Want To Create A Property Portfolio in The UK? Anatomy of a Buy To Let Deal

Guide to building a property portfolio uk

If you’re looking to start your property pension plan or build a UK Buy To Let Portfolio then it may seem confusing where to start, what you should be looking for and also the types of deals you can actually find and do.

Many sites and companies you find will talk about discount or below market value as the driving factor behind the deal and how you must negotiate 25%+ discount, but this isn’t always realistic and also isn’t always needed.

A great deal could on the face of it only have a small discount initially but have great potential to add value with a refurbishment… or it may be a great long term rental with fantastic yields.

It’s not always about discount.

In this article we look at an example buy to let deal that would make a great addition to any investor looking to build a property portfolio, it showcases an example of what’s out there and what can be found easily on the open market simply by applying a few techniques and strategies that actually very few investors know about, some of which I show you exactly how to do here! and the rest I share with my VIP Mentorship & Training clients.

So let’s kick this of with a walkthrough of a recent deal we completed on with a Joint Venture partner for a straight forward Vanilla buy to let in an area called Little Hulton in Salford near Manchester.

As you can see this is in great condition, and provides a fantastic rental yield for the price it was purchased at.

In this next video I breakdown the figures, the sales process and some key information that allowed us to further negotiate on the deal, adding a fantastic property to our joint venture portfolio and locking in some brilliant equity on day one. Remember it’s not always about the discount as this rental property worked great without any BMV (below market value) type discount, but on this deal the extra discount really rocketed the ROI (return on investment).

So check out the full breakdown of this buy to let in the video below.

Video Highlights

00.38 – The Options on this deal

00.52 – Why it’s good to consider a joint venture

01.22 – Option 1 – Selling as a sourced deal pro’s & con’s

03.48 – Option 2 – Build a Portfolio & Joint Ventures

05.00 – The strategy we used on this deal

06.04 – The figures & buy to let return revealed

07.28 – The background & Sales Process of the deal

12.04 – Ways to frame your offer to get the deal agreed

14.08 – The Rental Returns & Yield (see how to work out your yield here)

15.32 – How to keep it simple with Finding deals

Transcription

Hulton district centre, salford buy to let dealHello, everyone. I just wanted to do a recap video for 40a Hulton District Center which is the Vanilla Buy to Let property that we’ve just completed and added to our portfolio. To really run through a little bit about the options that we had available on this particular deal and how you can use them on building your property portfolio.

Also a little bit more about the figures and also a little bit of a story in terms of how the sale progressed. A couple of challenges that we came up along the way and obviously hopefully a bit of a success story in the end in terms of how it’s all ended up.

With this particular deal, obviously you’ve seen the breakdown that we gave you in the initial videos but with this particular deal we had 2 options.

The Options

We could have either sold it as a finder’s fee so just as a sourcing property and we could have sold on as one individual deal or potentially do a joint venture. From a personal point of view I prefer doing joint ventures on certain deals or on most deals if we can because there is more of an upside for us on those types of deals.

You can certainly earn good money as a sourcer and it helps to earn decent cash flow when you’re doing a lot of deals but if you are looking to grow relationships, if you’re looking to grow partnerships with joint ventures, then it’s great to bring these types of deals to the table and do something together as well and spread the wealth and the benefits if it were on these individual deals.

On this particular property, if we’d gone down the sourcing route it certainly would have got a good return on the amount of time that I spent on the deal and also would have had a quicker turnaround for the fee.

Time Frame & Details

property clockThe time frame was about 2 months in terms of from initially going round to spotting the property when we did the initial look if it were at deals in that area through all the way through to completion but the downside to selling it as a sourcing deal is your fee is going to be limited.

Because it depends on what areas you’re working on, the value of the properties but this particular property was, as I showed you in the earlier video, on the market for about 50,000.

Because of the value of the deal and because of the discount that we actually could have achieved on this particular property, we wouldn’t have been able to charge too high a sourcing fee because the benefits really in the rental return and too high a fee would have severely reduced that potential rental return.

We would have had to, I suppose, limit what we could have charged. Typically for the sourcing fees we charge around 3,000 a property. If we charged that on this particular deal it probably would have been perceived as quite high.

The likely sourcing fee would have been about 2,000 and if for whatever reason we’d maybe found the property but were struggling to find a buyer because of the location, obviously not a rental yield but the amount of discount or something on the deal then a quick sourcing fee to get it sold might have been 1,000.

I don’t try and drop or change the sourcing fees that we charge too much. I try and keep it consistently at 3,000 a property. There is a whole host of reasons for that but mainly because the amount of effort it takes in each individual deal is relatively similar.

You might have some deals that take a little bit more time or need a little bit more involvement but typically the amount of work is the same so whether you are working on a 50,000 pound property or a 250,000 pound or a half million pound property, you’re probably going to be doing a similar amount of work in terms of the negotiations, in terms of the sales chasing and in terms of the feedback between obviously the buyers and sellers and that type of thing.

There is going to be a certain level of work involved in that and you want to maintain some consistency with the fees but obviously you have to strike a balance with that.

If you’re working with lower value properties it can be hard to charge sourcing fees around too high a level or too high a perceived level if it’s going to affect the deal somewhat in terms of the level of discount on rental that it’s going to achieve but just to give you some estimated figures, really.

The other option was if we’d gone down the joint venture route and also as a sourcing fee, just quickly on this one, that when you are buying properties via an estate agent, especially with these types of deals where speed is going to be part of the benefit of what you can bring to the table and why you might get the deal agreed.

You do really have to have a reliable cash investor ready to go. If you’re not buying the property yourself, if you’re selling it as a sourcing deal, then you need to have that buyer ready to go that you can trust and rely on because you need to prove that you are able to complete on the property quickly for the agent.

Joint Venture Route

joint ventures & building relationshipsThe certainty of selling will be critical in this case. If we’d gone that option 2 route which is the route that we did take which is to do a joint venture, we certainly get a higher return and profit potential on the deal than what we do with the sourcing fee but there is going to be a longer payoff in terms of timeline.

The time frame is a little bit more open ended, really. It could be 6 months, 12 months, 2 years. It depends upon the investor that you are buying the particular property with. On this particular deal there is no potential to refurb it and then sell it on as a flip deal because it was already in very good condition.

The deal itself worked very well as a long-term Vanilla Buy to Let, buy and hold and it achieved a very good rental yield so that strategy on the deal makes sense. Doing it as a joint venture, we have to keep an open minded time frame with it.

We wouldn’t typically do this as a joint venture with somebody we’d never done any deals with before and we’d like to do this as a deal with somebody that we’re looking to continue to do work with on a regular basis because we are going to be having that involvement together with it being an open ended time frame, really.

The Returns

investing capital growthBy bringing deals like this to the table with joint venture partners that you are already doing stuff with, it brings a lot of extra benefits because you can continue to keep providing those joint venture partners supplied with good deals and you are able to do more potential deals in the future because they can see the benefits and the payoffs for it.

There is a trade-off in terms of higher profit, a longer time frame in terms of when you might achieve and benefit from those profits, but it allows you to develop more deals with that joint venture partner and is a great way to create and build a property portfolio.

On these figures we’ve put down a yearly rental profit of about 1200 so that’s 100 pound a month which we should comfortably achieve on this particular deal. As I showed you on the figures before, it should rent out around 550 a month and it should give us a very steady return.

It’s in a decent area in terms of rental, it’d probably be local housing allowance tenant profile but it’s a very good return for the value and the price of the property. Now, with this particular deal as well we’ll have a profit on the resale because we are going to be splitting that with a joint venture partner.

Things To Consider in A Joint Venture

We’ve just put that in as estimated at 5,000 plus now so if we bought the property at 50,000, sold for let’s say, 65,000 in a year or two’s time and we’ve got a couple of thousand pound fees on that, then we are going to be splitting that 50-50 so we should have a profit of around 5,000.

It’s also important that you make sure you have the correct joint venture agreement drawn up with a Solicitor. With any joint venture that you do, particularly if you are going to be doing something that’s over a long period of time.

the deal detailsIt needs to address those issues in terms of what happens if the property’s vacant, what happens if a tenant doesn’t pay the rent or damages the property. All of those things you need to consider within that joint venture partnership so it’s important you have the correct joint venture agreement drawn up whenever you are doing these type of deals.

Just to give you a bit of detail on the sales progress and a bit of a story and background in terms of how this deal panned out. One thing I wanted to show you on this one, the profit on the re-sale we’ve put in at about 5,000 as mentioned there if we purchased for say, 50,000 and we sold for say, 65,000 in a year or two’s time.

The figures on this deal, a lot different than that now than what they did initially and the reason for that is because during the sales process this particular property was very good condition internally but it was a leasehold flat so there’s certain elements that you’ll only find out about the property during the sales process.

When the Solicitors start to make inquiries to the seller’s Solicitors and to the management company there’s certain things will come out of the woodwork and things that you might need to consider, renegotiate sometimes or just take on board some other times, it depends upon what the situation is.

Potential Issues With This Deal

On this particular property we had some quite high maintenance costs that came out of the blue so part of the inquiries that your Solicitor will do on, let’s say if you’re a buying a lease hold flat would be to inquire as to any potential costs that might be coming up and any potential debt that might be owed on the current flat in terms of the management charges and things like that.

In this particular property, they had a 15 1/2 thousand pound maintenance bill due to come up in the next 3 years and that was due to refurbishment for the roofs. It was due to refurbishment of the communal areas and a few other elements as well that were built into that but within the next 3 years potentially there would be a schedule of work they might need to be doing of around 15 1/2 thousand.

That’s quite significant on any property, let alone when you’re only paying around, I think we got this one agreed initially at say, 46 1/2 thousand so it’s quite a lot or quite a chunk that needs to be found.

There is 2 ways in which we could have gone with that. We could have either got that renegotiated with the seller and had them take that on board or we could have took that on board our costs ourselves.

Stick To Your Guns In The Negotiations

It’s important to note that at this stage you’ve not purchased the property so anything like this is really a seller’s issue. It’s their problem, it’s something they need to resolve before the deal can progress.

Some sellers won’t be able to. Some sellers financially won’t be able to take that hit and other times the seller might just expect you as a buyer to be taking that on board. With this particular property we managed to renegotiate it with the agents and with the seller on the property, the whole price in terms of this 15 1/2 thousand that might need doing on the property off the price.

We managed to get that 46 1/2 thousand down to 31,000 in terms of a new purchase price agreed which is phenomenal. It was great. It wasn’t something I was expecting. Obviously when the maintenance costs came out of the blue for it I was assuming that it was probably going to fall by the wayside as a deal.

When we put the new offer to the seller and to the agent and obviously explained the reasons why and that any buyer is going to have a similar issue, it’s not just something that we are going to be affected by.

valuing bmv and buy to let property investmentsAs I said, it’s the seller’s problem currently and any potential buyer whether they’re cash or mortgage, you’re going to have a problem. Certainly no mortgager’s going to lend on the property with that hanging over it.

We went back to the seller, offered a reduced price of 31,000. The agent went back to the seller and discussed it with them. Then obviously their Solicitors got wind of it and their Solicitors advised the seller not to accept because they thought we were trying to pull a fast one in terms of the price.

Obviously the seller had looked into it. They’d then spoken to the freehold management company which is what we advised them to do in terms of as part of the renegotiation we said,

“Look, this isn’t something that we are trying to be tricky on the deal.”

“It’s something our Solicitor has mentioned to us that the scheduled work is going to be needed,”

that I’m more than happy and I’d like the seller to confirm that as well with the lease hold company and with their Solicitor so they knew that we’re not trying to be, as I said, tricky on the deal.

The seller had to think over it overnight and came back and accepted it so you do get these situations where sometimes the seller won’t be able to accept it as I mentioned. On this particular deal, the seller’s reason for selling the property was because it was a probate deal.

They were going to sell the property anyway. They’d have this potential problem with any buyer, it’s not just ourselves so that’s the reasoning I guess, behind them accepting it but it is also the way you put forward.

If you go back to the seller or go back to the agent on this particular deal as an example and said obviously, “This has come up. We’re not going to pay anything more now that 31,000.” Leave it at that, put the phone down, it’s not going to work because you’ve got to take a more softly approach with it, really.

Frame Your Offer In The Right Light

You’ve got to explain the reasons for the change in offer. You’ve got to frame it in a way that the estate agent can then put it to the seller and say obviously, “Look, the current buyer has this potential problem. You’ll have this problem with any other future buyer.”

Go through the normal process and then you’ll obviously stand a much greater chance of getting this particular, or getting that situation agreed. Obviously, a little bit of a potential spider in the works earlier on when the maintenance costs were flagged.

It’s important to stick to your guns, it’s important to make sure you work out the figures. What you’re happy with, what you’re happy to pay. It was very likely that we would have lost the deal potentially anyway because we would have had to knock this £15,500 off the price.

If that didn’t work for the seller we would have had a couple of 100 invested in terms of legal fees but it would still be worth walking away at that point as opposed to taking on a deal that’s going to have this massive maintenance cost coming up within the next couple of years.

We had a chat about it. As a property that was bought with a joint venture partner, we had a chat about it together and decided that it wouldn’t work for us if we had to pay the full 15 1/2k and it wouldn’t work for us even if we contributed half because it’s still significant.

That price might be lower in 3 years’ time. It might not be that level of work required but the potential is there that it could be so we had to negotiate, we had to stick to our guns on it and luckily it came through.

The Outcome

making money in propertyWe managed to get that agreed for 31,000 so it’s a 3-bedroom flat that we purchased in Little Hulton near Worsley and Manchester for 31,000.

It’s got a local housing allowance rate of 550 pound a month which gives us a projected gross rental yield of 21% and that’s on a standard Vanilla Buy to Let which is fantastic and a great one  to create and build a property portfolio with.

Obviously as we’ve spoken throughout the training, our target typically is around 8% gross rental yield. This particular property on first sight when we found it on the market with an estate agent so there is no cost in terms of finding the deal.

It was on the market for anybody to go into the estate agency and buy. It was open and accessible to the whole of the market, gives us a fantastic rental yield. We bought it, not because of the potential discount. We bought it not because of the potential to add value with a refurbishment.

It was just a solid, long-term Vanilla Buy to Let that, even at the original price of £46,500, still gave us a very good rental yield. Obviously a little bit of progress happened during the sales process where we got the price reduced even more so for those first couple of years until that maintenance kicks in we are going to have a much higher rental yield.

When that maintenance kicks in, obviously we’ll have some costs to pay to towards that which is going to reduce the net yield, or the gross yield as well and obviously we’ve got a little more invested in the deal but it’s still going to be anywhere between 31,000 and 46 1/2 thousand which was our original offer.

Still a very good price, really so hopefully you can see on that deal how the figures have broken down and how it doesn’t take a slick marketing strategy to find all the deals.

Sometimes just using very simple methods to find the deals when building your property portfolio, that we’ve discussed and shown in the training about how to pick your area, how to spot potential deals and then how to negotiate them with the estate agent gives you a great chance of finding deals like this that give you a great rental return and it can work very well as a simple Vanilla Buy to Let strategy.

Hopefully you’ve found this case study and live deal to be helpful. You’ve obviously seen the deal as it’s progressed and if you’ve got any questions on this particular deal or about how to build a property portfolio in the uk, feel free to ask. Just put them in the comments below, I’ll be more than happy to help.

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