Buying a £1.8 Million Block of Flats with Other People's Money

#86
This episode shines a light on how your property business could look in the future. 

Jackie Tomes explains how she bought a £1.8 million block of flats with none of her own money.

Alongside her business partner and husband, Dave, she argues properties in this price bracket have less competition as the numbers are too scary for smaller investors and too small for pension funds.

During the interview we touch on factors affecting private investing and how Jackie has found that it’s better to attract investors first and then look for deals rather than the other way around.

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scaling up, experienced investors, Dealmaker Accelerator, strategy advice, financial support, business coaching, mindset guidance, personal challenges, mindset, time management, team building, community, property investors, purchase price, private investors, joint venture partners, refinancing, rising rates, security, buying blocks, blocks of property, COVID-19, outsourcing, private finance, passion, financial rewards, funding sources, fairness, higher return on capital, vacant possession, bridge financing, joint venture, refurbishment, portfolio builder, bank financing.

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We wanted to go on holiday and not have to work all the time. And the more different it was every single time, the more hours we worked for the same end result. But some people do genuinely love the thrill of the hustle and putting it all together, and so therefore they don't mind working all the time. But I don't want to work all the time. There's other things that I want to do in life. Had the excitement at first for like trying loads of new stuff, and then it ultimately led me to burnout. You'Re listening to Expat Property Story, a podcast in which I share my story to smooth the way for you to have your own expat Property story. Hello there. Welcome to episode 86 and the second half of my interview with Jackie Tomes. And for the sake of those who listened to last week's show, if you want more background on Jackie and her husband Dave, and you haven't listened to episode 85, then press pause, listen to that one first and come back and join the rest of us after that. And as with last week's Pod, I thought we'd start with a review, as we're always looking for more feedback. This one is from someone called Landlady Laura, who not only left a lovely review, but in the accompanying email she sent telling me about her review, laura also offered some constructive feedback around podcasting, as she's a bit of an expert in that field. Anyway, this is what she said one of the best property podcasts out there. Feel like I should be taking notes every episode. And I am an experienced investor. Enjoyable as well as informative too. Can't recommend it highly enough. So over the next few weeks, I'll be reading out some more reviews that I haven't already shared. And if you want to read all our reviews, then head on over to www.expatpropertystory.com. And while you're there, why not subscribe to our mailing list to receive our latest newsletter, which will be available in early May to everyone in our email? Community and talking of community, I recently mentioned that I'd started a tradition of meeting Hong Kong listeners at the Urban Bakery in the Landmark Building in Central on Saturday mornings. Well, a couple of people have expressed interest in this, so starting from May, I'll be at the Urban Bakery in the Landmark Building for a late morning

coffee at 11: 2:30

30 a.m. On the first Saturday of each month. So if you're in Hong Kong on Saturday, May 6, come on down, because as Vanessa Warwick from Property Tribe says, none of us is as smart as all of us. And in a further bid to grow our community, if you're a lonely expat property investor and you'd like to hook up with other expat property investors, then pick a location and a time and date you'd like to meet and let me know via the podcast website, which once again is www.expatpropertystory.com. And I'll read it out during the show. Let's see if it helps. After all, what have you got to lose? And if you've been with us for a while, you may remember that this is exactly how episode 20. One's guest, Michelle Cairns, host of your Property podcast, got started in property herself and she brought a book just in case no one turned up. And if you want a recommendation for a book to read, then you could do a lot worse than taking a copy of Thinking in Bets by Annie Duke. I first talked about this book in episode 84, in which I recounted my expat mortgage disaster. And as a follow up to that episode, which is well worth checking out if you haven't already done so, if only to make sure you don't make the same mistake that left me credit Blacklisted, we'll soon be releasing a compilation episode featuring our recent guests answering a couple of questions inspired by Annie's book. And on our expat mortgage disaster, we have an update. Halifax have agreed to remove the missed payments from my credit file, which means that our mortgage application for the block of four flats in Derbyshire that we bought pre auction back in September 2022 can go ahead. My credit file will be updated in early May, so we can now start planning our next moves. And our three bed, semidetached serviced accommodation property right opposite the Nottingham City Hospital, which is one of the biggest hospital campuses in the UK, is also now complete. And we've already had our first guests, so if you know anyone who needs short term accommodation in Nottingham, you know where to go. Now back to today and Jackie tomes. I decided to split our interview into two episodes so as to be able to dedicate this second installment to a deep dive into a particular deal that Jackie and her husband put together as an example of what can be achieved if you follow the advice on offer in last week's show and manage to scale your property business to the extent where you have developed a laser focus on one strategy giving you more time to attract private investors and spend more time doing the things you want to do rather than have to do. Towards the end of the episode, Jackie talked about the importance of outsourcing some of the lower value tasks within your property business to leave you free to concentrate on the most important aspects, such as finding and funding. And funding your property business is probably the one task that should not be outsourced, as it's this element that can accelerate your story more than any other, and so is probably the highest value task, given that it's your business and you're more likely to care about it than anyone else. So this week's episode takes off from where we left off last week, namely private finance. So you talk about raising finance. I think the idea of being an angel investor is probably a little bit more attractive to people now because it's so hard to get deals to stack that there are people I know who are starting to think maybe I'll just invest in other people and there's lots of us who are looking for private investors. What kind of questions should they be asking those of us looking to raise finance? Yeah, good question. People come at it from such different perspectives depending on what's actually important to them and it's been fascinating to see how that's played out for us but then also seeing how the people that we mentor, how that then plays out with them when they're out there raising finance as well. And I think what's important to people, there is no same answer depending on people's experiences and what's important to them, there would be different questions and parameters that would be important to them. So I guess for me, if I was looking to invest with someone, for me that track record of doing a particular model and having success with that would be an important part of my choice to be able to go out and invest. And then obviously it then comes down to the structure. Like what structure does that investor want to what are they open to doing? Are they wanting to do it as a joint venture or are they wanting just to take in a loan? And what's my motivations at that point? Have I just got a bit of spare cash that's hanging around that I want to do something with? Okay, then obviously like a loan agreement is probably going to be better that I can just agree something for six or twelve months with the money. Whereas if I'm looking to I didn't want to build our own portfolio and wanted to go and get someone else to build my portfolio for me, then the joint venture part of it would probably be better for me. I guess I'd also want to know what other investors or partnerships have they got and how does that relationship work between me and how do I fit in, what's the prioritization for who's getting deals and in what order? That would also be interesting to me as well but obviously some people like, obviously security is incredibly important to them. They want a first charge. Okay, cool. So if you want a first charge, what's the minimum investment that I would need to put in to get a first charge? Because a lot of people are walking around with 50 grand saying I want a first charge. Well that's not going to happen unless you're going to invest in the outer hebrides. The odds of that happening are really low. So what's that balance of the level of security that you're happy with that also marries up with how much you're willing to invest? And I think there's quite often a disconnect between those two factors. That idea of there being a minimum for a first charge, what would you say would your minimum be for a first charge? If someone was working with me on our projects, you're going to be looking at one to 2 million pounds to have the first charge against one of our deals. Because if you're not bringing all the funds, I've got to get a bank to bring the funds and so then they're going to take the first charge. So you've got to bring all the cash to be able to do one of those deals. Whereas if you're someone who's doing maybe individual HMO deals, maybe 200 or 300K might make it work to be able to get that first charge. So I think, again, that just depends on the kind of scale of projects that the people are doing for us. Like that one to 2 million price bracket has been a real nice spot for us. You buy blocks, right? I think that's why it's probably so high, right? Yeah. We don't put in our own funds into deals. So therefore it all comes back to how are we going to put the deal together in a way that works. And so if I'm doing a million pound deal and saying someone can have a first charge for 500K, what's the rest of the 500K like? Who is funding that and how is that working? And also from a level of fairness too. So maybe we coming back to that. Maybe same example. So maybe say it was a 2 million pound deal and someone's bringing 500K for the first charge. What if someone's bringing another investor is putting in a million for me? That wouldn't quite seem fair. Maybe I could think of that in a different way. And primarily we do work with banks when we're purchasing property just because it makes the return on capital so much higher from day one. So generally buying in cash is not our preference. We do generally buy with some sort of bridge or more recently always a mortgage on purchase. So therefore that first charge is gone. So then the best would then be second charge. So then for same thing, what's the minimum that would have to make sense to give someone that second charge based on the wider funding requirements of the deal? I guess. You talk a lot about having a cookie cutter model, right? What's your cookie cutter approach then? You're buying with bank finance and then you're using investor finance for what? For refurbishment? Is that what it is? And deposit. And the deposit. Okay. And then you're adding value, right? Yes. And then remortgage six months later and pay the investor back six to nine months, twelve months, however long it takes. Since COVID we've taken a different approach. So pre COVID we were generally buying with vacant possession with a bridge going in straight away and doing major works all at the same time and then refinancing within six months to release the funds. Since COVID since we got nervous about what would happen to rates. This was a few years ago. We flipped and now we buy with a mortgage on day one with tenants in situ in the properties. And we take a more gradual approach to moving through and doing refurbishment, raising the rents on the block. And that takes longer. So then typically it's like twelve to 15 months to then get to refinance but then the same process beyond that. But generally we have a combination of buying with some sort of a discount, adding value through refurbishment and then it's also that interplay because we're doing blocks of flats between the investment value that we're buying for and the aggregate value that we're refinancing for. So there's a bit of an interplay between those two things here. Generally we are working with joint venture partners to do that. So the JV partner will put in all of the deposit refurb fees and depending on when we agreed to work with that JV partner the amount of funds that they invested is larger. So like our first JV partner was 50,000 pounds, I think. And then it's just grown over time as we've like, right, we want to be able to do a certain number of projects with that partner to make it worthwhile. So we don't want loads of different JV partnerships. And so then yeah, then we're just taking a portfolio builder approach within a specific company and leveraging bank finance at the beginning to make the JV partners funds work as hard as possible. So how are you finding your properties? Below market value, so to speak, or at discount? I prefer the expression at discount rather than below market value. At discount. Yes. Patience. Basically sticking through COVID like a lot of stuff that we had been aware of for years finally came through at the right price. And again, that's for us been just like having that same model since 20, 15, 16 that we started buying blocks and that's all we've done is buy blocks and so every single block that we've ever seen is all recorded and checked and followed up on at various intervals and eventually stuff comes back around again. And all of the stuff that we bought since COVID apart from one has all been stuff that we initially looked at, offered out years ago, couldn't get it at the right price so just waiting for stuff to come back around. But it's through agents, a lot of stuff. Sometimes it's been agents, but not necessarily on the market. They don't necessarily want loads of people going around and viewing blocks because it's such a headache to interrupt all the tenants. So unless they know that you're going to be serious. But yes, sometimes just random stuff online. We might come across one where we don't necessarily know the agent. We might find it there. And then more recently, more specific, like, there might be an area that we might be like, okay, there's some blocks in that particular street or other. And find the owner and send direct letters to see if they're interested to sell. And then just becoming known within the area as the guys who do this, we kind of get random people who are like, oh, you buy blocks and there's a builder who's doing a work on someone else's block and kind of through word of mouth it comes back. So yeah, that focus has really served us in that regard by way of patience or stuff coming back around and we're still looking and doing the same thing but also people just knowing if it's a block of flats, we'll make them an offer. Might not be an offer that they want to accept at this point but when they're willing to accept a reasonable price we'll be there. So you become known as the block people in your area. Has your area slightly expanded so that you're able to do more or you just keep it in? That basically CT postcode. Yeah, basically Stanneck is where we focus. We have opened up more widely into other parts of Kent where it makes sense to do so but yeah, primarily it's still in than it that we focus on. That's where it works the best for us. And because it's blocks and I guess the purchase prices are quite big, do you think that that makes it easier for you because there's less competition? Is that a big part of your model? Accidentally strategic accident initially? Well you made the most of it, that's what counts. Exactly. Yeah. We're too small generally. The stuff we're buying is still too small for the big pension companies but it's too big for small investors so it's a bit of a dead zone. We found that kind of one to 2 million, probably up to three. We've not bought anything for over 2 million, just it hasn't been the right price on the stuff that we have found but I think yeah, probably up to three. That kind of fits the bill. I think once it goes over a million it just sounds a little bit too big and scary for people who aren't more experienced. Can you give us an example of. Your last deal like that then? So it was a property in Broad Stairs, actually two blocks of flats that we purchased for 1.8 million. There was I think 13 flats but they were basically two completely self contained units. So one partnership bought one side and another partnership bought the other side. Sorry to interrupt, you mean you did one joint venture partnership and then another joint venture partnership but you are the unifying factor in both sides of the block. Exactly, because we've got different how many? Maybe like six or seven joint venture partners all with different amounts of funds at different phases. So depending on whose funds have come back out and how much money they have, as much as possible. We want our current JV partners to be able to do the deals that we find. So for example, at that time, based on the funds that were available with those JV partners, it didn't make sense for one partner to do one JV partner to do the whole deal. So we split it and said you have one half and you have the other half, which actually works better from a lending perspective anyway. So we bought that for 1.8 million. We've actually just had the first half of it come back on refinance. That came back about 1.5 million on the refinance of the first half of it. The other side, because of the whole craziness in the rates department, we've got a rate of like three and a half percent or something on one side of it. So we're basically delaying. We've got some investors who there's, the JV partner. We have some additional investors who brought in some extra funds at a fixed rate of return on one side just to mean there was enough funds to do that deal for that JV partner. So it makes sense to keep in those investors for longer and continue to pay them their higher rates of interest whilst we wait for the mortgage market to calm down. Also getting capped on some of the rental coverage calculations because they stress tests went up and the rates went up, we were going to be refinancing. It was going to cost us like 20 grand to refinance and pull out like 100 grand or something. It didn't make sense to do it. So that one's kind of on hold. Yeah, for the moment. So that's kind of an overview of how that one worked. Did you have your pool of investors and then you found the deal? Or you found the deal and then went to your pool of investors and. Said, who's interested with all of these guys? Because they were all existing partnerships, we know that they've got a certain amount of money to invest in the projects with us and they know what sort of projects we do and the criteria that we've got. So on that basis we go and find the deal, but we know we can place it with the investors. They'll have a look to say, yes, we want to do it, but it's not really a I don't fancy this one kind of situation because it ticks all the criteria for the sort of stuff that we do. So I guess kind of both in answer to your question, like the, the money is kind of there, but they know what they're getting. And that again, come back to one of the earlier points around being really focused by having that clear focus and then going, what's the proposition for investors? How much money do our deals require? What's the return on investment? It's the same thing every single time. So when a potential partner comes in, we've got a process to go through, to have conversations and we don't have to have live deals to find out if they're in or not. It's like this is an example of how it works. Those are the kind of returns are you interested? And this is the amount of money that you'd have to bring, yes or no? So we would never have someone who's not made a decision to work with us that we would then go out and find a deal, agree to buy and then send it off to them to say, do you want to do it? Tried that in the past when we were learning how to raise finance. Everyone says find a great deal and the money will come, has not been our experience. And we actually tried it out again maybe like four years ago. We've got loads of experience now raising finance, really good at it, good track record, finding good deals and we were like, we're not quite sure who would buy that deal, but let's just agree it anyway. And we had conversations about it subsequently and no one went for it. So for us, it has never been the experience of a good deal. The money will come. It's always build the relationships first, set expectations, see if the synergy make agreements and if that all looks good based on what it is that you do, go through. Get everything agreed in principle and only at that point, then go out and search for a deal with that investor in mind. So for us, really more, the investor stuff comes first. We don't just send out deals to a database of people. It's all about building that partnership first. Obviously you're still looking for deals because you can't be like a Greer partnership and then I've done, no sourcing. And it will take you like six months to find a deal, so you still got to keep the irons in the fire, but we don't go through and seriously offer on something until we know we've got the funds there. So that deal that you just did. What was the most that one particular investor invested? Maybe like 300. 300,000. Okay. So I'm intrigued because you've got this organized systemized process in place and it's exactly the same every time. I'm just wondering because there are other people who take a slightly different approach and they will look at a property and go, well, I'm going to take this particular tool out of the toolbox, got this big block and maybe we can do some commercial down here and then this would make a good HMO upstairs. But yours is very much not like that, right? Is that because you've just found your way and you're sticking to it and because you just don't want to do the shiny penny thing that you were talking about before? We wanted to go on holiday and not have to work all the time and the more different it was every single time the more hours we worked for the same end result. So I think some people love that part of it. And there's a difference between love and excitement. Those are two different things. I think you can be excited doing that kind of stuff for like, 18 months, two years, and then you find out if you really love it or not, if you want to carry on doing it. Most people don't love it. Most people are excited by the thrill of the new thing and that will sustain you for a period of time, fair enough. But you just got to make sure that stuff is in place enough past that 18 months, two years that you don't just throw away all that work you've done because you're kind of bored of it by that point, which is most people. But some people do genuinely love the thrill of the hustle and putting it all together, and so therefore they don't mind working all the time. But I don't want to work all the time. There's other things that I want to do in life. I had the excitement at first for, like, trying loads of new stuff, and then it ultimately led me to burnout, because it wasn't ultimately a passion, so it didn't actually ultimately create that self sustaining energy with me and keep it going. It was just lots of distraction and stuff not genuinely working out. And then ultimately, that is more likely to make you disillusioned and make you actually want to quit at the end of it, because if you don't end up getting the financial rewards from it, it becomes like, what am I doing? I actually make more money in my job than all of this stuff. So, basically your model is since COVID. When you said you tweaked it slightly, it's become effectively revenue optimization, right? Yes. And de risking what the banks could do to screw you over with rates. So say you're buying a block and you have in mind the end value, and these are commercial valuations, I'm guessing. Right. It's all a bit weird with blocks are flat generally in our area, they'll do like an aggregate value, which is kind of like a residential valuation, but it's done through a big, complex commercial survey. It's a bit of a hybrid world, basically. They don't do a yield based calculation. They might, but that's not what we're going for. We go for a one bed flat is worth 100 grand, so therefore I have ten one bedroom flats, so it should be worth a million, for example. All right. That's what you mean by aggregate. It's just the aggregate of the individual properties on a bricks and mortar basis. Exactly. Does the lender not turn around to you and say, well, only an investor is going to buy this property? We can't do it that way? Obviously not, because you're doing it. No, it's important what that valuation says. So if there are negative commentary on that valuation. For example, if it's going to take a longer than a certain amount of time to sell the building, then that would be a negative commentary on the valuation. So then either they wouldn't five different numbers they give with various things, they'd choose a different number in which to lend on, or they would restrict loan to value against aggregate. Do you get your own surveyor to value the building before you go to a bank? No, no, it's with the surveyor through the bank because they're so expensive. The the valuations could easily be three, five grand on a valuation, the one for the bank. So don't really want to have to pay it a second time. Basically, from having gone through the experience of lots of these valuations, it's an art, not a science. We know what the various valuations should come out at. We don't know if the surveyors had a bad fish sandwich for lunch and if they're going to do some crazy stuff. But we know how it should work. If you could control for human factors. So you're buying on a long term. Mortgage over five years. Five years fixed rate. Yes. And then we would do a refinance. With the same bank before the five years is up. After a year or something? Yeah, after like 1218 months. And that's how you pay back your investors? Well, a lot of our investors are JV partners. They're not really paying them back for short. It's just like releasing their money for the next deal. While last week's episode was intended more for those in the first few chapters of their property stories, today's show is aimed at more experienced investors. And if you'd like to get your property business in a position to do more advanced deals, like the one Jackie outlined today, then you might want to consider signing up to her deal maker accelerator program. Me and my husband and our business partner, Dom, we help experienced investors to do more deals to scale up what they're doing so they can do more deals with less of their time. So we've got a program which is geared around external advisory support from myself on strategy, Dave on more of the detailed financial side and Dom on the business coaching and mindset side to help investors to overcome both the personal challenges in terms of mindset, but also how you manage your time and how you ultimately build that team and work with investors and make more deals happen. So if you're listening in thinking that's something that's of interest to you, then you can check us out on property. And it's the dealmaker accelerator program. We've got a process to go through to just find out if we are the right people to help. So it's a very small community of people who are all active in property and are wanting that support to really push forward, balance. The order and the chaos that I spoke about and. Really get focused to be able to grow their property business. So, yeah, so that's how I help. So reach out if you want to. Know more and if people want to contact you, what's the best way? Please do connect with me on Facebook, Jackie Tombs, or if you want to drop me an email, it's Jackie. Jackiet@propertystrategy.com. And yeah, I will get back to you on there. You've provided great value for expats everywhere, Jackie. Thank you very much. Awesome. Thanks for your time. I really like Jackie's answer when I asked her why they don't adopt the approach of looking at a property and selecting a tool from the property toolkit that's appropriate for extracting the most value from a given property. While acknowledging that this is a perfectly viable methodology for some investors, perhaps those browsing the auction catalogs, for example, her and Dave wanted to set up their business so that they can go on holiday more, and that sounds like a good idea to me. The second point of interest for me was the sweet spot that they have identified in terms of the price bracket in which they operate. Properties with a purchase price of between one and 2 million pounds are above the budgets of the majority of UK property investors, but not quite big enough to entice the pension funds, which means that there is less competition for the blocks of flats they target. And finally, when it comes to working with private investors, jackie and Dave have found that what works best for them is to build relationships with private investors first and then look for deals, rather than finding deals first and investors second. This week's exotic listener location is in one of my favorite countries and one that I've been to three times. It's Vietnam, and the location is Darnang, which is a place I've not been to, although in 2019, I did manage to sneak in a four day trip to Natrang, where I managed to completely avoid eating indoors, opting to eat only in roadside restaurants where the food is arguably better. So if you're our fan from Darnang, and even if you're not, I'd love it if you could stop what you're doing right now and drop us an email via the podcast website www.expatpropertystory.com and tell us one thing you're struggling with. Even if it's something small, I want to hear about it and I promise I will get back to you. Thanks once again to Jackie for appearing and to you for listening. A review would be great as it will help more people find out about our community and you get a shout out on the show. And the ending. Wouldn't be the ending if I didn't ask you to share the show to spread the word. You've been listening to expat property story.