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here are all the great deals?
Depending on your strategy you
may believe you get better deals
up North while I've often heard London
investors claim it's hard to get good deals in
the Capital. They're probably right; it is hard
but it is certainly not impossible. One thing
is for sure, there is no secret agent with all
the good deals and there is no particular
area that has more great deals than any
other area.
I recently spoke at a property investment
event and asked the audience what makes a
great deal? The responses ranged from the
Return on Investment (ROI) to location to
leverage. However, in my opinion you need
to take a couple of steps further back and
look at yourself and your ability as an
investor. The investor makes the deal great.
Nothing else is required; the investor is the
key to successfully sourcing great deals.
Would you agree that opportunity is
everywhere? If so why aren't you doing
more deals or even better deals? The
challenge is spotting the opportunity and
converting it into a great deal.
I believe there are four key elements to
making a great deal; not all four need to be
present for every great deal but I would
say, more times than not, that at least two
need to be.
Specialist Knowledge:
Do you have the local knowledge, including
due diligence on the deal, and do you
have the investment strategy knowledge.
How well do you know your market?
Do you know your market better than
your competition? If you do you will
undoubtedly uncover more opportunities
than others. You will spot when something
is under-priced or under-rented. How well
do you know your environment in terms of
planning? Do you know what is possible
with particular properties and their change
of use potential? Are you aware of the local
council's plans for regeneration or new
transport infrastructure upgrades? Have
you completed all the necessary due
diligence you need on the deal? Money, and
sometimes livelihoods, can be lost without
carrying out the necessary due diligence!
Similarly, how well do you know your
strategy? If it's a Local Housing Allowance
(LHA) strategy for example, where you
maximise the income within a property; do
you know how much you can maximise
each property, because if you don't then
you're not maximising your ROI. Knowing
how to execute your strategy better than the
competition will give you an edge when it
comes to sourcing great deals.
Likewise your understanding of how to
structure a deal in such a way which
minimises the amount of capital you need
to put into a deal and maximises the ROI
could significantly determine whether or
not the opportunity you are assessing will
be a great deal. Knowing some of the
creative techniques to structure these deals
is essential if you are to compete.
Negotiation:
The old adage of 'you make your money the
day you buy' is very true, particularly if you
are refurbishing, developing or just trading
property. I see many first time investors
who are keen to do a deal who try and
manipulate the figures in such a way that
they make the figures stack up in their
favour when in reality they are kidding
themselves. They believe they can sell the
property for more when the development is
complete or they think they will keep the
costs to a minimum when carrying out the
build or refurbishment, when really the one
figure they have total control over is the
price they pay.
So how well can you negotiate? How well
do you know the vendor's position? Have
you structured a deal in a win-win where
both you and the vendor benefit from the
deal? Have you ever negotiated an exit from
a deal prior to even agreeing to buy it? This
element alone can make a deal into a great
deal. By doing so, you can de-risk the deal
completely by taking any market risk out
of the equation, particularly if you are
GavinBarrycomments
What Makes
A Great Deal?
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developing or refurbishing. Having the
buyer lined up, ideally contractually tied up,
is very attractive prior to you completing on
the deal.
Ability to Transact:
The speed in which you can transact can
sometimes determine the price you pay and
as a result how good the deal might be. Are
you buying in cash or with bridging finance
and if so, just how quickly can you secure
the bridging finance? This could be the
difference between securing the deal or not.
How quickly can you make an offer? I
often hear of investors spending far too
much time assessing or appraising a deal
when really they need to make a decision
and submit an offer as quickly as possible if
they want any chance of securing the deal.
Prior to last summer I was hearing of some
investors viewing property in the morning
and exchanging in the afternoon. Now being
able to transact this quickly is obviously in
the minority but when you are operating in
such a competitive market this is how you
will gain a competitive advantage.
Do you have sufficient financially
resources and do you have enough
investors around you in case you don't have
the funds to secure a deal on your own? I've
often thought that coming across a fantastic
deal but not being able to do it due to lack of
finance would be an absolute nightmare.
What is your team like? Do you have
solicitors who can drop what they're doing
and work on your deal to ensure you can
complete in a matter of weeks or even
days? I know all solicitors are busy but what
about having an arrangement with your
solicitor that should you require his or her
immediate attention to complete a deal you
will pay them double or triple their standard
fee? In my opinion that's good business
particularly if it means you secure a deal
which will make you a good profit.
Cost of Business:
What'syourcostof doingbusiness?If you're
a cash buyer then you won't have the finance
costs that most investors will have, however
the irony is that although you may be able to
buy quicker and have fewer costs the ROI on
the deal will not be as attractive had you
leveraged the deal. Similarly if you are
developing and buying in cash your profit
marginwillbebetterthanleverageddealsbut
your ROI will not be as impressive. However,
being able to buy in cash could be the
difference between the deal stacking up or
notandatleastbeingabletogenerateaprofit.
Having an in-house building team for
your own projects will strip-out the builder's
margin which could affect your ability
to do deals. Knowing where to source
competitive materials can be the difference
between a deal stacking up or not. I know
some investors/developers who bring
in containers from Eastern Europe full
of materials, from sanitary units to
plasterboard and nails for property projects
throughout the UK. Obviously, you would
need to have a scheme of such a size to
warrant the economies of scale with this
approach, but it's definitely a cost saver!
I agree that location is important and that
leverage can make or break a deal but
spotting potential that others don't see and
being able to structure, finance and execute
the deal in such a way which nullifies the
competition is what great deals are all
about. It takes time; time to understand and
learn your market, time to perfect your
strategy, to build your team and learn your
craft but when you have spent this time then
you will spot, and take advantage of, the
opportunities which surround us all.
Lastly a colleague at the property event
that I spoke at recently said: "why is it so
hard to find good deals?" In the words of the
great business mentor Jim Rohn: "Don't
wish it was easier, wish you were better." PIN
“Being able to buy in cash
could be the difference between
the deal stacking up or not and
at least being able to generate
aprofit
”
The author: Gavin Barry is an experienced
property investor and can be contacted at
www.gavinbarry.com. He is also the CEO of
Prosperity Capital Partners