How Dan Linton Created £6,000+ Net Cash Flow from One HMO

Building a property portfolio is one thing, but scaling into larger commercial projects is a completely different challenge altogether.

The numbers get bigger, the risks increase, and suddenly every decision carries a lot more weight. It’s no longer just about buying another property. You need to understand finance, planning, construction, risk management, and how to create projects that genuinely perform long term.

In this episode, I sit down with property investor and developer Dan Linton to talk about the reality of scaling from smaller buy-to-lets into larger commercial conversions and high-cash-flow HMOs.

This isn’t just a conversation about impressive numbers or a successful deal. It’s an honest look at what it actually takes to grow a property business sustainably. 

Dan shares the story behind his former gym conversion - a 16-room HMO generating more than £6,000 net cash flow every month and the lessons, challenges, and setbacks that came with it.

🎯 What You’ll Learn

• How Dan converted a former gym into a 16-room HMO
• The importance of contingency planning and managing development risk
• Why valuations can make or break a commercial deal
• How development finance lenders can actually help de-risk projects
• Why delivering a higher-spec product creates stronger long-term demand
• How local market knowledge helped Dan uncover huge opportunities
• The role mentors, education, and partnerships play in scaling successfully

If you’re building or scaling a HMO portfolio, this episode will give you a much more realistic understanding of what it takes to move into larger projects, manage risk properly, and build assets that create real long-term cash flow and wealth.

💻 Resources & Mentions

• Join my Accelerator Programme: If you’d like my direct input on your current or next project, you can watch this video or book a complimentary strategy call with me here.
• The HMO Roadmap: Feeling overwhelmed? Access 400+ tools, templates, and lessons to help you start, scale, and systemise your HMO business - all in one place. Join here.
• Facebook Community: Got questions or need support? Come and connect with 10,000+ investors inside The HMO Community here.
• Social: Follow me on Instagram for daily HMO tips, advice, and behind-the-scenes updates here.

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Transcript

[00:00:00] Andy Graham: Hey, I'm Andy. And you're listening to the HMO Podcast. Over 10 years ago, I set myself the challenge of building my own property portfolio. And what began as a short-term investment plan soon became a long-term commitment to change the way young people live together. I've now built several successful businesses, I've raised millions of pounds of investment, and I've managed thousands of tenants.

[00:00:24] Andy Graham: Join me and some very special guests to discover the tips, tricks, and hacks, the ups and the downs, the best practice, and everything else you need to know to start, scale, and systemise your very own HMO portfolio now. 

Today, I'm joined by Dan Linton, an investor who's built an impressive portfolio scaling from smaller projects into larger commercial conversions and cash flow-focused developments.

[00:00:50] Andy Graham: We're going to be talking about one particular deal that really changed the trajectory of Dan's business. It was a former gym converted into a large HMO and produces some serious monthly cash flow, over 6,000 pounds every single month net. But what makes this conversation especially valuable isn't just the story of another successful deal.

[00:01:09] Andy Graham: Dan and I really get into the nitty-gritty of what taking on bigger projects involves, learning on the job, handling risk, navigating the setbacks, understanding the numbers properly, and what it actually takes to move from smaller HMOs into larger commercial opportunities. There's loads in today's episode for investors at every stage.

[00:01:27] Andy Graham: So whether you're just getting started or scaling your existing portfolio up, today's episode is definitely one for you. Let's get into it. 

Hey, guys, it's Andy here. We're gonna be getting back to the podcast in just a moment, but before we do, I want to tell you very quickly about the HMO Roadmap. Now, if you're serious about replacing your income, or perhaps you've already got a HMO portfolio that you want to scale up, then the HMO Roadmap really is your one-stop shop.

[00:01:54] Andy Graham: Inside the roadmap, you'll find a full 60-lesson course delivered by me, teaching you how to find more deals, how to fund more deals and raise private finance, how to refurbish great properties, how to fill them with great tenants that stay for longer, and how to manage your properties and tenants for the future.

[00:02:09] Andy Graham: We've also got guest workshops added every single month. We've got new videos added every single week about all sorts of topics. We've got downloadable resources, cheat sheets, and swipe files to help you. We've got case studies from guests and community members who are doing incredible projects that you can learn from.

[00:02:24] Andy Graham: And we've also built an application just for you that allows you to appraise and evaluate your deals, stack them side by side, and track the key metrics that are most important to you. To find out more, head to thehmoroadmap.co.uk now, and come and join our incredible community of HMO property investors.

[00:02:47] Andy Graham: Hi, Dan. Thanks for joining me on the podcast today.

[00:02:51] Dan Linton: Andy, nice to be here

[00:02:53] Andy Graham: Dan, I read a really interesting article about you recently in YPN. I'm a fan of the magazine, have been for a long time, actually write in it myself, and there was a case study and your story in there. I found it fascinating for so many reasons, hence why I was really keen to get you on the show today.

[00:03:09] Andy Graham: Now, you're doing some incredible stuff, and we're gonna find out a little bit more about that today. But for any of our listeners who might not yet have come across you, can you just give us an idea as to what you're up to, whereabouts you are, and I suppose how you've ended up where you are as well in the property space?

[00:03:26] Dan Linton: Yeah. Yeah. So I've been invested in property for about nine years, nearly 10 years now. Took the leap to be full time around two to three years ago. I was in a corporate job for about 20 years, and then decided to try and up it and take it a bit more seriously. So one of the first steps in doing that was I opened a letting agency, which was kind of driven by the renters rights news that was coming, so I seen an opportunity with that.

[00:03:58] Dan Linton: Opened up my letting agency. That's grown from strength to strength, doing really well, and then started to invest in slightly different types of properties, so more commercially, which we'll probably get into throughout the conversation. Which led me to the HMO, which you've seen, and that's now provided the cashflow along with the letting agency so I can, I can be full time in property.

[00:04:25] Andy Graham: Well, we're certainly gonna discuss some of this today, and just to give our listeners a bit of a flavor, the case study that really caught my attention of Dan's that we're gonna discuss today, the net monthly cashflow that that's generating is over £6,000 a month. The numbers are just really, really staggering.

[00:04:42] Andy Graham: But before we get into all of that, your background in the corporate field was actually in the, kind of the nuclear space, wasn't it? And you were also, if I understand rightly, Dan, a landlord and have been for some time. Even though you've been full time at this for a while, you had been doing this for a number of years sort of prior to kind of going full time, hadn't you?

[00:05:03] Dan Linton: Yeah. I was... As a lot of these stories, I was kind of an accidental landlord. So yes, I worked at a nuclear power plant from, straight from school till I left only a couple of years ago. But then around about 10 years ago, my wife, who's a beautician, she wanted a salon. So we decided, me and a business partner, friend at the time, we bought, um, it was an old post office actually.

[00:05:28] Dan Linton: We converted it to a salon, and it came with two flats upstairs, which wasn't part of the original plan. So overnight we become residential landlords, and within the first year or two of that, I realized it was quite lucrative and it was... We had a good experience with it, so we, uh, we sort of built up some cashflow quite quick from that business- Which we then reinvested, and then that's how the property portfolio started to grow really.

[00:05:57] Andy Graham: Right. So it happened fairly organically, I suppose. And I find this question and the answer to it so fascinating, and I love to ask it, but at what point, Dan, did you think that this could be something more than a bit on the side, an accident? And, and I suppose why did you decide to kind of make this a full-time gig?

[00:06:18] Dan Linton: Yeah, I think at the start it was always just gonna be a, like a pension booster. It wasn't... I had no intention to go full time at the beginning. And then I think it was as I started to do it and started to enjoy what we were doing, I started to sort of reach out to other people, and then you start speaking to people that are normal people like you and I, who have managed to take that leap and go full time and realize it's, it's not actually that far ahead to do if you speak to the right people, get the right education, invest properly.

[00:06:53] Dan Linton: So that's when I realized that there was probably an opportunity where I could do this full time, because I really enjoyed it. So yeah, it doesn't happen overnight, as you're well aware. But yeah, that was kind of the turning point for me, speaking to people who had done it, who were just normal people, everyday life.

[00:07:12] Dan Linton: These aren't fancy multimillionaires that have thousands of houses. They're just people who seem to invest in the right type of property, and it can be done relatively quickly if you put your effort in.

[00:07:25] Andy Graham: I think often it's just a case of realizing that it can be done, and then also realizing that you don't need to be or have something, like, super special to actually make it work.

[00:07:35] Andy Graham: And I think sometimes when we're on that sort of corporate track and we're surrounded by people in that field, it's difficult, isn't it, to kind of think outside of that box? Is that everybody in all the conversations, they're very different, and sometimes when you get a taste of this and you see it working and you're meeting people and having those conversations, it does start to rub off, doesn't it?

[00:07:53] Andy Graham: And then you start to realize, actually, maybe we could do a bit more. Maybe there is a bit more scope here. And in your case, obviously.

[00:08:01] Dan Linton: Yeah, and you get comfortable, don't you, as well? You get, you get comfortable in your day job and your corporate job and your, your easy staff job. So it was... I didn't have any close friends or family that had any experience in properties.

[00:08:12] Dan Linton: So it wasn't until I reached out a little bit more of the networking side to speak to other people is when I realized it could be a full-time occupation for me.

[00:08:21] Andy Graham: Mm. I think the word that you used there, Dan, comfortable, is so important, and it's actually something that comes up in a number of, regularly in conversations that I have with mentees of mine or people who potentially want to work with me.

[00:08:35] Andy Graham: That comfort is a real trap because there's nothing really pushing you to do it, but also nothing sort of... There's kind of no great pressure. It doesn't really matter if you don't do it, and it doesn't work. But so it's a quite a dangerous place to be in, and I think sometimes you have to just sort of get uncomfortable.

[00:08:52] Andy Graham: And obviously we'll talk about this today, like you've done yourself. You left that corporate career, took that risk to give yourself kind of the potential to almost make it all happen, and I've seen that pattern with so many people, and I've had so many conversations. And it's just really interesting how it sometimes sort of takes that kind of realization because it isn't always obvious what's possible.

[00:09:13] Andy Graham: You've obviously been a landlord for quite some time. We're gonna talk about this really interesting project today, but you're also doing some pretty hefty stuff as well at the minute, Dan, and you've got the agency. Just sort of give us a flavor of that kind of stuff, just, I suppose, just to give us context of what your business looks like at the minute.

[00:09:29] Dan Linton: Yeah. So the letting agency, I'll be honest, it was a slight thought where 'cause me portfolio was getting slightly significant with buy-to-lets. We were paying other agents to manage them. As I then started to think about being more full-time in property, we'll discuss a bit more about the HMO later, it was always the HMO that was gonna give me that freedom to leave my job because of the cash flow numbers.

[00:09:53] Dan Linton: I almost got a bit impatient to wait for that, and the letting agency started to grow a pace that I didn't expect. It almost flipped it to that was the way I ended up actually leaving my corporate job because the letting agency got that busy. So at first it was just gonna manage our own properties. Um, did all my training, so I was level three qualified with PropertyMark and started to manage our own properties, and then I thought I'll reach out to a few of extra landlords, but I'll just keep it small to myself and I'll manage it.

[00:10:26] Dan Linton: And then I got the opportunity to work with a... take on a member of staff, which was an opportunity that I didn't, didn't want to pass up on because of the skills this individual had. So then I took me first member of staff on, then I realized I then needed an office, and then it was the next member of staff and the next one and then...

[00:10:44] Dan Linton: So there's now five of us in the office, and we're managing just shy of 200 properties now in the area. A big part of that was the renters rights, which was, as soon as that was announced, I did think there was an opportunity to capitalize on landlords needing that extra protection for everything that was coming.

[00:11:05] Dan Linton: So the letting agency now has really, really grown to a great size and continuing to grow. We've got a target of, uh, another 100 managed properties this year, which we're well on track to do

[00:11:17] Andy Graham: Well, kudos to you because I've built an agency myself, and I know that there are a lot of moving parts in those sorts of businesses.

[00:11:24] Andy Graham: And to bring on that sort of volume, you've really got to be doing stuff right because you can't get away with doing stuff wrong. It just sort of bogs you down in detail and admin and, and problems. So you're obviously doing something really, really great there, Dan, and it's complementing your, I suppose your primary objective, which is to build your portfolio as, as well.

[00:11:43] Andy Graham: And you said something really interesting, and we had a sort of, a brief discussion about this, but you said until quite recently you hadn't actually drawn anything out of your own portfolio, and I think a lot of listeners would be quite surprised. I wasn't surprised. We shared this. And just tell us a little bit about that. Tell us why, 'cause I think that this is important for people to understand.

[00:12:02] Dan Linton: Yeah. And this isn't something that you see on fancy YouTube videos or in Instagram stories is it, with property developers? You know, you know, you can... I work with some people who are just sort of getting started into the property game now as well, and we've been investing in buy-to-let properties for nine years.

[00:12:20] Dan Linton: And until the latest, uh, project that we've just done, I haven't actually paid myself a penny just because that business almost hasn't made any money because we're trying to grow it. So everything that comes in just goes straight back out the door. People think, "I'm gonna buy 10 houses, and that'll make me £3,000 a month 'cause there'll be £300 profit on each house, and I'll live off that."

[00:12:43] Dan Linton: The reality is that just is not the case. I couldn't explain where every penny goes, but as you'll know, there's just nothing there at the end of the month, is there? 'Cause there's always something else that you've got to pay out. So yeah, it was, originally it was never the end game that the property was gonna be my income.

[00:13:02] Dan Linton: Then as I started to want it to become my income to get, to replace my day job, I knew I had to find a different strategy because the single buy-to-lets is, it's great. We're continuing to do it, and I'll, I always will do, but that isn't the one that's gonna, in my opinion, pay you your weekly or your monthly wage because it just, it certainly hasn't happened for me yet.

[00:13:25] Andy Graham: Well, I think, like you said, when you're growing, you are just chasing your tail and continually reinvesting. And that reinvestment, there's soft costs like planning and consultancy fees and legal fees, and, you know, it very, very quickly racks up, doesn't it? So anything that comes in is immediately getting spent on stuff for the next project, and it, it's a treadmill.

[00:13:44] Andy Graham: It doesn't really stop until you decide to actually actively stop or slow down, and you have to do something, I think, really quite substantial sometimes to break through. In your case, what's really interesting is that you built the agency, and obviously the agency became a source of cash and income and actually- Our listeners will know that I did something very similar when I was younger as well, and that helped catalyze that sort of, I suppose, the ability to buy and build my portfolio, as it obviously has done for you.

[00:14:13] Andy Graham: But not everybody's prepared to do that sort of stuff, and it isn't right for everybody. I'm certainly not encouraging everybody to go out and build an agency. Please don't do that. It's not for the faint-hearted. But I think what's really important here is that it is tough, and I think this is quite an honest conversation highlighting that you can be doing a lot of work, it can look pretty good on paper, but the sort of tangible reality can feel quite different.

[00:14:37] Andy Graham: And if you want to actually build the portfolio, get the properties, but also take money from it, it can hinder your ability to progress, can't it? So you have to be quite creative if you really want to sort of put your foot down. Let's talk about the gym project then, Dan. Really excited to discuss this.

[00:14:54] Andy Graham: So I gave away one number earlier. The sort of the net that this project is doing it is about, well, it's north of 6,000 a month, which, let's be honest, is substantially more than most people will ever retire on. So just tell us about this project. What is it? Where is it? And how did you get your hands on it?

[00:15:15] Dan Linton: So I've got very lucky with it to get my hands on it. So it's actually my father-in-law's gym. So it was the building I actually first met my wife in 'cause she used to work for her dad in the, in the gym, and he operated it as a gym, and that's where we trained when I was, a younger lad, and he had it for a gym for almost 30 years.

[00:15:36] Dan Linton: It was an old school type of gym, which all, all of us back in the day really and with all this, the new gyms come in with swimming pools and saunas and the new type of equipment that you get. That coinciding with COVID, with all the gyms shutting, he just kind of had enough and he said, "You know what? I'm gonna step away from the gym side of things.

[00:15:58] Dan Linton: I've done it for long enough. I'm gonna retire." So I always had my eyes on the building, thinking it would probably come to us at some point, me and my wife, 'cause it was her dad. Um, so that's how I managed to be the only person kind of in the running to purchase the building, to be honest. I always just thought that would make great few flats in here. One day I'll, I've developed that and hopefully make five or six flats. 

Andy Graham: And what sort of size is the building, Dan? 

Dan Linton: So it's 500 square meters. 

[00:16:29] Andy Graham: Okay. Yeah. So it's a fair size, isn't it? I've done some schemes of about 5,000, 6,000 square feet. So yeah, I've got a good idea of that. 

Dan Linton: Yeah. It's about same. Yeah, yeah.

[00:16:36] Andy Graham: Yeah. Okay. And did you get a good deal on it as well? Because you know.

[00:16:42] Dan Linton:  I got a great deal. Yeah. I got a great deal. So I got a family discount- ... obviously, and I bought it, and we sort of said to my father-in-law, "Once we finish the project and to get the refinance through, there'll be another payment for you.

[00:16:56] Dan Linton: So he was happy and, and I was happy as well. He was quite happy to see that it was me and his kind of daughter that were keeping the building. I've actually named the building after him. He was called Stan, so it's, the building's called Stanley House. Um, so we live in a small town, so everybody knows that it was his building. So yeah, it was just a, a nice touch of me to keep it like that. So yeah, I got great purchase price for the square foot.

[00:17:20] Andy Graham: If I remember rightly, I think you paid 100,000- Yeah ... for it, and then you went on and you spent quite a bit of cash on this. This is where I think that that part, that bit about getting uncomfortable, I think is really clear. Cause if you buy a building for 100,000, and then I think in your case, Dan, just remind us, how much did you spend on the building, all your sort of development and additional costs?

[00:17:42] Dan Linton: Yeah. So we were around about 350, 360K on this building. And the other thing probably worth to mention is I bought the building in when it was COVID.

[00:17:53] Dan Linton: And if you can remember about then, every gym in the country was shut. Mm. So you try and find a bank who's gonna lend you money to buy a gym- ... when the gyms throughout the country were shut. So luckily we ended up... It wasn't easy in the first days to buy it, which we did, and then the build cost. So this is when it all changed really.

[00:18:13] Dan Linton: So like I just said before, I was planning on just sort of doing it as six flats. I actually teamed up with a mentor at the time who'd had a lot of experience in doing commercial size HMOs. So when I started speaking to her, Emma Stubbings, when I started speaking to Emma, she said, "I think this would be a great HMO."

[00:18:33] Dan Linton: And I was like, "Well, I don't really... I'm not really in the HMO world, to be honest. I've not done any HMOs. I'm not really a big fan. There's lots of them around now." And she went, "No, no, seriously," she says, "Let's just run through it." And the numbers to do it as a HMO compared to flats were just chalk and cheese.

[00:18:50] Dan Linton: It was complete opposite end of the spectrum. So in the end, with the support of her, I thought, "Let's, let's do it." Got some plans drawn up, and then we started to get the quotes in, and that's when the numbers... That's why that 350 number didn't really scare me too much because the other number worked at the back end.

[00:19:12] Dan Linton: So it was almost irrelevant how much the build cost was gonna be because of the GDV value worked out. Mm.

[00:19:19] Andy Graham: You'd effectively reverse engineered it, and I suppose all the pieces in that puzzle seemed to fit. I guess getting the planning though was the first kind of real major hurdle after agreeing to buy the building, was it, Dan?

[00:19:34] Dan Linton: It was, and again, because I hadn't done anything like this type of project before, I made sure for every aspect of it, from the start to the finish, I employed experts who had experience in doing this type of thing. So I actually did get some plans drawn up, drafted from a local architect who managed to get- I think it was 10 rooms.

[00:19:57] Dan Linton: Uh, didn't quite feel right when I spoke to Emma about it, so we went to a, a HMO specialist architect and, yeah, he did us a couple of schemes, 16 rooms, 17 rooms, 18 rooms. Um, so it just worked out far better on the numbers obviously. We ended up getting a 16 room, 19 person, uh, planning approval, so that was a result.

[00:20:20] Dan Linton: We went for 17 rooms, but council knocked us back for one of the rooms and, uh, we ended up with 16.

[00:20:26] Andy Graham: And when you say you got knocked back, was that something that you were able to tweak as an amendment while the planning was still open, or did you have to resubmit?

[00:20:32] Dan Linton: Yeah. No, we did it while the planning was open. Because it's a, like, an end of terrace building, there's, there's no windows at all down one side, so we had a little bit of an issue with natural light. So we just had to move a room that was over that side out of the way to gain more light into the communal areas. Mm. So it was done within the process, so it was fine.

[00:20:52] Andy Graham: Well, I think it's very clear that you took a very logical approach to this. You got the right people to do it, you put the right sort of plan in place, and obviously executed it very, very well. So how many rooms did you say in the end it was, Dan? 

[00:21:07] Dan Linton: We ended up with 16. 16 rooms. 16 rooms, yeah. Brilliant. Okay. Three of them were double occupancy, so it's got a license for 19 people.

[00:21:11] Andy Graham: And is it interesting hearing you say that you were not sure that this would work? Because again, just before we hit record, we were talking about stuff that's going on where you're based. Clearly the agency's going very well. And there's...

[00:21:24] Andy Graham: Well, just there's a huge sort of surge, isn't there, at the minute in terms of the population where you're investing, because there's some big infrastructure programs going on, right?

[00:21:34] Dan Linton: Yeah. So we've got a main employer to our town, BAE Systems, which are building submarines, and that is where... I think it employs somewhere around 11, 12,000 people.

[00:21:47] Dan Linton: Population is... The town is only up to 70,000. So there's a lot more work coming to the submarine yard over the next few years, and we're seeing quite a lot of contracting, uh, companies come into the area. Which actually, I'm not sure we've discussed this, but the HMO that I've done that we're discussing, I've actually leased that out on a three-year lease to a company who are going to be working in the shipyard.

[00:22:16] Dan Linton: So they've took it three years. So I've got no management, I've got no maintenance. They've got it on a full repair and maintenance lease. I've got zero voids. I'm getting market value for every room for the whole three years.

[00:22:28] Andy Graham: It almost sounds too good to be true, doesn't it? I know. It's funny 'cause we can genuinely still see the surprise on your face now as you're talking through it as well.

[00:22:36] Andy Graham: It's funny, isn't it? Because sometimes you've just got to do it to kind of almost believe that it is possible. And, and of course, these numbers are not always possible, but what a project. So you basically spent- 350,000, so a little bit more. And then you had quite an interesting, if I remember rightly, quite an interesting sort of outcome on the valuation, didn't you?

[00:22:55] Andy Graham: I mean, it was still great. The numbers are still incredible, but just talk us through that part of the process as well. 

Dan Linton: Yeah. I mean, interesting's one way of putting it. 

Andy Graham: Stressful might be, might be another word

[00:23:07] Dan Linton: I wish it was a lot less interesting, yeah. So when we were applying for the development finance to carry out the refurb...So that's also a key. Because I got the building at a good price, I didn't actually have to put any money in for the refurb. I lent 100% of it. And prior to them releasing the funds, they had to, obviously had to do certain valuations on the building, on what it's worth now, and whether they believe I could do the work for that amount of money, and then what the building would be worth at the back end.

[00:23:35] Dan Linton: So the company come out and they valued it and said, "Yeah, everything lines up. We value anything in this area around about a 14% yield." They give us a, a valuation at the back end of around 850. I knew once I started developing it that the room rents that I was gonna get would've been a, was a lot more than what they were predicting.

[00:23:58] Dan Linton: So then I thought, "Well, that means my value's gonna be more because at a 14% yield, I'm actually gonna be... I'm doing 11,000 a month in rent rather than 9,000," or whatever it was they said. My valuation at 14% yield is gonna be slightly over 1 million pound, so I'll just make sure that I get a vast panel valuer.

[00:24:18] Dan Linton: I'll get them back because they've already give us what the yield multiplier is for the area, and then brilliant, I'll get an evaluation. Finish the job, come to get them back in. The same company come out and valued it, and they valued it at an 18% yield. So even at my higher rent, they only give me a GDV of 750,000, which was a 250 grand deficit, which is a bit of a kick in where you don't want it.

[00:24:44] Dan Linton: So luckily, there was enough fat in the deal where I still got all my money back and a bit extra. But yeah, that is a really key message to them GDV valuations are not to be taken as gospel, and if you're tight on your margins, if I'd have been tight on that, that could've, uh, resulted in me having to leave a hell of a lot of money in the deal.

[00:25:08] Dan Linton: Luckily, it wasn't because I had a lot of wiggle room

[00:25:11] Andy Graham: I think the point that you just made there is very, very important to highlight. And interestingly, I've seen these valuations go either way. I've seen them go up on occasions relative to kind of the pre-start estimate on the GDV and, and then in your case, yeah, definitely seen them come down as well.

[00:25:28] Andy Graham: But I think, like you've said, just building that contingency in, just making sure that we are aware that it isn't gospel. Things can happen. The market can change. Seemingly the same valuer, they can just get up one morning and have a totally different opinion, which might be to the tune of 250,000 in or not in your back pocket, and it's

[00:25:48] Andy Graham: Yeah, like you said, it's really, really substantial, isn't it? I mean, the context of this is that it was looking like an absolutely incredible deal, and it still turned out to be an incredible deal. You got all your money out and a bit more. But you're right, if this was a deal that you'd stacked on the basis that you were getting that valuation that didn't actually pan out, and you had to kind of pay an investor back a certain amount of money, and if you fell short of that, that would be obviously really, really problematic.

[00:26:14] Andy Graham: And I guess that this sort of thing can happen at any scale. At your deal, obviously there was a, a lot of margin in it, but this sort of thing can happen even on deals where the margin is much smaller. It can still get squeezed further. So definitely something to be aware of. But, I mean, at the end of the day, you came out with a valuation of three-quarters of a million on this scheme, didn't you?

[00:26:34] Andy Graham: And you were all in sort of ... You'd spent 350 on the project. You'd bought the site for 100,000, and if I remember ,you didn't leverage it up to 75% either, did you, Dan? Or did you? 

[00:26:48] Dan Linton: Yeah, it was 75%- 75 ... with the 750. Yeah.

[00:26:48] Andy Graham: Okay. So you basically maxed out the borrowing on the valuation that you got.

[00:26:52] Dan Linton: Yeah, I maxed out on the valuation, but obviously from a monthly cash flow perspective, I was better off with my lower valuation, which is almost a bit of a- Yes ... second prize. But yeah, it just meant that every month, I was getting slightly more money because I'm lending less, which is obvious, I guess.

[00:27:10] Andy Graham: Yes. So inadvertently, you've ended up with a better net cash flow 'cause you've got lower mortgage repayment or mortgage interests, which gives you a stronger yield. Your return on capital employed, I suppose, is a bit lower because you didn't get as much capital out the deal, but you were still well over 100% anyway, so

[00:27:27] Dan Linton: Yeah.

[00:27:28] Andy Graham: A really amazing deal. Dan's gonna do a case study for us, and we're gonna get this published inside the HMO Roadmap, and I'm, I'm gonna encourage everybody to go and have a look at this deal because it's just such a great example of taking a completely underutilized space, being quite creative about what you can do with that, and turning it into a really good income generator.

[00:27:47] Andy Graham: And Dan, you said something that I haven't heard anyone say before, and I've had a lot of conversations about property before, and well, tell us what you said about your strategy and the location.

[00:27:57] Dan Linton: Yeah. So we've got ... My current development business is Cornerstone, and there's me and, and two partners who are two equal partners in that They've been doing HMOs and, and other various property strategies in the area for many, many years, including a construction firm.

[00:28:14] Dan Linton: I've been doing my bits, and we've just got together and we quite... As, as I've mentioned before with the submarine company, there's other advantages to the area at the minute as well. We're getting some really good government funding, some government grants for the next 10 years. We've got a large local hospital.

[00:28:32] Dan Linton: There's other benefits. And prices are still relatively cheap. I mean, we bought a three-bed semi not that long ago for 40 grand. The prices are really, really cheap in the area. So we've highlighted a big opportunity to invest locally. So people often say, "What strategy do you do?" And people say, "Oh, service accommodation," or, "HMOs," or, "Flats," or, "Flips," or whatever.

[00:29:00] Dan Linton: We're just pretty much doing all of them, but just in our postcode.

[00:29:05] Andy Graham: Yeah. Yeah.

[00:29:05] Dan Linton: So almost our strategy is we are investing in Barrow, and I think because we're local, it's going down really well. We're getting a lot of local investment from investors. We're getting lots of deals direct to us off-market because people are knowing what we're doing locally.

[00:29:21] Dan Linton: We've bought some significant commercial buildings in the area that people... The well-known commercial buildings that we're converting to residential. So it's really working for us, that strategy, if that's what it is at the minute.

[00:29:34] Andy Graham: Yeah, it clearly is working for you. Well, let's talk about these larger projects then, Dan, because you've obviously gone from being small part-time landlord, gradually increasing the size and the volume of your project, and as you said, you're doing some pretty chunky stuff now.

[00:29:50] Andy Graham: I suppose just looking back at this project, first of all, what do you think that this has taught you? Because obviously these projects, they're not always straightforwards. There were clearly some challenges with the refinancing element, but there were also other challenging elements of this. Just talk us through some of those, Dan, and how you handle that and how you approach that as a business owner.

[00:30:10] Dan Linton: So I think the fear's a big one, isn't it, around, like, you're spending all this money. And I think you touched on it a few minutes ago around am I gonna fill the rooms and is it gonna be popular? And the reality is because I went really top spec and delivered something different, it wasn't just your standard room with a flat pack furniture with a small en suite.

[00:30:32] Dan Linton: It was, these have got kitchenettes, they've got sofas. The, you know, they're, you know, they're really good, spacious rooms. And the... I probably could have rented it out twice over, but I still have people now getting in touch asking if there's any rooms free in there, which I, I now have the luxury of saying, "It's nothing to do with me anymore.

[00:30:51] Dan Linton: Give me a call in three years maybe when it's available again, but at the minute it's full." So that worry was... It wasn't needed, but obviously that is a bit of a panic that can hold you back. Mm. So I definitely think- Delivering to, uh, the higher standard and I'm glad I spent the extra money on doing that refurb to get it to that, which has moved forward with anything we're doing now, we do exactly the same.

[00:31:14] Dan Linton: So anything we develop now is done to the highest standard.

[00:31:18] Andy Graham: And on the gym project, to get to that standard, you had to overcome a few hurdles as well, didn't you? I know that there was ... by the time you'd stripped it back, there were a few problems that you didn't necessarily foresee. Just talk us through some of them and how you handled that.

[00:31:32] Dan Linton: Yeah, so again, this was nervy because it was the first time I've lent for development finance, and obviously the rates are slightly higher than normal lending, and it's a, you know, it's a big number. And I think it's probably fairly standard practice now that between 10 and 15% of your build cost, the lender likes to put that in as a contingency in case anything doesn't quite go to plan.

[00:31:53] Dan Linton: So the day before I started the refurb, it was still people in there using it as a gym, so it's literally been used right up to a gym until, till we started. So it was ... It had all of the gym stuff in it. It had carpets in it, furniture in it. Everything was as it was as a commercial business. So the first thing we had to do was, was rip it back to brick.

[00:32:14] Dan Linton: When we done that, we found a number of issues. The biggest one was the first floor, it was a solid concrete floor, and there was just a crack from north to south, east to west. It was almost in four sections, this floor, and the crack was big enough you could stick a pen through this gap. It was a real substantial crack.

[00:32:33] Dan Linton: So we had to get the structural engineer up again straight away. He come and looked at it, and I, I think I mentioned to you, honestly, the amount of steels that we had to put in this building after the first few weeks could have held Wembley, honestly. It was- So all of my contingency pretty much went before I'd even started doing the work, just in the rip out.

[00:32:55] Dan Linton: So that was a, a bit of a panic. Luckily, the rest of the, the refurb went to plan. But yeah, that was very nervous at the start because everything that I had as spare money had, had gone straight away.

[00:33:08] Andy Graham: But I guess that is exactly what contingencies are there for, isn't it? And you had that expert that you could turn around to get, I presume, a fairly quick answer and get a solution in place.

[00:33:18] Andy Graham: And I think that that's so important when you're developing because these things, they always happen. There's always something.

[00:33:24] Dan Linton: I think actually, Andy, as well, I think one key thing, I think the best bit of advice that I could give if somebody was doing something the same for the first time, if you've got the opportunity to use your own money, you may well learn a hell of a lot more if you do use a development company bridge, because they do a lot of the due diligence for you.

[00:33:47] Dan Linton: So they won't lend you that money unless they know there's a contingency. They won't lend you it unless they're confident of the GDV. You've then got your things like all of your CDM breaks, which they'll ensure you've got, your warranties that they'll make sure you've got in place. They'll make sure there's a QS in place to make sure that every time you're drawing funds down, your building's adding in value.

[00:34:10] Dan Linton: If you were using a pot of cash that you'd inherited or you took off somebody else, you would maybe miss some of them key compliance steps. Now, moving forward, I'd be comfortable using investors' money because we've got experience and we've done a few of them now. But I didn't know what a principal designer was before we started this job, and I was seeing his prices come through, and they were eye-watering.

[00:34:33] Dan Linton: But all of that is just worth every penny to ensure that the project's gonna go to plan because the, the end of the day, this lender that you're lending the money off to do it, they do this day in, day out, and they completely de-risked it for me. Whereas, yeah, I think that's a, a real key thing for me for the first project to actually use the bank's money because they did a lot of the due diligence for me.

[00:34:56] Andy Graham: Yeah. It's great advice, and it's not advice I think I've ever heard be shared before. But you're so right, and also I think the even scrutinizing the contracts. You know, I've worked with lenders who've been very interested in the type of contractor that we're working, want to do all the due diligence on them and, and basically have their say on that as well because obviously there's got some contractor risk.

[00:35:16] Andy Graham: So yeah, really useful piece of advice that, I think. I mean, Dan, you've obviously got a number of projects under your belt now, some... a couple of great businesses. For anybody listening who perhaps wants to move from smaller projects or smaller HMOs into these slightly larger deals, what do you think it is that they need to get right before they can make that jump?

[00:35:37] Dan Linton: Touched on it a couple of times, but education's massive, isn't it, around having that confidence of, of doing a bigger project. Education, working with other people who have done it before, potentially JV-ing. I mean, almost all of my projects now I do with my business partners, and it just shares that strain of the stuff that you have to go through to do it.

[00:35:59] Dan Linton: But yeah, it just seems to organically happen that your numbers just get bigger, doesn't it? It's, you don't all of a sudden think, "I'm gonna start buying more expensive properties." But as you do one, then the next one gets a bit bigger, and the numbers almost come irrelevant of how much you're buying for.

[00:36:15] Dan Linton: It is just, like you said before, working back. If the GDV works and the build price works- It doesn't really matter how much it costs, as long as them other two numbers work so you can pay your investors back. So it's getting the education to knowing that the numbers work, and then it give you the confidence to buy these bigger buildings and bigger projects.

[00:36:33] Andy Graham: Yeah. You were quite honest and, and you said yourself that it was your mentor who kind of pointed out that you should probably look at doing, turning this into a HMO, Dan, and maybe not turning it into flats. And it's funny, just the experience of working with somebody who has done that, who's, you know, delivered these sorts of projects, kind of knows how it works.

[00:36:51] Andy Graham: You can get that confidence from somebody like that, can't you? And again, all these other quite complicated facets, which once you've done them, can be pretty process-driven. But CDM, well, warranties, insurances, maybe the contracts that you're using, all of this sort of stuff.

[00:37:07] Dan Linton: My lender actually, Andy, the lender actually said...

[00:37:10] Dan Linton: You reminded me when you said contracts. So they insisted that I had a JCT contract in place, and they insisted that there was a penalty put in place for every week the contractor was late by what the schedule was. So my contractor was gonna get fined X amount of pounds per week that he didn't deliver the project on time.

[00:37:31] Dan Linton: So that's a brilliant tool that I wouldn't have put in place. But you can sort of stand there and say, "I'm sorry, the, the bank insisted on this, so you need to work to this timeframe." And that's why it worked.

[00:37:42] Andy Graham: That is absolutely. And I have used and had to use that, and kind of waved that in the face of a contractor on numerous occasions.

[00:37:50] Andy Graham: I think certainly, and I've talked about this on the show, and there's a lot of info in the HMO roadmap about this, but JCT contracts, protecting yourself. There's a lot of protection both for the employer, for us as the investor, but also the contractor in there as well. And it links very, as it should do, well with payments and what things are under the contract and, and what things aren't.

[00:38:11] Andy Graham: But yes, liquidated damages is an incentive to get a job done, get it done on time. You may or may not have, but a retention is another element. When you pay down works, it's not unusual to retain a certain amount. So for our listeners who aren't familiar with this, a monitoring surveyor or QS will come round on behalf of the lender and they'll measure the works.

[00:38:30] Andy Graham: And they might say, "Right, yeah, Dan's contract has done 40% of the plastering. They've done 10% of the decorating. They've done 60% of the first fix plumbing," whatever it is, and they'll kind of make payments alongside those items. And the idea is that you're never paying in advance, you're always sort of paying Up to the works that have been done and no more.

[00:38:52] Andy Graham: But then often what happens is you agree a payment notice, let's say 60,000 pounds for a chunk of work in the last month, and there might be a two and a half, 3% retention, and 3% of that balance just gets taken off, doesn't get paid to the contractor, just gets set aside. And that's then sort of used to kind of almost incentivize the contracts to make sure that they, again, do get it done on time.

[00:39:14] Andy Graham: And usually you'd get paid 50% of that on practical completion when you get your handover of your certificates, your EICRs, your all of that jazz. And then depending on the arrangement, it's very flexible, but maybe you pay the remainder six or 12 months later, the last sort of one and a half percent of that retention after the project's been completed.

[00:39:33] Andy Graham: And usually that's just to, you know, in case you need to remedy any defects and things like that. It's very, very common in the commercial space. And I think because investors, certainly inexperienced investors, are often using smaller contractors with smaller amounts of money, they perhaps overlook the importance of some of this stuff.

[00:39:48] Andy Graham: And I'm not saying it's always necessary or always suitable, but certainly being aware of these sorts of things as you, like you said, Dan, as you start to increase the size and complexity of projects, it's really important that you, I think, have those safeguards in place. Dan, it's been a real pleasure talking to you today, finding out about you and your business, what you've been doing, this incredible project that I suppose really has produced some pretty life-changing results from you.

[00:40:13] Andy Graham: What's next? Like, where's it all going? Where does it all end? Is there an end to any of this?

[00:40:17] Dan Linton: Well, no plan on ending anything yet 'cause I'm still enjoying it, so we're, we're keeping going. But yeah, we're currently-- we've got-- we're currently building approximately forty to fifty, I think it's nearer fifty units in the area.

[00:40:31] Dan Linton: So they're all commercial to residential, uh, flats, apartments, uh, in the area. We've got... A number of them have got planning approved, and we've started the refurbs. Some of them are through just in the planning process at the minute, which could be a full podcast on, uh, how difficult and frustrating that is, but that's, uh, maybe for another time.

[00:40:53] Dan Linton: So yeah, we'll be developing them as they come through. Probably this year alone, our target is to be acquiring portfolios. So the commercial conversions of what's been in the pipeline for the last couple of years, and we're gonna be developing them over the next two to three years 'cause there's quite a lot of work to do.

[00:41:12] Dan Linton: So from now, the sort of near future, we're currently in talks with sort of four or five landlords that have got portfolios. Recently had one agreed. There's quite a lot of exiting landlords at the minute, so again, it's another opportunity that you can maybe try and seize if you can. So we're actively looking for portfolios for landlords that have maybe had enough now going out.

[00:41:36] Dan Linton: So that's what we're hoping to do over the next, uh, 12 months.

[00:41:39] Andy Graham: Excellent. Well, plenty cooking there, Dan, and I'm certainly looking forward to watching you do more and more of these sorts of projects. And finally, Dan, for anybody listening today who is interested in what you're doing, maybe from a management perspective, maybe to learn more, maybe to kind of potentially partner or whatever it might be, where are they best to go and find out a little bit more?

[00:42:01] Dan Linton: Yeah. So Dan Linton on Instagram and Facebook, or Dan Linton Property is on Instagram. Our development company is Cornerstone Group. So again, we've got a business page on Facebook or a website where you can maybe download our investor pack if you're interested about seeing what returns you can get with us.

[00:42:21] Dan Linton: And letting agency is Century Lettings. So if you search for Century Lettings, if you've got any properties in Barrow or the areas that you want to have a chat about, we can help with that. Or if anyone has any questions about the developments we've discussed today, just give me a message on, uh, Instagram or Facebook and I'll get back to you.

[00:42:41] Andy Graham: Awesome. Well, there we go. Dan, thanks so much. It's been an absolute pleasure. Really enjoyed our conversation. Thank you for sharing all of those insights and all that wisdom with us, and I can't wait to see you do more.

 Thanks very much, Andy.

[00:43:00] Andy Graham: That is it for today's episode, guys. Thank you for tuning in. I hope what you've been able to take from today's conversation is that scaling into larger projects isn't necessarily about having all the answers on day one. It's about developing the confidence, that commercial understanding, and that problem-solving ability as you grow.

[00:43:17] Andy Graham: I think there were some brilliant lessons in today's conversation about risk, about decision-making, about project management, about focusing on the stuff that actually matters. If you have enjoyed today's episode, please, please, please make sure you subscribe to the podcast. If you haven't already, please leave a quick review of the show.

[00:43:31] Andy Graham: It helps more than you could possibly know. It helps us spread the message about the podcast, all the great stuff that you guys out there in our community are doing, and gradually we are changing, or at least playing our part in changing the narrative when it comes to HMOs. And of course, if you do want to learn, if you do want to level up, Dan and I talked about this today, if you do want someone by your side to just kind of learn from, to help push you forward, then just head to the show notes now.

[00:43:55] Andy Graham: There's a link at the top of the show notes. You can watch a video. You can find out a little bit more about what working with me looks like, what it involves, and what you might get from it. And if you want, you can book a strategy call with me, and we can have a conversation about you, about your business, about your goals and objectives, and we can figure out whether or not I can help you.

[00:44:11] Andy Graham: That's it for today, guys. Thank you again for tuning in, and don't forget that I'll be right back here in the very same place next week. So please join me then for another installment of The HMO Podcast.