Be your own bank - Create your own rate of return.
With the financial system currently given low rates - savvy investors have turned to alternate means to generate returns on their cash.
One of the most secure ways of doing this is via property.
Now, most of the wealthy people have multiple streams of income with most of these being highly passive. This is mandatory to achieve wealth. It is possible to have non-passive wealth, but the hours you will be working will not enable you to enjoy that wealth. If you follow me, you’ll know I’m working on a number of passive income ventures and property is one of them.
I have been a landlord for 15 years, but most of that time for me was spent focusing on my Tech career. I have, over past 3 years began to focus more on property and looking to do bigger, better and more profitable deals and for that I have undergone training and mentorship with UKs largest property training company. Armed with new strategies, contacts and massive property network, I am more ready to execute these new profitable strategies.
Investments into property require management of money - lucky I upped by financial knowledge soon after purchasing my second investments property using a secure loan at around 15%, provided by a so called “Financial Advisor”. Just to give you an insight. I borrowed £15k and at that eye watering rate of around 15% this was at the age of 23. No clue about money, but this mistake pushed me to learn about money once I cleared the debt the year after. It was a short term loan I used prior to getting equity out of my first property. Today I’m using credit cards to rotate free cash, for example £30k at 0% (excluding fees) and have 6-figure of credit available for any emergencies. Some of my friends say I am the most knowledgable person they know that understands about the use and management of money. Its a game of risk management (I could/should write a book on consumer finance given my experience).
So, back to the topic. The ability to create your own rate of return exists by following a similar system used by the banks, but in this case we are interested in property development projects specifically Commercial conversion projects. This is not a new strategy, but its the one being used to generate good returns on larger amounts of cash.
I will share figures for a deal that fell through as an example, as we were outbid on an old textile building. Part office part industrial building near a major city centre in the Midlands. The building was on sale for £1,000,000. We went in with an offer of £880,000 after running the deal through our spreadsheet. The plan for this site was to convert the whole building into 27 apartments studios, 1 bed and 2 bed apartments. I’ll save the maths, but the profit on this would have been around £800,000 following a conversion cost of around £1,400,000.
The idea behind using property as a means of getting a return on your money is by adding value and converting the site from commercial to residential we can add value for which the banks are happy to re-finance for you. Below is very basic costing
Commercial conversion example project:
Site: Freehold - 16097 sqft ~ 1800 sq/m
Development
8 x Studios @ £90,000 ~ £792,000
19 x 1-beds @ £110,000 ~ £2,090,000
6 x 2-beds @ £130,000 ~ £780,000
Total GDV: £3,140,000 (total value of the site - GDV)
Basic costs:
Acquisition: £835,000
Professional Fees: £100,000
Conversion Cost: £1,368,245 (£85 per sqft)
Total Investment Costs: £2,303,245
Profit: £836,755 (GDV - Investment Costs)
Return on Investment: 36%
These projects usually last 18-24 months for the actual conversion work - planning, legal etc leading up to the start of the conversion will depend on the complexity of the project. Current planning enables conversion of B1 commercial office using Permitted Development.
As an investor, we would like you to continue to work with investors, so we are very critical about securing your investment. As with the banks that give out mortgages, we offer investors various ownership structures to suit the deal and the investment and to most importantly secure your investment.
I am co-owner of Square Mile Property - a venture setup to help individuals invest and grow wealth via property. We work mainly with investors in London on various income and capital growth property investments.
Contact me if you would like to know more - andrew@squaremileproperty.com
There is the ability take first charge where you decide to finance the full purchase of the site. The site can then be developed using various development finance products.
You can choose to fund the purchase and development of the site also, this will save on costs on finance and there increase return on investment.
We work via a SPV giving joint ownership following the first change owned by our financiers such as Shawbrook.