Property Elevator - Season 2 - Episode 3 - Nova

Property Elevator – Season 2 – Episode 3

The latest edition of the popular SkyTV programme “Property Elevator” featuring our MD, Paul Mahoney, and other fellow angel investors who are pitched property development deals.

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.

Welcome back to series two of property elevator. There’s been millions of pounds worth of deals happened over the last few days with some very happy property investors. I can’t wait to see what’s in store for today.

Paul Mahoney:

Just a little bit of feedback when presenting to investors. You’re better off being conservative with numbers.

John Howard:

You need me to put up 700 grand, yeah?

Helen Chorley:

So, I guess my concern is more going to be the environment and the economic environment that we’re in at the moment.

Ranjan Bhattacharya:

If it was too straight floors and a loft, then you could have a lot of fun.

Nicholas Wallwork:

Like you as a developer, I want to go in and create something and create that value. I get a buzz out of that.

Elizabeth Warburton:

Hi, Dylan. Welcome to the show.

Dylan Russell:

Hi, Lizzie. Thanks for having me.

Elizabeth Warburton:

How are you doing?

Dylan Russell:

Yeah, very good thank you.

Elizabeth Warburton:

Feeling excited?

Dylan Russell:

Yeah, excited and a bit nervous.

Elizabeth Warburton:

Good. Don’t be nervous. It’s fine. They’re all really lovely.

Dylan Russell:

Yeah.

Elizabeth Warburton:

Tell us a little bit about the deal.

Dylan Russell:

It’s a commercial property that I’m going to be converting to a residential.

Elizabeth Warburton:

Great. And how much investment are you looking for today?

Dylan Russell:

I’m hoping for 330,000.

Elizabeth Warburton:

In exchange of?

Dylan Russell:

So, 40% equity.

Elizabeth Warburton:

Okay, great. Very nice.

John Howard:

We’re now off to Milton Keynes. And Dylan is bringing this deal to us. I think it’s a nursery at the moment. And he’s looking to convert it, potentially, into yet another HMO, or I think splitting into houses, which should be quite interesting. Let’s get him in. Dylan, thank you very much for coming in today. Tell us a bit about yourself and your background, and then about the deal you wish us to fund, please?

Dylan Russell:

My background is, I arrived five years ago in the country from South Africa, as I’m sure you can tell, not Australian. So, I arrived with 550 pounds in my pocket and got on a train. I’d been an economics teacher in South Africa. And I arrived here and didn’t have any jobs or accommodation sorted, and went around trying to find a room to live in. And no one wanted to rent to me because I’d just arrived in the country, didn’t have credit history, didn’t have any wages.

Dylan Russell:

But I managed to find a room eventually by walking into an estate agency after the second day, thinking I’d end up on the street. And there’s a South African there. And I said to him, “Can I rent a room?” He gave me a room. And I said, “How did you do what you did with property?” And he told me. And I said to him, “I’ll work a day a week for free. What I want to know is what you know. I don’t need money from you.” And so, he allowed me to do that. And it turned out he ran the North Hampton Property Meet. He told me to do 20,000 leaflets. I did 22,000 leaflets. And I got a lease option deal. And that was my first deal about three years ago. And from there, I’ve worked on joint ventures, raising private finance. I’ve managed to build it up to a 2.4 million pound portfolio.

Dylan Russell:

With this property deal, it’s a property in Milton Keynes, where I’m currently living. And I’ve managed to … So, it’s on for 500,000 we can secure it for. The cash that’s needed is 250,000 pounds. The plan is to convert it into a 10 bed HMO. The cashflow of that should be about 3,000 pounds net profit per month. There’s planning permission that’s lapsed. So, the plan is to try and get planning for it. And there’s three options in the second stage.

Dylan Russell:

So, the first stage will be refinancing at six months as a 10-bed HMO. And that will leave 180,000 pounds in the deal. Within 18 months, apply from the planning permission from day one and build either an extension, so get six bedrooms more, which would push cashflow up to 4,700 per month, or else to build a house and sell that. And that would release all the initial cash back to you as an investor, so you have no money left in the deal. Cashflow would be a bit less, obviously, compared to holding it. But you would have all your cash out. And the third option would be to convert into four flats. And that would actually release an extra 70,000 pounds on top of your money coming out. So, we’d have 70,000 pounds. And I’d propose that we reinvest that and source another deal and refinance that money into a new deal.

John Howard:

So, first of all, your story is incredibly humbling. And well done, you. Fantastic.

Nicholas Wallwork:

Ditto what John said there, really incredible story. Well done. And it just shows that if you apply yourself, success can be taught. You can learn from other people. Having good mentors is important, and doing hard work to understand how to do these things is critical. I’ll tell you, one of my main expertise is commercial to residential conversions, and specifically micro studios and HMOs. So, this is-

John Howard:

He’s not the only one, by the way.

Dylan Russell:

Okay.

Nicholas Wallwork:

… A nice unit. I like it. I’m interested really on your market valuation initially, your stage one refinancing. What is that a refinance of?

Dylan Russell:

Stage one would be refinancing as … So, getting a commercial valuation as a 10-bed HMO.

Nicholas Wallwork:

Okay. And what is it now?

Dylan Russell:

Currently it’s being used as a doctor’s surgery.

Nicholas Wallwork:

Doctor’s. So, it’s D1?

Dylan Russell:

Yep. But it was residential before, got converted into a doctor’s surgery. And now we’re going back.

Nicholas Wallwork:

Okay. And the lapsed planning is for a single C3 house?

Dylan Russell:

That’s correct, yeah. So, as you can see on that picture, the planning was for it to come out. I mean, the options we have is to go the other way.

Nicholas Wallwork:

So, the planning was for physical building works and conversation to a large C3 single dwelling house.

Dylan Russell:

Yes, that’s correct.

Nicholas Wallwork:

Okay. And you would like to put in, to get this 600,000 valuation, you need to get planning for that again, or something similar to decide.

Dylan Russell:

Exactly. Yeah.

Nicholas Wallwork:

What’s next door either side?

Dylan Russell:

So, next door is just a parking lot. And next door to the right is another house. So, that’s all residential all the way up the street.

Nicholas Wallwork:

Is it a residential area?

Dylan Russell:

That’s correct.

Nicholas Wallwork:

Quite leafy, quite nice area, nice expensive houses.

Dylan Russell:

Yeah.

Nicholas Wallwork:

Yeah, you might get a bit of pushback from the council on a 10-bed HMO. There’s probably a better way of doing that, which would be maybe two flats. And then, use C3 to C4 permitted government rights to get two six bed HMOs, because you’d get the first phase of planning through quite easily as two flats. The council would tick a few boxes.

Dylan Russell:

I’m open to that, because the main thing you have in Milton Keynes and the issue you run into in planning with HMOs is parking. With this property, as you can see, there’s parking all the way around.

Nicholas Wallwork:

Got lots of parking. Yeah.

Dylan Russell:

Which is the advantage.

Nicholas Wallwork:

If the neighbors complain profusely, that’s where your issue might lie, politically. Is there an Article Four direction area in Milton Keynes, or specifically this area?

Dylan Russell:

There’s an Article Four across the whole of Milton Keynes.

Nicholas Wallwork:

So, this is in an Article Four direction, then?

Dylan Russell:

That’s correct. Yeah.

Nicholas Wallwork:

Right, so you can’t do the C3 to C4 then, obviously.

Dylan Russell:

No.

Nicholas Wallwork:

So, you would need planning. So, this is very much an opportunity if you can get planning.

Helen Chorley:

What was your target market for the HMO?

Dylan Russell:

So, young professionals. I mean, there’s massive demand in Milton Keynes.

Helen Chorley:

And part of your portfolio is HMO already?

Dylan Russell:

That’s correct.

Helen Chorley:

How many previously? What number would this be?

Dylan Russell:

Fifth HMO.

John Howard:

I’m not that interested in HMOs, to be fair. But there might be other angles here, like you said. And I like the fact that you bought three different angles to it. If we were just to refurbish the existing building and sell it, what could we sell that for?

Dylan Russell:

Probably go for about 550.

John Howard:

So, I’ll cross that one off. And if we did four flats, doesn’t that include an extension? Or is that just the existing foot clinic?

Dylan Russell:

So, in Milton Keynes, quite a few people have done them where you do it almost like a cluster home. So, you have the four flats, you title split it. And if you were to just use the extension part to do that, the flats go for about 180. But conservatively, if we saw a drop or correction in market-

John Howard:

Yeah, 150.

Dylan Russell:

We’ve budgeted 150.

John Howard:

Yep, sensible.

Dylan Russell:

Yeah, 600.

John Howard:

And the gross would be 600K?

Dylan Russell:

That’s for the flat. So, with the extension, building on four flats.

John Howard:

So, you’ve got four flats on the extension, plus the existing house.

Dylan Russell:

Plus the existing house.

John Howard:

Okay. And what could we put the existing house into, if it wasn’t HMO? Could put it into another two decent-sized flats?

Dylan Russell:

Yeah, or a semi.

John Howard:

Semi. Yeah, I like that. And it’s got enough garden for semis either side. So, we could get six units out of it, of which two semis and four. So, the gross would be … So, the semis are what? 250 each, something like that?

Dylan Russell:

At least. You’d get about 300,000.

John Howard:

Well, they’re very close together. You know? They’re going to be close to all the others. Let’s say 250 each, just for the sake. So, it’s 500, plus 600 is 1.1, yeah?

Ranjan Bhattacharya:

I’m not really keen on the HMO angle. It’s really the alternative uses that it can be put to. So, you’ve got a D1 use here. And you’ve talked about planning. So, there’s likely to be some very attractive alternatives for converting this to residential without the need for planning permission. It’s just that we don’t know about those yet. They’ll be unfolding by the time this gets on air. The problem with this, I think the purchase price is probably a little bit too high.

Ranjan Bhattacharya:

The reason is that the permitted development is going to allow you to do a lot with this within the existing envelope. If it was two straight floors and a loft, then you could have a lot of fun. And this is the problem I find with many of these sites. You get these D1 sites. And you’d get two floors and a roof for 500 grand. And then, you get basically one floor with the next floor in the roof, and they still want 500 grand for it.

John Howard:

It’s almost too nice for it, isn’t it?

Ranjan Bhattacharya:

What you can do with it is so limited. I think this is too much money as the purchase price for this type of deal. That’s the problem. And so, if there’s any downward scope on that, you may be able to make it into a deal. But I think it’s just too much.

Nicholas Wallwork:

Yeah, I suppose just echoing what some of the guys have already said, the 500, has that been agreed? You said it turned down at 550. Has he agreed 500?

Dylan Russell:

Yeah.

Nicholas Wallwork:

Does there seem to be flexibility on that?

Dylan Russell:

Potentially, if we could go through a bit quicker. But obviously from our point of view, we wouldn’t want to, as Ranjan said.

Paul Mahoney:

I think I agree with what Ranjan said, so far as the margin just being a little bit tight. If you were buying this, if you were to turn it into two semis, it would be just the two semis. Is the existing property on top of that?

Dylan Russell:

Well, that’s the option we have to build-

John Howard:

Build another four flats.

Dylan Russell:

We build another property.

Paul Mahoney:

Right, okay.

Helen Chorley:

And what would you prefer? So, you’ve given kind of various options. What would your preferred option be?

Dylan Russell:

Doing the 10-bed HMO, and then having the four flats, because then you’ve got a bit of diversification as well. So, if the HMO market turns, or the flat … Flats, I think, is where the future’s going. And yet, there is such a high demand for young professionals in HMOs. So, from a cashflow point of view, it works out quite well, and the refinancing point of view.

Helen Chorley:

And have you done an HMO in clearly a very residential area?

Dylan Russell:

Predominantly, that’s where all my HMOs are.

John Howard:

It’s tantalizingly close to a deal. The problem is, I don’t think it’s quite there. What is the potential of getting planning permission for the extra four flats?

Dylan Russell:

I haven’t spoken to the planners, but I know from the people I have spoken to who’ve gone through the process, because of the advantage of where we’re building, that we’re not overlooking anywhere. The thing that we’d have say is, if we built to the left hand side, that would mean that we’re overlooking a parking lot. So, from that point of view, I’m pretty confident that we can.

John Howard:

Okay. Well, the good thing is you’ve got the parking, because you’re going to need one for one, or one and a half for one, or two. Whatever it might be. So long as you’ve got enough parking spaces there. I mean, I actually think it’s a shame because it’s almost too nice as it is. And that’s why it’s still 500 grand. If it looked a dog, it might be 400. And actually, at 400, because, whatever condition it is, in a way, you’re going to have to do it all again anyway, to a point. So, actually, you’re not really benefiting from the fact that it’s nice. And other people might buy it to make it back into a home.

John Howard:

For me, it’s not quite good enough. It’s not that far away, as long as you know you’re going to get the four flats. But I’m afraid, as a deal, I wouldn’t want to do the HMO particularly. And as a deal, I’d much rather do the four flats and the two houses. And for me, the price is just a bit too much. So, it isn’t something I could invest in today.

Nicholas Wallwork:

I actually, being possibly the most current HMO micro studio person in the room.

John Howard:

Yes, I wouldn’t say the expert. But I would say, you certainly are in the market at the current time.

Nicholas Wallwork:

Yeah, thanks, John. Appreciate that. The HMO model is risky on this. I don’t actually see it as an HMO model at all. I see the John route, which is get a good extension, get three or four semis on the site. Make sure the GDV on those stacks up, it’s done to a good spec. And you can make some money selling those on.

Nicholas Wallwork:

Be cautious. This is a word to aspiring investors out there. Don’t try and turn everything into a HMO. They don’t all work, you know? It’s hot property at the moment, not everything’s suitable. Don’t try and turn everything possible into an HMO just because it makes a load of cashflow and it looks good on paper. Potentially, this one is too risky for that. So, for that reason, I’m out. And yeah, hopefully that advice might help you going forward looking for better sites for HMO conversion.

Ranjan Bhattacharya:

I would love to back you. Come back with another project and I will back you. I think one of the biggest things I see with people that do HMOs is, I did it to start with to build up the cashflow. It’s when to start doing other things to get out of the HMO mindset and see other possibilities in property. And I think you’re at that stage, where you need to sort of broaden your horizons. Commercial to resi is fantastic. I just don’t think there’s an … As John said, it’s too good. It’s not distressed enough. And also, this thing that I say about look for two floors and a roof. Then you can do so much.

Ranjan Bhattacharya:

The thing about planning permission, I don’t like dealing with planners. It’s too much of a pain. If this was two floors and a roof, under permitted development, you could convert it into two houses. And then, you convert it into two houses. You split it vertically. Then both houses come with PD rights as houses. And then you can implement PD on that. And you don’t have to consult these planners. So, you can do so much without planning. Why go down that sort of route? But this is just too nice a property to start with. And there’s not enough space to do the kind of sexy things that you can do with these sort of units. So, find one that has a little bit more meat on the bone and come back.

Paul Mahoney:

First off, HMOs aren’t really my bag anyway. But I agree that they are forced sometimes. And I think this as a deal itself seems a little bit forced, based on what the other guys have said, predominantly. So, it’s not really for me, based on that. But great story, and I think you’re very investible. So, another deal, it probably would be for me.

Helen Chorley:

You, yourself, your story is very compelling. I think you clearly know your area and you clearly have expertise in the HMO space. And it does sound also to me that you’re ready to take that next step. I do echo that maybe this isn’t exactly enough meat on the bone. It’s not quite the right opportunity. But do come back again with something else. And yeah, very interested to understand your mindset and how you look at these things, thank you.

John Howard:

To sum it up, it needs to be 400 grand. And if it’s 400,000, you can flog it on for 500 and not do anything. But thank you very much for coming to see us. And there’ll be another series and we would love to see you again.

Ranjan Bhattacharya:

By the way, John’s absolutely correct. If we’re all saying it’s not worth 500, then everyone else is going to say that as well. So, keep an eye on that vendor. Wait another two or three months. And keep going back to them and saying, “Is it still for sale?” Because no one else is going to buy it at that level.

Elizabeth Warburton:

So, Dylan, tell us how it went.

Dylan Russell:

It went well. I got some good feedback. But unfortunately, I didn’t get an investment.

Elizabeth Warburton:

Any feedback from the angels?

Dylan Russell:

Yeah, just got to get the price a bit lower.

Elizabeth Warburton:

Okay.

Dylan Russell:

Yeah, so hopefully if I can renegotiate it, leave it a few months. Hopefully we can do something with it.

Elizabeth Warburton:

Great. So, you’re going to head back today and reassess your numbers?

Dylan Russell:

Absolutely.

Elizabeth Warburton:

Demelza, welcome to the show.

Demelza Smith:

Thank you.

Elizabeth Warburton:

It’s great to have you here with us. Can you tell us a little bit about the deal today and what you’re after from our angels?

Demelza Smith:

The deal is a period property conversion in St Leonard’s, which is in East Sussex. It’s a high end … I’m hoping to do a high end refurbishment. And it’s a lovely period property that’s got lots of original features, high ceilings. I’m planning to install some parquet floor and give it a really high end finish.

Elizabeth Warburton:

How much investment are you after today?

Demelza Smith:

I’m looking for a 60-40 split. And yeah, that’s it, really.

Elizabeth Warburton:

Lovely. Well, good luck.

John Howard:

Now, we’ve got Demelza coming in to see us. Demelza is an interior designer and a property investor and developer. I think she’s coming to pitch an apartment that needs refurbishing and reselling. What I like about this, personally, is that I don’t have to choose the kitchens, the bathroom, or the colors, because there’s an expert that will be doing it. I’m hopeless at picking the colors, especially. Demelza.

Demelza Smith:

Hello.

John Howard:

Welcome. Thank you very much for coming. Have you come up from St Leonard’s today?

Demelza Smith:

No, I live down the road in [crosstalk 00:18:54].

John Howard:

Do you?

Demelza Smith:

Yeah.

John Howard:

Even better. That’s great. Well done. Super. Tell us a bit about yourself, and then a bit about the deal, please.

Demelza Smith:

So, I’m Demelza. And I’m a property developer, investor, and site sourcer and interior designer. I’ve been working in property for about 15 years. I started as an agent. I got the property bug from being an agent. Just been doing mainly residential for the past sort of 12, 15 years, because I’ve had breaks in between. Mainly working on sort of, I guess what you call vanilla type investments. I did sort of sourcing buy-to-lets below market value. Completing full refurbishments and then sometimes flipping.

Demelza Smith:

I’ve used a few different strategies. So, I’ve bought things that require full refurbishments, but have short leases. I love things that have short leases.

John Howard:

So do I. We’re going to get on well, you and me.

Demelza Smith:

Yeah, initially, I started with sort of shared houses before HMO litigation came in. And I would rent them as rooms because I sort of mitigated the risk, because if one tenant didn’t pay, I still had the rental income from the others. I left that, went on to, like I said, short leases, specifically sourcing those. And then things that … Often if you find a property that’s got a short lease, it’s usually in a poor state of repair as well. So, it had the uplift by refurbishing and increasing the extended lease.

John Howard:

Excellent. So, talking about the deal, how did you find it? And tell us all about it.

Demelza Smith:

So, when we went into lockdown, I sort of obviously thought … I’d had this sort of plan at the beginning of the year. My plan is to sort of complete on three properties. I was sort of hoping to do a bit more commercial stuff. But I was sort of … I’ve been to Hastings a few years ago and I quite liked the properties because they’re quite substantial in size, there’s a lot of period architecture that’s really nice. Some people that I deal with, sort of finance people, they mentioned that they’d had a few clients that were looking in Hastings, St Leonard’s again. And the area had really sort of taken off. I’d been down there five years ago.

Demelza Smith:

So, I just took a trip up there and decided to do some viewings. So, I did. And I viewed a few. And this property was probably the last one I looked at. And I quite liked it, because it was … Across the road, if you look on the road there, on that side that you can’t see, there is quite a nice building that’s just been fully refurbished. I liked it because it was large in size. There is a bit of a sea view. It’s like a-

John Howard:

A glimpse?

Demelza Smith:

A glimpse. A glimpse.

John Howard:

I can tell you used to be an estate agent. Go on, yeah. Tell us about the deal then. What are you paying for it? What is it worth? And what do you want out of us, please?

Demelza Smith:

It was on the market for 150. It had a short lease. And I managed to negotiate down to 135 and they extend the lease.

John Howard:

Back to its original level?

Demelza Smith:

To 125. 225, yes.

John Howard:

Okay.

Demelza Smith:

So, in good condition, as an average, those sort of style properties sort of go for about 210. But in top, high end finish, they’re on the market at sort of 320.

John Howard:

The ones opposite are professionally converted or new?

Demelza Smith:

Professionally converted. Yeah.

John Howard:

Okay, and they’ve just all been finished.

Demelza Smith:

Yep.

John Howard:

So, they’re coming with a 10-year warranty. They’re coming with all the rest of it, all the bells, yeah?

Demelza Smith:

I don’t know that, actually. When I say professionally converted, I’d say they’re just other developers, probably, a bit more with larger-

John Howard:

But they’ve done like 10 at once or eight at once. The whole thing’s been done, has it?

Demelza Smith:

What, as the whole building, you mean?

John Howard:

Yeah.

Demelza Smith:

No, they’re individual flats.

John Howard:

Okay, individuals. Sorry, okay.

Demelza Smith:

Yeah.

John Howard:

Good, right. Nicholas? Now you know where St Leonards-on-Sea is.

Nicholas Wallwork:

Yeah, looks like a nice little-

John Howard:

And you pronounce it right, more than you did earlier. Go on.

Nicholas Wallwork:

… Nice little town. They’re on the market for up to 320, you said?

Demelza Smith:

Yep.

Nicholas Wallwork:

Are they selling for that? Have you got any comparables of actual sales on the land registry?

Demelza Smith:

Well, there is, yeah. On the page-

Nicholas Wallwork:

You did have a-

Demelza Smith:

One of the pages.

Nicholas Wallwork:

It’s slightly confusing because there’s a-

Demelza Smith:

I know.

Nicholas Wallwork:

Helen and I were chatting a moment ago, and there’s quite a range of values there, which we’re questioning how you’re adding 150 grand’s worth of profits by seemingly just redeisgning the interior and painting it and redecorating it. From what I can tell, correct me if I’m wrong, there’s no major development work going on. So, how are you able to add … So, there’s two questions, the value … Comparables, sorry. Why are they so different? And secondly, how can you add 150 grand without doing any substantial physical building works or change of use?

Demelza Smith:

I am planning to finish it to a high specification. In addition to that, if you can see from the plan that I have had sort of redrawn, I’m planning to lose the kitchen and create a third bedroom with an en suite. So, there will be two en suites and an additional bathroom. So, it will be a three-bedroom, three baths, which might seem a-

Paul Mahoney:

Sorry, Demelza, just let me jump in there. That 210, is that not for three beds, though?

Demelza Smith:

Well, that’s an average. And that was based on-

Paul Mahoney:

I’ve got it here. So, it just says, three beds for the area, the average being 210?

Demelza Smith:

That’s average condition.

Paul Mahoney:

Right, yeah. Okay.

Demelza Smith:

Sorry.

Paul Mahoney:

Being the average property in the area. Is that right? Yeah.

Demelza Smith:

Yeah. But they also-

Nicholas Wallwork:

Yeah, for a three bed, for the finished product.

Paul Mahoney:

Yeah, yeah.

Demelza Smith:

Yeah, but it does also say for the average condition.

Paul Mahoney:

Yeah, no, fine. No, that makes sense.

Demelza Smith:

Okay. If you go further on and you look at the comparables of what has actually sold recently, you can see that there’s a three-bed, 8C, The Mount, which sold for 347. And that was recently, that was on the third of this year.

Paul Mahoney:

So, just looking at the ones that you have there, the pictures, is it fair to say that they are probably the top end of three-beds in the area? The 325 and the 350.

Demelza Smith:

I would say that they are top end. But there are still some that are even more, you know?

Paul Mahoney:

Okay. So, just one concern that I would have there is, I assume you won’t have the freehold in this building.

Demelza Smith:

No, it won’t have the freehold.

Paul Mahoney:

And the outside of the building looks a bit worn.

Demelza Smith:

Yeah, it is definitely scruffy.

Paul Mahoney:

Whereas, they look quite nice.

Demelza Smith:

Yeah, that’s fine. And I did sort of take that into consideration, because I’ve spoken to the freeholder, and he’s quite a nice man. And he is quite happy to have a little bit of a conversation about repainting the outside.

Nicholas Wallwork:

On the square footage, you say it’s a little bit smaller, those are 1033 square foot and 1066. And 1066 is at 315,000. And yours is 800 square foot, which is 20% less space.

John Howard:

How much is that? It’s 300 pound a foot, isn’t it, mate?

Nicholas Wallwork:

So, you’re knocking sort of … On the top one there, you’re knocking 70 grand off that to get to a comparable figure at your size. And on the cheaper one, you’re knocking 63,000 off. So, then you’re down to 250,000 and 280,000 respectively for the value of your property. So, I’m interested how you got to 320 as your valuation. Is it gold plated walls? With all due respect.

Demelza Smith:

No, no, it’s fine. Don’t worry. I mean, I hear what you’re saying. But just also, I mean, the ones that were across the road, they’ve now been removed and they’re obviously still going through the sales process. So, it probably would have been good to get. But they were selling at 320 directly across the road. So, I’m using that as a bit of a benchmark.

Paul Mahoney:

I mean, if I can slightly jump in, in your defense, it’s almost 100% return on capital with the valuation you’ve given. So, it’s still a pretty decent return, even if it sells at 250.

Ranjan Bhattacharya:

Can I just sort of extend on Nicholas’s sort of line here? I get the bung the kitchen in the lounge and make an extra bedroom strategy for increasing rent. But for sell-on, I think it’s a slightly different ballgame, because when you get into the three-bedroom apartment market, a lot of people’s expectations are for a garden. And a lot of the comparables are basement, they’re maisonettes. So, it’s probably implied. It’s not actually said in the comparables, but if you read between the lines at some of the addresses, they probably do have that outside space. And again, square footage is … I get if you were doing this as a rental strategy. You can make more rent by making extra bedrooms. But without the extra square footage, I wonder whether the comparables … Because in the UK, we have a tendency to say, compare based on number of bedrooms, as opposed to square footage. And that’s essentially what you’re getting, not number of bedrooms, if that makes sense.

Helen Chorley:

In terms of the direct comparable that you’re talking about, kind of across the road here, so the 320 for 900 square foot. So, you’ve got 355 a square foot there. But if yours is 800, then using that same average, 355, that gives you relatively 284, I’ve got it at. So, I think a 320 marketing on a 284 price, gives me a bit of doubt there.

John Howard:

Have you got the permission for … Will you get the permission from the freeholder to refurbish it as you wish? Because the lease probably says you need the freeholder’s permission. So, is that going to be an issue?

Demelza Smith:

I’m can’t foresee that being an issue. I think he’s quite keen to get it-

John Howard:

We need it in writing. Is he the owner of the flat at the moment? No.

Demelza Smith:

Yeah, he is the owner. Yep.

John Howard:

He owns the flat as well?

Demelza Smith:

He owns the whole building.

John Howard:

He owns the freehold. But does he own this flat? No.

Demelza Smith:

Yeah, he owns downstairs and he owns upstairs and I’m buying the middle.

John Howard:

But he doesn’t own this one?

Demelza Smith:

No, he owns the middle as well at the moment, until I buy it.

John Howard:

How much is the ground rent?

Demelza Smith:

250 pounds per yer.

John Howard:

Okay, well under the new rules, ideally if you’re doing a new lease, it should be 0.01% of the value of the property. So, if you’re paying 135 for it, it should be 135 quid. That’s what it should be. I’m nearly ready to make you an offer.

Demelza Smith:

Okay.

John Howard:

What sort of deal do you want to do? Tell us, what’s the game? What’s the deal? Are you putting any money in yourself?

Demelza Smith:

Ideally, I would not like to put any money in.

John Howard:

I’m sure you wouldn’t want to.

Demelza Smith:

Because then I could get [crosstalk 00:29:18].

John Howard:

No, I don’t blame you.

Demelza Smith:

Yeah, I mean, the whole idea is that I’m trying to sort of grow my business now. I’d like to sort of hit the ground running and get cracking with this. And then, be looking for the next deal to get onto. So, if I could-

John Howard:

Okay, so I’m going to make you an offer. I put all the money up for the deal. And I’ll give you 25% of the net profit. And I think it’s probably worth 275.

Demelza Smith:

Right.

John Howard:

And I want you to use all your skill and ability that I haven’t got. I’ll get all the building work sorted out. I’ll pay for everything, but I need you to put that input into it, okay?

Paul Mahoney:

Just a little bit of feedback when presenting to investors, better off being conservative with numbers, because you’ve put together a great pack, which has given us all the evidence. And I think it’s going to be, for me anyway, a bit of a turn off to see the numbers look inflated. I mean, that could be a red flag so far as how you operate your business, not that it is, I’m just saying. Could be.

Demelza Smith:

No, thank you.

Ranjan Bhattacharya:

Great presentation, great pack. I do get there is something in this deal. It’s just not the type of deal that I do.

Helen Chorley:

I really like you. I really like your story. I love the amount of time, money, and belief in yourself and that you’re dedicating to educate yourself. That’s a huge plus for you, in my book.

John Howard:

Definitely.

Helen Chorley:

I love the detail in this. It would be a little bit too much detail for some investors. Like, probably not for us. But for some investors, just be mindful-

John Howard:

I thought you’d say for John.

Helen Chorley:

Well, I was going to be kind and not say that. But since you’ve gone there.

John Howard:

Thanks.

Helen Chorley:

So, just be kind of mindful who you’re pitching to. Like I say, the numbers kind of bring concern to me. So, on this occasion, it’s not for me. But I really want to follow your journey and see what you do. So, I’d definitely like to stay in touch. Yeah, and I wish you well with everything.

Nicholas Wallwork:

Yeah, I think you’ve done a great pack. As Helen said, it’s probably a bit too much information to digest and read through. But lots of information there. When you do comparables, make sure they’re real and genuine comparables. So, there’s a bit of a learning lesson there, I’d suggest. And presenting three or four comparables, rather than so many. Make sure they’re very accurate. And then compare them with a price per square foot basis as well. I’d love to work with you. I don’t think this deal’s for me. And I think you would work really well with John. And I think you’ve got an incredible offer from John. And you couldn’t have a more formidable business partner. So, I’m going to step back and declare myself not investing today. But thank you for coming in.

Demelza Smith:

Thank you. Thank you, everyone. I’ve really appreciated that. Thanks for the advice. And yeah, I’ll keep the presentations a bit simpler in the future. And thank you. Thank you, John, as well.

Nicholas Wallwork:

Are you going to accept his offer? That’s the big question. There’s an offer on the table.

Helen Chorley:

There’s an offer on the table there for you.

John Howard:

The offer.

Demelza Smith:

All right, okay. Well, I’ll accept then, that’s fine.

John Howard:

Sure?

Demelza Smith:

Yep, that’s fine.

John Howard:

Great, thank you.

Nicholas Wallwork:

Great, well done.

John Howard:

Excellent. Thanks.

Demelza Smith:

Thank you.

Elizabeth Warburton:

So, did we have a deal?

Demelza Smith:

We do, we have a deal.

Elizabeth Warburton:

Fantastic. Congratulations.

Demelza Smith:

Thank you.

Elizabeth Warburton:

Who went for it in the end?

Demelza Smith:

It was John.

Elizabeth Warburton:

Okay.

Demelza Smith:

And he’s offered me 100% funding. And we do a profit share. So yeah.

Elizabeth Warburton:

So you’re happy?

Demelza Smith:

Very positive. Yeah, really happy.

Elizabeth Warburton:

Good. Immanuel Ezekiel, welcome to Property Elevator. It’s great having you with us.

Immanuel Ezekiel:

Thanks for having me.

Elizabeth Warburton:

So, tell us a little bit about your deal.

Immanuel Ezekiel:

So, I’ve got a nine unit new build scheme in Purley, Croydon. Just got planning permission just over two weeks ago.

Elizabeth Warburton:

Lovely.

Immanuel Ezekiel:

I’m looking for an investment around about 700,000.

Elizabeth Warburton:

Brilliant, okay. Well, good luck.

John Howard:

Immanuel is coming to see us. He is a developer and he’s looking to fund this new development in Croydon. Shall we get him in and-

Helen Chorley:

Yeah, let’s hear more.

John Howard:

… Get the measure of him. I think I recognize you from a TV show, do I?

Immanuel Ezekiel:

You might have done. You might have done. I was on a TV show recently.

John Howard:

Which show was that?

Immanuel Ezekiel:

It was Rich House, Poor House. I was the poor house.

John Howard:

I don’t believe that for one minute. Tell us a bit about yourself, Immanuel, and about the deal you have brought today for us to fund?

Immanuel Ezekiel:

I’ve been a property investor for about 25 years, got quite a large property portfolio. And I’ve been developing different schemes all over London in the main. So, the scheme we’re talking about today is a scheme we’ve just got planning permission on a few weeks ago in Purley, Croydon. It’s a nine unit scheme, 7,163 square feet. It consists of one three-bedroom, five two-bedroom, three one-bedroom apartments.

John Howard:

Some figures please?

Immanuel Ezekiel:

Sure. So, the purchase price is 1.1 million. The build costs are 1.5 million, 1.45 million. The CIL Section 106 is in Car Club is 100,000. Contingency 7% at 100,000. Purchase and exit fees, another 120,000. You’ve got finance at roughly 200,000. Total purchase and build cost and contingency is three million and 70. We’re very conservative on the GDV. So, I’ve given you a couple of handouts.

Immanuel Ezekiel:

There’s two schemes literally in the next road. So, you’ve got Russell Hill, which we’ve got another scheme in planning at the moment, which is in the next road. And it’s selling for a much higher price per square foot. It’s selling between 515 and 580. I’ve based all the figures on 515 per square foot.

John Howard:

Okay.

Helen Chorley:

515, 1-5?

Immanuel Ezekiel:

5-1-5. The blended build rate is about 202 pounds a square foot. Profit on costs is 20% at 620,000 is the overall profit.

John Howard:

  1. And what are you looking from us today?

Immanuel Ezekiel:

Looking for an equity partner. The total equity required is 800,000. We’ll put in 100,000. We’re looking for an equity partner or number of for the balance of 700,000 for 50% profit share.

Nicholas Wallwork:

I don’t know Croydon quite so well. But to make 600 grand putting three million in GDC to make 600 grand. I can make that by putting 700,000 or 800,000 in, in the Thames Valley on an office to resi conversion or something a little bit less.

Immanuel Ezekiel:

You very well can. So, if you bear in mind, like most developers, most of these things take 12, 18 months to come to market. So, you base your numbers on where the market was at the time. The figures were higher. I’ve revised them down to where they are now.

Nicholas Wallwork:

Sure, okay. So, this is realistic for now.

Immanuel Ezekiel:

It’s realistic for now. But when we first did it, the GDV was just under four million.

John Howard:

One thing I’m always nervous on is when I see steps, external steps, because I always think that signifies extra costs. And if you look here, you’ve got … It’s a beautiful design, don’t get me wrong. But you’ve got steps up from obviously the garden. And you’re obviously building the car stacker is where the steps go up. So, is that natural ground falling down? Or are you having to dig anything out?

Immanuel Ezekiel:

No, that’s the natural ground’s progression.

John Howard:

So, you’re using the natural undulation to do it?

Immanuel Ezekiel:

Correct.

Nicholas Wallwork:

Did you try and get a basement level in this? With the ground, you could obviously have windows at the rear, could potentially get another floor in.

Immanuel Ezekiel:

No. We haven’t done that. We’ve done a few basements. I don’t like them. They take extra time, money.

John Howard:

I agree entirely with you.

Immanuel Ezekiel:

So, learnt once.

John Howard:

Absolutely.

Immanuel Ezekiel:

Don’t do the same thing again.

John Howard:

Absolutely.

Nicholas Wallwork:

I think it just depends on the area though, doesn’t it? I mean, I know a lot of areas in London where-

John Howard:

You’re okay in Mayfair. Correct.

Nicholas Wallwork:

Yeah. I mean, I look up at Radlett and the people are going three or four stories down there because the price of land is so high.

John Howard:

What, in Radlett?

Nicholas Wallwork:

In Radlett, yeah. A lot of people doing those developments there.

John Howard:

I’m out of touch.

Nicholas Wallwork:

So, I mean, Croydon is probably not as expensive as there. But I guess it comes down to the numbers, doesn’t it, if you’re prepared to take that extra risk. It probably doesn’t work.

Immanuel Ezekiel:

Radlett and Croydon prices aren’t a million dollars. Actually in Radlett, the price per square foot now is actually about 650 to 675. I know the area pretty well, I live there.

Nicholas Wallwork:

You live there? Right, okay.

John Howard:

There’s the clue.

Nicholas Wallwork:

So, there you go. So, you know of these developments, I’m sure.

Immanuel Ezekiel:

I know some of the actual developments, I know some of the very big builders there as well.

Helen Chorley:

And what’s the timeframe on this?

Immanuel Ezekiel:

It’s going to be a 12 month build, six month marketing. But I always say allow 24 months. You definitely don’t know what the market’s going to be. You don’t know if another COVID’s going to be there or another Brexit. There’s always something.

John Howard:

I agree entirely. And selling the last unit’s your profit.

Paul Mahoney:

I suppose, my biggest concern would be the profit is less than 10% of the percentage of the GDV. So, is that right? 620 profit on 6.4 million GDV?

Immanuel Ezekiel:

The cost is three million and 70. The GDV is 3690. So, it’s 20% on cost.

Paul Mahoney:

Right, okay. All right. Sorry, I misunderstood that.

Immanuel Ezekiel:

Yeah. And again, I’ve been very conservative. I could have come in here with inflated figures. But that’d be wrong. So, when you’re doing a development, from all the years of experience, you always undervalue, because you just don’t know where the market’s going to go. If it goes to the figures where we think it is, it’s just extra profit.

Paul Mahoney:

Exactly, and that was my point is, obviously the market’s relatively good in Croydon at the moment. It could come down by 10% in that. Yeah, fine.

Immanuel Ezekiel:

And I’ve done a sensitivity analysis of 10% increase in bill costs, 5% down in GDV. And there’s still a profit of 300,000, even on those particular figures. And again, it’s not including the parking or the freehold. So, there’s a bit of movement in there at the same time.

Helen Chorley:

It’s a beautiful scheme. I’ve seen some of the things you’ve done in the past and I know the caliber and the quality that you deliver. So, no, it’s very interesting.

Immanuel Ezekiel:

Like my jacket, I like things to be a little bit different.

Nicholas Wallwork:

Little bit of flair.

Helen Chorley:

Unique.

John Howard:

You’ve got all the flair I have not got. But what I have got, and what I can bring to the table, I think is a little bit of more realism, perhaps, to the deal, where in every partner, you need to be different. So, you’ve got the flair and the enthusiasm and the experience of doing these. And I can perhaps bring a big more hard-nosed side to it, as it were. So, I quite like that.

Ranjan Bhattacharya:

I wanted to explore a little bit about the build costs. We’ve got this sort of timber frame and all that sort of stuff. But what about the ground works? Because it does seem a sloping site and all of that. Has that all been-

Immanuel Ezekiel:

So, again, we should have a firm design and build price in the next 7 to 10 days. And the indication, including the timber frame is 1.45 million. And I’m hoping to shave a little bit off that. But that’s where it looks to be, plus the contingency of another 100,000, which we’ll probably use, takes you up to 1.55 million. I’ve put extra costs on the finance of 200,000. It won’t be as much as 200,000. So, there’s movement in there to allow for any … So, the build cost is plenty there.

Paul Mahoney:

It’s not really for me. I think for me personally, it’s too much cash in for not enough return. I’m not saying that it’s not a good deal, because it’s probably more for one of you guys than it is for me. So, I’ll withdraw first.

Nicholas Wallwork:

I’m going to go quickly after it, purely on the basis of the numbers. And I don’t think I can add any value. I think you know exactly what you’re doing. I like to go into deals where I can add the value. And that’s the passion I have in property is, like you as a developer, I want to go in and create something and create that value. I get a buzz out of that. So, I don’t think I could get excited about the business aspect of it, because you’ve already nailed that. And you’ve nailed the design. So, yeah, unfortunately, I won’t be investing on this occasion. But it’s a great site and I’m sure it will be amazing.

Immanuel Ezekiel:

Thank you.

Helen Chorley:

See, this is right up my strata, someone who knows what they’re doing, someone who’s got a proven track record, someone whose numbers are sensible. My concern on it is the return on investment numbers in terms of the timeframe. So, the return on investment in terms of the 620 that we’re looking at is 44% over two years.

Immanuel Ezekiel:

Well, it’s actually 18 months. But I’ve said two years because I like to be conservative.

Helen Chorley:

Yeah, yeah.

John Howard:

You’re right, Immanuel, you’re right. Absolutely to be sensible.

Helen Chorley:

I like that you’re conservative with that, that gives me much more kind of reassurance. So, I guess my concern is more going to be the environment and the economic environment that we’re in at the moment. If we look at kind of the downside, and I love that you’ve done the sensitivity analysis. You’re the first person that’s been in here who’s even mentioned those words other than me. So, I absolutely love that.

Immanuel Ezekiel:

So, let me help you on a couple of bits at the moment as well.

Helen Chorley:

Sure.

Immanuel Ezekiel:

So, all the schemes that we build are in help to buy, or help to sell, should I say, in terms of the marketplace. So, that’s the first thing. So, the amount of deposit somebody needs to put in is quite small. Secondly, because of COVID, we are now in unchartered territories where interest rates are as low as they’re ever going to be. I think this is a pretty good scheme. And Croydon, I don’t know if you’ve seen some of the stuff. But it’s the most searched after area to buy in the UK currently.

Nicholas Wallwork:

Who’s going to show their hand first? That might be yourself and Helen.

Helen Chorley:

Yeah, Ranjan’s been very quiet.

Nicholas Wallwork:

I don’t think Ranjan’s in. I don’t know, Ranjan, let’s hear what you think.

Ranjan Bhattacharya:

I think I’m kind of torn here, because I’d love to work with you. And there are just a couple of things holding me back. One is that I’m not a new build type of person. So, what I can add to the party, I’m not entirely sure. I’ve done a lot of property stuff, but I haven’t done that much new build. It’s mainly converting old stuff. The other thing that holds me back is the length of time that much money would have to be tied up into it.

John Howard:

It’s not very long, Ranjan.

Ranjan Bhattacharya:

It’s 18 months, couple of years.

John Howard:

What do you expect on a scheme like that?

Ranjan Bhattacharya:

I haven’t finished my offer yet. I haven’t finished what I’m saying yet.

Nicholas Wallwork:

You haven’t finished your offer? Oh, interesting.

Ranjan Bhattacharya:

Did I say that?

Nicholas Wallwork:

I think you said offer.

Ranjan Bhattacharya:

If someone wanted to come in, I would be willing to put up half of the money if the total profit share was, say 60%, because I think we’d be putting in quite a lot. So, if someone else wanted to come in and offer the other half, I’d be delighted to work with you on this project.

John Howard:

I love the idea. I’ve got nothing to do with it, to be honest with you because I’m up to here with property and I’ve got too much to sell at the moment more than anything else. So, the fact that you know what you’re doing and you’re getting on with it, and I just need to turn up once a month for a cup of coffee with you and say, “How’s it going?” And you go, “Yeah, it’s great. Schedule’s going fine.” I actually like that. I’m not a control freak. I’m a delegator. And that’s how I’ve made my money, to be honest with you, most of the time, by delegating to people better than me. And you’re certainly much better than me at something like this.

John Howard:

I obviously know you and know of you. And I like what other people have said about you as well. For me, the problem in it is that the profit, really, for me isn’t enough. And I’m not normally a greedy person. So, you need me to put up 700 grand, yeah?

Immanuel Ezekiel:

I do.

Nicholas Wallwork:

If you don’t get investment today, do you have an alternative way of financing this site?

Immanuel Ezekiel:

I do.

Nicholas Wallwork:

And what is that? Share that?

Immanuel Ezekiel:

With my own money.

Nicholas Wallwork:

Your own money, okay.

John Howard:

Exactly.

Nicholas Wallwork:

Okay. And why don’t you want to do that now?

Immanuel Ezekiel:

Why? Because cash is king. And it gives me the ability to buy other stock. But also, more importantly, if there’s any shortfalls that the project needs propping up, that comes from me. So, having cash in reserves is important for any investor or developer.

John Howard:

I agree. I agree. I would be prepared to put up the 700K. But I would want 70% of the deal.

Helen Chorley:

What I’m looking at is, and I always look at kind of worst case scenario for me. So, like I say, I’ve got my concerns about what’s going to happen in the economy. And once we’ve got kind of supply side shocks and everything hitting the economy, and the effect that that’s going to be having on prices particularly over the next … Well, certainly kicking in from next year.

Immanuel Ezekiel:

So, as an investor, you expect to get a certain return on your money.

Helen Chorley:

Yeah.

Immanuel Ezekiel:

So, provided that return is given to you, as the minimum, then if it exceeds that, you take that as the first payment?

Helen Chorley:

I don’t know that you’re going to want to hit my hurdle rate.

Immanuel Ezekiel:

Which is?

Helen Chorley:

I’m really looking at 30%.

Immanuel Ezekiel:

Okay. Then you’re right, you wouldn’t hit that hurdle rate.

John Howard:

I don’t think Immanuel wants to do it with me. I think he likes you.

Immanuel Ezekiel:

I think the costs of the opportunity is a bit too rich, and it wouldn’t certainly allow me to another episode of the other program.

Nicholas Wallwork:

You’d be on the poor house side.

Immanuel Ezekiel:

I often say this, if you’re not sure, you shouldn’t invest.

Helen Chorley:

I’m afraid that’s where I am.

Immanuel Ezekiel:

And that’s the right decision.

Helen Chorley:

Yeah.

Immanuel Ezekiel:

And seeing as you’re on your own, I’m out. Thank you.

Elizabeth Warburton:

So, Immanuel, a very interesting turn of events there.

Immanuel Ezekiel:

It went really well. It was really nice pitching to my peers, different people from a different perspective in property, investors, as well as property developers, and just getting their perspective and how they view a deal from another property professional. So yeah, it, I thought, went really well.

Elizabeth Warburton:

Good, good. So, what’s your plan now with the property?

Immanuel Ezekiel:

Still going to develop it and build it. And we will use our funds, or we have access to other potential investors, high net worth clients. I really wanted one of the angels, especially Helen or Ranjan. I’ve been following them for quite some time, so it would be nice to have worked with them.

Elizabeth Warburton:

Yeah. Okay, great. Well, best of luck with it. And keep in touch and let us know how it goes.

Immanuel Ezekiel:

I will.

Elizabeth Warburton:

Thanks.

Immanuel Ezekiel:

Thank you, pleasure.

Elizabeth Warburton:

Wow, another great day of deals, and a lot of very happy angels and property developers. As always, not all the deals could be taken over the line today. But we hope that those who didn’t make it have gone away with some great feedback, and hopefully that little bit more confidence to make that next deal work. I’m Elizabeth Warburton, and you’ve been watching Property Elevator.

Property Elevator

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