In the last newsletter I talked about being decisive, but more importantly when it comes to property investments, about being specific. And I also touched upon the nature of deals and why it’s best to walk away from something that seems flawed.
I mean, you wouldn’t want to buy a bath with a crack in it, but you might well end up with one if the crack was almost impossible to see. And it’s the same with property deals. After stepping back and admiring what at a remove looks good and appears watertight, it’s vitally important to get your nose right up against the thing, examine it at close quarters, run a magnifying glass over it, and see if there are any minute fissures that, under pressure, might widen and cause the deal to crumble.
Because it’s not the glaringly obvious faults that will ensnare the hapless investor, but those hairline fractures, which apart from being most difficult to see are also the easiest to conceal, and therefore the most insidious. This is the main reason it’s vitally important to stick tight to your strategic guns.
When I first got into property investment, what I myself was guilty of was being enticed by any half decent looking deal that popped into my inbox or landed on my desk, and following it down a rabbit hole which invariably led to stygian darkness. What I should have been doing is looking to the light of the strategy I had which, with the considered input of other professionals, I had so painstakingly laboured to perfect.
This flighty attitude of my early investment days is the curse of every property neophyte. And today, for every seasoned investor accepting with a smile one deal out of a hundred possibilities, there are dozens of inexperienced investors who jump excitedly into the market, snapping at everything but catching nothing between their teeth.
Years ago, when I was a bit of a ‘snapper’ myself, all it took was for me to land a few ‘good looking’ deals that delivered sickening weak yields to set me straight.
And straight is this simple:
Find what works for you, synthesise it into a foolproof strategy, then replicate and scale. If you have a nice little model that gives you what you are after, which from my point of view is any property with a yield above 8%, and you simply rinse and repeat, you get growth. Deals, by repetition, compound to almost miraculously generate fresh layers of augmenting profit. It’s what Albert Einstein termed the ‘eighth wonder of the world.’ Warren Buffet liked the term so much, he nicked it.
And it’s how, over fifteen years, I’ve managed to leverage a handful of bog standard residential properties worth tens of thousands of pounds into a portfolio that’s now worth more than £100million. Houses, HMOs, care homes, hotels? They’re really all just variations of a central theme, and the backbone of that theme is strategy. Tried, tested, repeated, scaled!
So if the strategy says that if the deal won’t ensure the yield, then the deal needs to change. And if the deal can’t change then the deal can’t happen. Sometimes it takes nerves of steel to maintain this hard line, especially if a property you really want is right in front of you. But the strategy is the sounding board, the ultimate sense-checker that should conquer all fears and doubts. In short, if the deal won’t fit the strategy, don’t ever try and make the strategy fit the deal. Round peg? Square hole? Splintered wood.
As experience has so often taught me, if you want something that holds water, it’s better to buy a run of the mill pewter pot that’s safe and solid (if a little dull) than something that looks the part but breaks as soon as you pick it up.
However that isn’t to suggest you should never diversify. I’ve already pointed out that I’ve transitioned from the residential property market to HMOs and care homes, and now to hotels. Just don’t jump from one idea to the other like a frog on burning rocks. Step back, take a cool, calm, and collected look at the markets, decide what it is precisely that you want to achieve, then lay the foundations of your business with a robust strategy upon which to build a reliable property business. At the end of the day, that strategy will be your guiding light in the darkness. Without it, you are liable to get lost.
Many times, when I’ve creatively pulled deals together, there’s been that ‘ah-ha’ moment among my co-investors. The so-called penny drops, and the madness of my methodology becomes clear. It’s a bit like those Magic Eye digital images where at first you see nothing but a horror clash of lurid colours, but when you take pause to look more deeply, defocusing your vision a little, a clear three-dimensional image appears.
Similarly, you can’t see always see a deal at first. It takes a little time and patience for the creative subconscious to bring it to life, and when that happens it’s a great feeling. But you usually have to wait. There’s a gestation period. Rarely ever will a deal spring up, grab you by the lapels and shout ‘I’m here!’ It requires experience to recognise what lies beneath the surface, and then the chutzpah to get creative and bring the hidden elements to the fore, combining all of the variables to maximum effect to create a killer deal.
If you’re looking to get involved in deals with leading professionals that secure up to 20% yields, consistently, look no further – get in touch with Shepherd Cox today.