabeth Warburton:
And are you full-time in property? Or tell us what you do.
Matthew Peet:
Yeah, so I just did a degree in real estate. Left that, and now I’m full-time in construction.
Elizabeth Warburton:
Very nice. So, tell us a little bit about the deal that you’re bringing to the angels today.
Matthew Peet:
So, it’s a bit complicated, taken some planning permission, going to try to improve it, get an extra house on there, and then build it out and sell it on.
Elizabeth Warburton:
Okay, nice. And what numbers are you looking for?
Matthew Peet:
I’d be looking for 315,000 as a 50% investment for the whole deal.
Elizabeth Warburton:
Great, well best of luck.
Matthew Peet:
Thank you very much.
Elizabeth Warburton:
And I’ll have a little chat to you when you finish.
Matthew Peet:
Appreciate it.
Elizabeth Warburton:
Lovely.
Matthew Peet:
Cheers.
John Howard:
Matthew’s coming in now. And a bit of advice I’d give Matthew, even before he’s come in, is that giving us information handouts prior to him walking in would have been better. Certainly no cashflows, no nothing. Helen certainly won’t be very happy. Obviously presume it’s a building plot. And he’s presumably going to try and get planning on it and get us to fund it. So, shall we get him in? Matthew.
Matthew Peet:
Hello.
John Howard:
Welcome, thank you for coming today to see us.
Matthew Peet:
Thanks for having me.
John Howard:
Could you please tell us something about yourself?
Matthew Peet:
My name’s Matthew Peet. I see you got my photo on the TV there. So, we’re going to take some planning permissions, planning permission for one new build house. And it’s got … We’re going to try and upgrade it and try and get a pair of detached properties. We’re going to try and get one property and then build two properties. We’re going to do this by trying to purchase, I believe the neighbor is willing to sell part of her garden, so we can extend the plot, bring the houses back, get two houses on there. And then, we’d be building two houses instead of one.
John Howard:
Okay. And where is this?
Matthew Peet:
It’s in Chelmsford in Essex.
John Howard:
Near me.
Matthew Peet:
Yes.
Nicholas Wallwork:
Not your back garden, is it?
John Howard:
That could be fortunate, couldn’t it?
Matthew Peet:
I mean, it might be John’s back garden.
Nicholas Wallwork:
If it is, he’ll give it to you for free.
Matthew Peet:
Can we buy it for 30,000 pounds, please? But numbers wise, the land I’m hoping to buy for 205,000. And then, all-in costs, I mean, there’s planning fees, there’s a CIL payment. All of that all builds up. So, the total including the land would be 630,000. And then, GDV of 800,000.
John Howard:
At the moment you’ve got planning for one house?
Matthew Peet:
Yes.
John Howard:
Okay, and what’s the square footage of that house that you’re looking to build at the moment?
Matthew Peet:
I mean, I’m-
John Howard:
Roughly.
Matthew Peet:
In square meters, 108 square meters.
John Howard:
You’re making me sound old, Matthew.
Matthew Peet:
108 square meters.
John Howard:
Okay, 108. Yep, that’s good. Yep. So, I’m a little bit confused. So, at the moment, it’s got planning for one detached house.
Matthew Peet:
Yep.
John Howard:
That’s what it’s got. But you’re looking to add some more garden to it, in order to get another dwelling.
Matthew Peet:
Exactly.
John Howard:
Okay. So, let’s just go on what you can definitely do, because the rest is a bonus. So, what you can definitely do now is building. You can definitely build one house and the value of that house when built is?
Matthew Peet:
450 to 500,000. If I couldn’t get the planning permission, the improved planning permission, that’s like my safety net. I would do that on my own. And then, if I can prove the plan in, I’d bring you guys in as an investment.
John Howard:
That’s good of you, thank you.
Matthew Peet:
And do the larger deal.
John Howard:
Right. Tell us a bit about yourself.
Matthew Peet:
So, I’ve done a few refurbishments before. I actually just completed on a new build today.
John Howard:
Congratulations.
Matthew Peet:
My first new build. I actually completed it this morning.
John Howard:
Great.
Matthew Peet:
So, I’ve done one new build, a few refurbishments. I’ve helped out on extensions. So, I’ve got a varied amount of experience in construction.
John Howard:
And what’s your background?
Matthew Peet:
I do this full-time.
John Howard:
You do?
Matthew Peet:
I did a degree in real estate.
Nicholas Wallwork:
Where did you get the cash from to do your first deal?
Matthew Peet:
It’s all through family business.
John Howard:
That’s the best place to get it.
Matthew Peet:
And then, I built up. I’ve profited on some developments and it’s increased and increased.
Nicholas Wallwork:
Bank of mom and dad is always a good place to start.
Matthew Peet:
Yeah, well, so they say.
Helen Chorley:
So, the 27% return on investment, explain that to me. Do you mean return on cost?
Matthew Peet:
Return on cost, yes. So, it’s not a percentage of GDV. I work off of what I invest.
Helen Chorley:
No, your return on GDV is 21%. Right.
Matthew Peet:
And then, my return on my money, I’ve invested or the whole 630 that we’d invest, we’d get a 27% return on it.
Helen Chorley:
Return on the cost.
Matthew Peet:
Yes.
Helen Chorley:
But return on your GDV is 21%.
Matthew Peet:
Yes.
Helen Chorley:
Right, okay. And why do you think you can get planning permission, where they haven’t done before?
Matthew Peet:
I mean, they don’t own the garden. The person who owns the site is … It’s designed for his dad. And he was going to build it out for his dad. But he’s come under ill health and hasn’t decided to build on it. I drove past it, knocked on his door. He said it was right timing. And he’d be willing to sell it.
John Howard:
Good for you.
Nicholas Wallwork:
So, he lives in the neighboring property?
Matthew Peet:
He does.
Nicholas Wallwork:
This is his adjacent land.
Matthew Peet:
About where I’m standing taking that photo, his house is right behind me.
Nicholas Wallwork:
Perfect. Is the purchase price, the 205,000 purchase price, is that including the extra bit of land?
Matthew Peet:
No.
Nicholas Wallwork:
That’s just the existing block.
Matthew Peet:
Land, I’m hoping to pay 30,000 for it. I’ve heard that I might be able to buy it for 30,000 odd.
John Howard:
But you’re paying for the plot for one property is 200,000 odd.
Matthew Peet:
205, I believe.
John Howard:
And how much square meter, I should say? Not square foot. Square meter is your build cost in total?
Matthew Peet:
So, on this project, I’m going to try and do 1,500 a square meter. But I would be project managing it myself.
John Howard:
That figure you’ve given me, is that because you’ve done other projects for that same-
Matthew Peet:
Yeah, it’s based on previous experience. Yeah.
John Howard:
Okay. Good. So, what’s the total build cost?
Matthew Peet:
300,000. And then we’ve got a 30,000 contingency on top of that.
John Howard:
Yep. And the resale is?
Matthew Peet:
400 per property. But that’s been … Because obviously in the times with the pandemic, I think the properties could be worth 425, maybe 450 at a push.
John Howard:
Sorry, I’m a little bit confused. So, the site at the moment that’s got planning is 205,000 pounds.
Matthew Peet:
Yep.
John Howard:
You’re building one house on it at the moment, which is costing you 300,000 pounds.
Nicholas Wallwork:
I think that was the cost of the two.
John Howard:
Cost of the two.
Matthew Peet:
That’s the cost of the two, sorry. I haven’t really thought too much about the single house, because if I wouldn’t get the investment to do the two houses-
John Howard:
You won’t buy it.
Matthew Peet:
Probably wouldn’t be that interested in doing the house as is. I’ve done the numbers on it. So, if I were to buy it and-
John Howard:
What you’re saying, only works if you can pay the other 30,000 and do the two.
Matthew Peet:
There’d be a small profit in it, I’d make 40, 50, 60,000-
John Howard:
Not worth doing.
Matthew Peet:
… On the house. And I mean, it might be worth it, it might not be.
John Howard:
Nothing. Not worth doing. Okay.
Matthew Peet:
If it all fell through, it would be worth it.
John Howard:
I understand now, sorry.
Matthew Peet:
Sorry.
John Howard:
I understand.
Ranjan Bhattacharya:
I think that was my confusion. What the permission is on the table that you can actually build? What you’re saying is, you haven’t bought it yet. You will buy it, conditional on you securing … Basically doing a bit of site assembly. Is that basically what you’re talking about?
Matthew Peet:
Yeah, and try and put together a better deal.
John Howard:
Yep, excellent.
Ranjan Bhattacharya:
Okay.
Matthew Peet:
Essentially, yeah.
Ranjan Bhattacharya:
So, that’s why we are talking about the two houses, as opposed to one, because it won’t happen with one.
Matthew Peet:
No. I mean, I’d have the money to do it myself as well. So, I’d just do that if it came to it. I wouldn’t have the money to build the two houses.
Ranjan Bhattacharya:
So, the additional garden plot is to the side. So, it affects the frontage.
John Howard:
Yep, and that’s 30 grand.
Matthew Peet:
It’s on the right of that photo, and then you can see the road’s on the left. So, it would be garden space. But it would allow me to-
John Howard:
To put two in.
Matthew Peet:
… Deepen the houses and build two. I’m going to put in half, 315,000.
Nicholas Wallwork:
315,000. Okay.
Matthew Peet:
315,000. And I have spoken to a planning consultant and she’s happy with-
John Howard:
And are you putting that in as cash?
Matthew Peet:
Yes.
Paul Mahoney:
First off, love the ambition. There’s not many people that go straight into property development out of university. You’re knocking on doors to find deals.
Matthew Peet:
Yep.
Paul Mahoney:
So, you’re doing the right things. So, you’re an impressive young guy. And that’s always a good thing. We want to work with impressive people. So, you said you’ve got … You’ve spoken with the planning consultant. And it looks like … Is it three houses? Or two?
Matthew Peet:
I’m just building two. Your investment, two houses.
Paul Mahoney:
Okay, so it’s one or two, rather than one plus two. It’s probably worth giving us all a pack before you present.
Matthew Peet:
Yes. Yes. Yes.
Paul Mahoney:
Because then it would be very clear to us all. And it’s taken us a little while to get clear on what the deal actually is.
Matthew Peet:
Okay, okay, okay.
Paul Mahoney:
So, just a bit of feedback for next time. Aside from that, it seems to work. So, you’re wanting 315,000 from an investor. And it would be 50% of the cash each.
Matthew Peet:
And I would be looking ideally for a 70-30 split in my favor.
John Howard:
You’re brave, aren’t you?
Matthew Peet:
Yes. I mean, half the money and I’d be project managing the build. So, if that could work-
John Howard:
I don’t personally think you should come in here and be as ballsy as you’ve been, Matthew.
Matthew Peet:
Okay, I understand.
John Howard:
But that’s interesting.
Nicholas Wallwork:
I’m interested, on the topic of finance here, why you need to find it all with cash? Why couldn’t we … Is there an option for us to come in with our experience and fund this for you using development and land finance, for which your money would go far enough? Could we come on as the experienced investor with much less cash, if we can use alternate finance? Why are you not using finance yourself? Because I believe you could finance this yourself.
John Howard:
But Nicholas, how we fund the deal is really up to us.
Nicholas Wallwork:
I know, but I’m more interested why Matthew can’t fund this himself.
John Howard:
Are we interested why?
Nicholas Wallwork:
I want to know why he’s here.
Matthew Peet:
The reality is-
Nicholas Wallwork:
Why are you here?
Matthew Peet:
Because I’d love to get more experience and have a partner as well for future projects as well.
Nicholas Wallwork:
Okay, so you want the experience, not necessarily the cash.
Matthew Peet:
I mean, I could go to a bank and they’d just give me the money and that would be that.
Nicholas Wallwork:
Exactly. With 315,000 in cash, you can easily fund this deal with a land and development loan.
Matthew Peet:
A bank wouldn’t be as helpful as one of you, I would suppose.
John Howard:
Especially one that lives near you.
Matthew Peet:
Exactly.
Nicholas Wallwork:
Especially someone that’s nearer your age, as well. Like myself, possibly.
John Howard:
I think that’s pushing it, Nicholas, to be honest with you. A fatherly figure is what you need, Matthew. The total resells of the two houses will be how much?
Matthew Peet:
800.
John Howard:
800K, right.
Helen Chorley:
And what’s your comparables for that?
Matthew Peet:
There’s a few semi-detaches in the street that were sold for 455, one sold for 496. So, like I said, I tried to pull back the valuation because of the pandemic.
John Howard:
Right. I’m going to jump in and make you an offer.
Matthew Peet:
Brilliant. Thank you.
John Howard:
My offer is, I’ll put up the other half, and I’ll give you … We’ll go straight 50-50.
Matthew Peet:
Okay. Thank you.
John Howard:
So, you put up your money first. I then put up my money, bank funding or not, but I’ll pay my own interest on that money.
Matthew Peet:
What return would that be in terms of the profit split?
John Howard:
The profit’s going to be about 200 grand, isn’t it?
Matthew Peet:
Yeah, 170, but near the 200 mark.
John Howard:
Yeah, so we get 90K each, don’t we? At the end.
Matthew Peet:
Okay, 50-50.
Helen Chorley:
85.
Matthew Peet:
Okay.
John Howard:
How much is it?
Helen Chorley:
85.
John Howard:
Thank you very much. So, that’s an offer.
Matthew Peet:
Okay. Thank you very much.
John Howard:
That’s all right.
Paul Mahoney:
I think, based on your proposal of a 70-30 split, that’s a 51K return on 315 grand at 16%. For me, that’s not enough for what it is, you know? I’d be wanting a bit more than that. And I think John’s offer’s fair. He understands the area better than I do. And I think he’d probably be a better partner than I would be on this project.
Matthew Peet:
Okay.
John Howard:
Now, he doesn’t often say that.
Matthew Peet:
Honesty, yes. Thank you.
Paul Mahoney:
So, I think John’s offer is better than what I could offer you.
Helen Chorley:
I won’t be making an offer either. I’m with Paul. A 16% return kind of on what you’re offering, that’s … What you’re offering is a JV. So, the security on that is … I mean, assuming you’d set up a company together. So, your security on that is shares. 16% isn’t appropriate return for shares. 16% is more like a second charge security. So, for me, that doesn’t work, even on John’s numbers, it’s 27% return for an equity share. Still doesn’t work for me. So, thank you. And good luck.
Matthew Peet:
Thank you, cheers.
Nicholas Wallwork:
I think that those two guys are missing a trick. John’s spotted the opportunity. And the opportunity, despite what John says, is funding it through a bank and us coming in and putting none of our own money in, and being your expert partner. And then, it’s infinite return, it’s not 16% return. You’re highly investible. I don’t fancy investing up in Essex. It’s a little bit too far for me. And John would be a better partner for you on this deal. But I think you’re great. And I think you would make a good partnership together. And I won’t be investing for that reason today, but good luck.
Ranjan Bhattacharya:
Same applies for me. I think you’re very investible. It’s not really my type of deal. But I agree with Nicholas. I would fund it in a very, very similar way if it was my area. I think you’ve got a great partner in John. And I guess as John said earlier, you need a sort of father figure. So, I guess it’s what they call bank of mom and dad, you know?
John Howard:
That’s rude.
Ranjan Bhattacharya:
In a property [crosstalk 00:43:55] kind of way.
John Howard:
So, you’ve got one offer. What do you want to do?
Matthew Peet:
Take the one offer then.
John Howard:
Fantastic, Matthew. Well done.
Nicholas Wallwork:
Congratulations.
Helen Chorley:
Very wise.
Elizabeth Warburton:
Matthew, congratulations.
Matthew Peet:
Yep, went well.
Elizabeth Warburton:
We have a deal.
Matthew Peet:
We have a deal, yes.
Elizabeth Warburton:
Who went with the deal in the end?
Matthew Peet:
John Howard in the end.
Elizabeth Warburton:
Excellent work. Are you happy?
Matthew Peet:
I am happy, yeah. It’s worth walking away with something.
Elizabeth Warburton:
Absolutely, yeah. So, what are the next steps.
Matthew Peet:
Well, I mean, he said he’s going to meet me at the site tomorrow, maybe.
Elizabeth Warburton:
Brilliant. So, it’s straight on it.
Matthew Peet:
So, it’s straight on it and get to work.
Elizabeth Warburton:
It’s been an intense day here at Property Elevator, with more deals happening and a lot of happy developers. Unfortunately, not everyone went away with what they wanted, but they did leave with some invaluable feedback from our angels. I’m Elizabeth Warburton, and you’ve been watching Property Elevator.
