Tag: Property

Deming’s 14 Points and Property Investing

flat lay photography of macbook pro beside paper

Dr W Edwards Deming is known as being one of the quality gurus and is highly regarded in Japan as Deming made a significant contribution to Japan’s reputation for innovative, high-quality products, and for its economic power that has helped Japan become the second largest economy in the world. As some of you know I am a quality professional as well as a property investor and therefore I have studied Deming’s work over a number of years and particularly his 14 points which still apply to today as it did in 1982 when it was first published.

I was revisiting the 14 points to see how I could apply them to property investing and this is what I came up with:

1. “Create constancy of purpose toward improvement of products and services, allocating resources, with the aim to become competitive, to stay in business, and to provide jobs.”

This point calls for looking ahead and making changes to your business so that you have better approaches to changing markets and environments. The one that comes to mind is the changes in the tax laws that we will all have to face, so think of the ways that you can mitigate it. But bear in mind who your customers are as the customer’s needs remain the top priority in your business because without them you have no business.

2. “Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, learn their responsibilities, and take on leadership for change.”

This point is all about innovation and change management. Therefore, look at your processes and systems and make them robust. If you don’t have any yet, then now is the time to start applying these to your business otherwise you will be working in your business instead of on your business.

3. “Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.”

This point is about monitoring your processes at every stage and not trying to detect defects at the end. Not only will you prevent defects from happening, but you may also be presented with an opportunity to innovate the process. So, for instance instead of doing snagging at the end of a refurbishment do your snagging during the refurbishment.

4. “End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.”

What this point is telling us is to stop cutting corners by buying cheap materials when in fact you need good quality materials as this will work out cheaper in the long run. You also need to work with single suppliers and build up relationships so that you can work together in this way you will get your materials at a decent price and delivered on time as your supplier will know exactly what you need. Also, by building the relationship you will know what your competitors are doing as the supplier will have their ear to the ground and let you know.

5. “Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.”

This is about building a culture of making improvements within your business. By ensuring everyone is looking at all of your systems and processes on a constant basis and finding ways to make improvements you will increase the quality, your productivity will go up and your costs will come down.

6. “Institute training on the job.”

People are part of the process; therefore, you need to train them properly, therefore you must have continual support for learning about process monitoring and improvement. This can also be applied to people outside of your business e.g. estate agents can be trained to understand what your requirements are and not to give you information on unsuitable property that does not meet your needs.

7. “Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.”

Leaders should help people think about their job and find ways to make improvements, this will also help people understand their processes. This will help your business grow and become part of the culture.

8. “Drive out fear, so that everyone may work effectively for the company.”

Research has shown that if people are afraid to speak freely it will have a negative impact on innovation and reasoning. Therefore, you need to ensure that the people in your business can speak candidly.

9. “Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.”

You need to have a cross fertilisation team that can work together, e.g. planner, architect and builder working together to come up with a design that suits your needs.

10. “Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity.”

You need to remove targets and quotas for people to hit, instead you need encourage your team to work collaboratively as this will move your business forward.

11. “Remove barriers that rob the hourly worker of his right to pride of workmanship.”

This is point is about putting quality before quantity and encouraging people to make improvements in their work. By allowing people to make improvements you are also encouraging your business to improve.

12. . “Remove barriers that rob people in management and in engineering of their right to pride of workmanship.”

This is about allowing people to manage without undermining their responsibility. Managers also need to encourage continuous improvements and allow people to take responsibility for their work.

13. “Institute a vigorous program of education and self-improvement.”

Training should engage people in on-going learning opportunities and not just limited to specific tasks. Also, you should allow time for your own on-going mentoring, training and education so that it can help you grow your business.

14. “Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job.”

This is all about teamwork within your business and collaboration with your suppliers and power teams so that everyone is on board to help you grow the business.

As you can see Deming’s 14 points can be adopted and applied to any business, therefore it can work in your property business. I have just skimmed over them as you need to see how you can apply them to your own business. If you would like to know more about the 14 points and how to apply quality to your business, I suggest that you read Deming’s book ‘Out of Crisis’.

What’s your strategy?

Introduction

How often do we hear people at network meetings ‘What’s your strategy?’ and the answer is usually goes something like ‘Baby buy to lets, then move up to HMO and eventually commercial properties’, and everyone is satisfied and they then move onto the next person and ask the same question. This always begs the question why are using this strategy, what are you hoping to achieve? You then get the blank looks or a mumbled answer which indicates that this has not been thought through.

According to the Business Dictionary strategy has the following meanings:

  1. A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem.
  2. The art and science of planning and marshaling resources for their most efficient and effective use. The term is derived from the Greek word for generalship or leading an army.

Integrated Method

As can be seen by the above definitions strategy is linked to a plan to bring about a desired future and we need to bring our resources together to be efficient and effective. What do we mean by this and how can we achieve it? Because we need everything and everyone to work together rather than in isolation we need to consider an integrated systems approach. This method is about people and systems coming together and working as a team. Why as a team? If we think of the system as a football team and now the manager calls each team member one by one and tells them what the tactic is that he wants them to play. The team then go out on the field and they play badly because each member of the team only knows what his specific task is, they have not had the benefit of listening to what was said to everyone else and knowing what their roles were. Now that you get the idea why we need an integrated approach let’s model it so that you can see how it fits in together.

 

As can be seen by the model you need to understand where you want to be in your future, as this is the starting point. This could be your why, or it could be your financially free figure. Once you have decided what your future should look like then you can work on your strategy to see what you need to achieve your future. Then you need to understand what methods and tools are required to make it a reality. Do you need training in the tools and methods? If so this needs to be added to your integrated approach. Finally you need to consider what systems need to be put in place to support the integrated approach and KPIs (Key Point Indicators) to measure your success. By having flow down and feedback throughout the integrated approach everyone understands what is required to reach the future state.

If we take each of the headings and place it into a table we can then work on each section to come up with our integrated approach e.g.

 

Where do I/we want to be? What is my/ our strategy? How can I/we do this? What capabilities must be in place? What systems are required?
Financially Free Figure of £10k per month Buy to Let = £200 per month.

£10k/£200 = 50 Buy to Lets

 Money in Money out.

 

 Training Courses KPI’s
HMO = £1500 per month.

£10/£1500 = 7 HMOs

 Joint Ventures Mentors Standard Work Procedures
Serviced Accommodation = £2700 per month.

£10k/£2700 = 4 Serviced Accommodations

 Investment area(s) Benchmark against successful investors Lessons Learnt

Work with suppliers (Estate Agents, Letting Agents, Sourcing Agents etc.) so that they can deliver to our requirements

 Power Team Visual Management

 

You can see by using this method you start to build up a picture and you begin to see how everything is linked to your future state. This is your birds’ eye view of where you want to be. This can then be broken down further e.g. you may decide that you only want HMOs as your strategy, in which case everything below the strategy needs to be geared for HMOs e.g. Finance, Estate Agents and Letting Agents that deal in HMOs, Training, Regulations, Commercial lending, vetting, house rules, etc.

 Conclusion

When you work on things in isolation it is quite easy to lose your way, by having an integrated approach to your business you will become more focused and achieve quicker results. Planning for your future state is important so take your time to think and make your plans. As Abraham Lincoln said ‘Give me six hours to chop down a tree and I will spend the first four sharpening the axe’

Systems & Procedures

According to the Oxford English Dictionary a system is:

  1. A set of things working together as parts of a mechanism or an interconnecting network; a complex whole.
  2. A set of principles or procedures according to which something is done; an organized scheme or method.

Many people say that they have a system in place for their property business but when you ask questions about their systems and dig down it turns out what they really have are processes and tools that help them carry out things like analysis of an area or a deal, so it becomes a bit of a shock when you tell them that these are not systems. To understand this, here is a simple definition of a process and a system:

  • Taking an egg and converting it to an omelette is a process
  • A system is a series of processes where the output of one process becomes the input of the next process. An example of this is baking a cake, where you have equipment, correct ingredients, following an exact recipe, applying the method, utilisation of the equipment, transformation into a cake, adding value by adding a filling, presentation.

So why do we need systems?

Well if you want to be successful then you need systems and procedures as this will allow you to work on your business and not in your business. Some of you may be thinking that you got out of the corporate world because you were restricted by all of the red tape of systems; after all you are an entrepreneur. However the reality is whether you’re a one man/woman company or employ fifty people plus, you will need systems and procedures to free up your time and make you money.

Some of you may be thinking that you are just starting out and therefore until you get going you will just wing it for the moment. That would be a big mistake, it is in fact far easier to put systems and procedures in place at the start of your journey rather than leave it until later as it will take you a lot longer to do and in the meantime will have lost time, energy and potentially money, so take heed.

From a business point of you what do we mean by systems and procedures? The short version would be a step guide to perform any function within your business. Examples of this may include but is not limited to the following:

  1. What do you do/say when you are contacted by a vendor?
  2. What are the steps do you take when screening a potential tenant?
  3. What are the roles and responsibilities of your team?
  4. How do you get paid?
  5. How do you pay your suppliers?
  6. How do you run the back office? (Administration, Accounts, etc.)
  7. How do you draw up a contract with your suppliers? (Architect, planners, builders, etc.)
  8. What are your “Opening” and “Closed” hours and what happens when “Out of Hours” is required?
  9. What are your policy and procedures for joint ventures?
  10. What is your strategy and how do you communicate this to your team, joint venture partner, Angel investor etc.?
  11. What are your objectives?

As can be seen by the above examples systems and procedures are required to handle these sorts of questions. Do not be deterred by thinking that you need to write a massive manual documenting everything. Keep it simple and easy to follow, use pictures, diagrams, screenshots etc. if this helps to describe your processes. Where there are regulations that needs to be understood within a procedure e.g. HMO requirements, break it down and strip out all of the things that are not necessary and bullet point those that are needed so it is easy to read.

Advantages of Systems & Procedures

The advantages of having systems and procedures in place are as follows:

  1. Productivity will increase as you will not have to re-invent the wheel every time you do something.
  2. It can give you a perspective as now you can have an overview of your business, and the competition so now you can make informed decisions.
  3. There will be consistency in your work as things will be done exactly the same way each time.
  4. Reduced risks as you will have agreements etc. in place that spells out exactly what is expected.
  5. Quality will increase as you will have a framework in place to deal with builders, vendors, tenants etc.
  6. Growth can take place as you can use your systems and procedures to train people.
  7. You will have continuity because if someone is away on holiday, ill, or leaves then you are not reliant on that person as the systems and procedures will kick in.
  8. You will find freedom as now you can work on your business and not in your business, also it will allow you to be away from the business as it will run without you.

Take action now and put systems and procedures in place, once done these will just need to be kept updated as your business evolves.

 

Recommended Reading:

The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It. By Michael E. Gerber

Scaling Up. By Verne Harnish

Right First Time Property Investing. By John A Foster

Exit Strategy – Selling your Business

When starting a business always look at what your end game is and keep this in mind. You may decide that you want to build a legacy, therefore, you will be passing it on to your heirs. But you should still look at setting up the business with a mind to selling it, as you may find that you could make more money by selling and so you can give more money to your heirs, or you may find that your possible heirs may not want the business as they have no interest in it or they are not capable of running it.

Your business must be able to run without you, if your business cannot run without you then it will die with you, therefore before you even think about selling or passing on your business make sure that you have processes, systems, manuals and procedures in place. This must be your number one priority above anything else, if you do not know how to set these up get help, as it is worth paying someone to put these in place for you, remember this adds value to your business so don’t cut corners or skimp on the price for the consultancy, so think of it as a short-term loss for a long-term gain.

When selling your business, it is critical that you understand the processes involved. After all, unlike other business decisions, this will only be made once!

So here are a few questions that might help you in the process.

Why are you selling? Are you selling because the business has reached its full potential, or do you want to get out because you have had enough? It’s important to have a reason for the sale as you will get asked this question from all potential purchasers.

Is your property on a lease? If a buyer is looking at your business, your buyer will want to see a long-term lease in place. Negotiate with your landlord an extension to your lease and make sure that you have a clause in there which allows you to transfer the lease to the new buyer.

When did you last value your assets? This is especially important when it comes to property as prices are constantly changing and you might get a very pleasant surprise.

Do you want to sell just the goodwill and still own the property? Often when selling a business, it is possible to keep the property and lease it to the new buyer. If you do not need the full proceeds it is often wise not to sell the property as long term it will be an appreciating asset. Make sure though that you get a full repair and renewal lease put in place with the buyer.

Are you the one hundred percent owner? If not, what do the other shareholders think about you leaving? One of the easiest ways to get out is to sell your stake to the other shareholders.

Do you want to protect some workers in your business once the sale has gone through? You might have members of the family or close friends who work in the business and they might need some security after you have left. One way to do this is to provide them with decent employment contracts prior to the sale.

Is the timing, right? The best time to sell the business is just after you have had a good year of trading. Even economists disagree about what the future may bring so try not to predict how the trading environment will change but get out when profits are high.

Prime the business for sale. Just as a house will achieve more with a lick of paint and the garden in top condition so a business will need as many loose ends tied up as possible so that it is easier for a new buyer to walk in. Get rid of all the dead stock and dispose of all old and useless machinery and equipment.

Tidy the place up. Make it look as attractive as possible and make sure all the light switches and bulbs work. Make sure the place is as bright as possible by using higher power bulbs than normal.

Get professional help. If you have a small business all you need are the services of a good accountant and solicitor. If the business is more complicated a decent business broker might be required to get the maximum price for your business.

The easier you make it for the buyer to move in and start running the business from day one the higher the price you will achieve for the sale.

Are Forums the new Mentor?

It is interesting to see how more and more people are turning to forums to obtain the answers to their business rather than going to a mentor or coach. It is practically an untapped resource that many more people are getting into, here’s why no matter what you do in this life there is usually someone out there that is a lot better at it than you. You could teach yourself until you get good enough to beat them or you could learn from them gain all the knowledge in less than half the time and beat them at their own game.

This can be related to forums, for an example, I will use someone who wants to succeed in an internet home business. We will call her Jayne, Jayne has just got his webpage promoting a product or service Jayne doesn’t know where to start. So, she starts researching, she finds all the info he needs after a few months and applies it. After a few years Jayne is making some money but nothing serious, she knows it will take her a few more years to be successful. Let’s take the alternate path Jayne starts her product or service and joins a forum relating to it, she asks people questions only to come back the next day to find they are answered. After a couple of months, Jayne is making a bit of money, after a few years, she makes a full-time income.

My point is it increases your learning curve dramatically, hence this accelerates your growth exponentially. Let me explain further from a more practical point of view, say we want to promote an affiliate service. First, we go to the search engines and type something related to it such as a home business forum. The search engines come up with various home business forums join one, make sure that it is centred around a home business, not multiple subjects. The reason for this is that it will take a lot longer for your question to get answered. Once you have joined anything that you are unsure about just ask about it if you want more information on a subject just ask. People in forums are generally very experienced and will be happy to help you never be afraid to ask a question regardless of what it may be.

Take the time to get familiar with the forum and try to post at least once a day, this will get you credibility and build up backlinks to your website. After a while of posting you will notice that you are learning a lot quicker and realise how long it would have taken you to learn yourself.

However, if you want to build up a business very quickly and have accountability to make sure that it happens then you will need a mentor/coach. Your mentor/coach needs to be experienced in the field that you are looking at so that you can be guided correctly. You may also need more than one mentor/coach due to the nature of the business. For example, you may have a mentor/coach for investing in property, but that person may not be versed in setting up systems or know how to take waste out of your business. If you want to scale up you will need a variety of mentors, think of how corporations work, in that they have specialist departments and leaders to run the business, your mentors can be compared to these specialists.

In conclusion, forums are a good starting point if you want to take it steady and stay small, however, if you want to move quickly and scale up then you need mentor/coaches to help you.  

Landlords Losing Money

One of the principles of quality in industry is customer focus, and this is something that most landlords do not even consider, as all they are interested in is filling voids. It is in the interest of landlords to keep their tenants as long as possible in their property because in the long run it saves the landlord money as there is a regular cash flow going into the bank account. Landlords can go a long way to ensure that they not only help their tenants but also themselves. The following are but a few suggestions that landlords should consider if they want to keep their tenant and in some cases be able to charge a premium for what they are offering.

Tenants are not money trees they too need to earn and save to pay the rent; however, it is becoming increasingly difficult for them as their wages are below inflation. This means that bills have got higher, so they are trying to cut down wherever possible to make ends meet. As landlords you can help them, not by reducing the rent, but by helping them reduce their bills. Consider for instance of replacing all bulbs with LED bulbs, replacing shower heads with water efficient ones. from the 1st April 2018 there will be a change to the Energy Efficiency Standard Regulations to ensure that any property that is privately rented will have to have the minimum performance rating of ‘E’ on an Energy Performance Certificate (EPC). So, if you must update it go beyond the ‘E’ rating and make it even more efficient.

Customer focus is not all about helping the tenant reduce bills, its also about being responsive when a tenant reports a problem. How many times have we seen a tenant report an issue only for the landlord to ignore it until the tenant has made several complaints. Gone are the days where a landlord could afford to do this as the tenants today are much savvier and will take to social media to tell everyone about the issue and the poor response. It does not take long for a landlord’s reputation to be ruined and it will take a very long time for that reputation to be built up again, and in the meantime the landlord may have lost the tenant and find it difficult to fill the void.

Landlords also need to consider their tenant’s needs, for instance tenants may want to have pets, and are willing to pay either slightly higher rents or a bigger deposit in order that they can have their beloved animals. They may want to paint walls different colours so that it feels homelier for them, the landlord should allow them to do this on the understanding that it is returned to the original colour at the end of the tenancy. Let the tenants hang pictures again on the understanding that the tenant will make good any walls where he has made holes. Consider freshening up the property every few years with some paint, either paint it for them, or give the tenant the paint so that they can do it themselves. As tenants are often busy people, especially the professional tenant, then the landlord should consider offering services such as gardening, window cleaning etc. the tenant will often pay a higher premium for such a service.

Landlords who self-manage could also make it easier for tenants to report an issue by being able to do it online rather than having to phone, as quite often the tenant only has the time to report things out of office hours due to their own workload. So, give the tenant their own portal so that they can report and track the issue that they have reported. The landlord can also use the same portal to inform the tenant in advance when inspections are due, therefore allowing the tenant to arrange for someone to be in attendance.

By doing these little things not only will landlords keep their tenants for longer they will also have happier tenants who will become the advocate for the landlord and help find tenants for other or future properties that the landlord may have.

In summary by focusing on your customer you will enhance your reputation as a landlord and you will find opportunities to be able to charge a premium rate.   

Is your property investment area in a buyer’s or seller’s market?

How many people really understand their property investment area? Quite often they are told to go where the housing stock is cheap, offer below market value and build up their portfolio of buy to let houses. So off they go and put in offer after offer without understanding the local area and whether they’re in a buyer’s or seller’s market. So how can you find out if the property that you are interested in will potentially accept your offer especially if you are looking to put in a low offer? You can use easily obtained data to help you make an informed decision on your potential target property.

You start by looking at how many houses of the same type including the number of bedrooms that are within a ¼ mile radius of the property that you are interested in. This information can be found through the property search engine RightMove. Once you have this number write it down. Then within the same search engine, there is a tab called house prices, then from the drop-down menu select ’Sold House Prices’ then enter the postcode of your property. Then filter the information so that you are looking at property within a ¼ mile radius of your, and set the filter for sold in the last year. This will give you the number of houses sold, again make a note of this figure.

Now for some simple maths. Take the number of housing sold in the last year and divide it by 12 to give you an average. E.g. 36 houses sold in the last year, 36/12 = 3, then you take your current number of houses for sale and divide it by your average figure, e.g. 7 houses currently for sale, 7/3 = 2.33. This figure of 2.33 represents your current month’s supply of housing stock, if it is less than 6 then it is a seller’s market, so there is no point in you putting in low offers, because unless it is a stressed owner, the seller will know that their property will sell quickly at on or very close to the asking price. If the figure is 6 then it is a balanced market, so you have a 50-50 chance of having a below-market offer accepted. If the figure is above 6 then it is a buyer’s market, therefore you can put in a below-market offer with a good chance of having your offer accepted because the market has a lot more properties that are up for sale.

In summary, using data is the best way of making an informed decision that can make a big difference to finding the right area and property. You will not only save time but also money, therefore it is wise to spend a little time checking the data before adventuring out to put in offers.

Risk Managing your Business

Introduction

So you have built up your business and things are going well when all of a sudden you are hit with something unexpected that has an impact on your business could you deal with it? Most entrepreneurs will fail at this point and maybe have to rethink their strategy and lose time and money implementing the changes. Most problems can be managed if you take the time to consider the risks to your business and have processes and procedures in place that kick in when there is a problem. As property investors or entrepreneurs we are considered risk takers or chancers by people that will not take the same risk as us. Let’s consider that for a moment, did we just take a risk without thinking things through and hoped for the best or did we do our due diligence and analysed things first? Although there are some people out there who did things on a wing and prayer, the majority of people analysed things first, so it is a risk, based on thought and data. By doing our due diligence we can decide what is an acceptable risk before taking the plunge. Therefore the perception of being risk takers and chancers is wrong, what we have become is informed business people. People associate risk with negativity, this, however, is incorrect as we can also use risk in a positive way because we have identified what it is and where possible we eliminate it.

Tools for Risk

There are a number of ways that we can look at risks to see if they are acceptable depending on the type of investment we want to undertake, these can range from a simple SWOT (Strength, Weakness, Opportunity, Threat) analysis to a more sophisticated PESTLE (Political, Economic, Social, Technological, Legal, Environmental) analysis. There are also a number of other tools that can be used in conjunction with the above analysis tools such as Pareto analysis, FMEA (Failure Modes and Effect Analysis), Fault Tree Analysis, Is – Is Not, etc. The main thing is that the tools are there to be used and failure to do so could result in you making the wrong decision which in turn could lead to losing money on your investment. However if you have taken your time to consider and manage the risk then if a problem arises it will not catch you out as you will have been prepared and a plan to mitigate the risk will then come into play.

If you are looking at property then you need to analyse the area for comparable properties in price, to see what the is the maximum done up value is for the property. You would also look at what the maximum rent you could charge, as both price and rent have a ceiling. You would also use one of the above tools to analyse the area to see if there are some plans or issues that could affect the price and rental of the property.

Conclusion

Due diligence should be the norm for an entrepreneur or property investor, and analysing the risk should become second nature. Failure to do so will eventually catch you out as there are only so many roles of the dice where you will be lucky. Failing to plan is planning to fail, therefore get acquainted with the tools that can help you understand, manage and mitigate risks, do not be afraid to ask questions and get into the detail of your planned investment, and get it right first time.

Recommended Reading

Identifying and Managing Project Risk: Essential Tools for Failure- Proofing Your Project

 

Rental Yield

When investing in property you should always look at the Return On Investment (ROI), as you are buying the property to make money. Therefore you need to calculate the rental yield to ensure that the property that you are interested in will make you the most money on your investment. Yield uses the rental income over the initial cost of buying the property and it is expressed as a percentage. There are several ways of calculating yield, but for buy to let (BTL) we will use the most common one known as rental yield. This is calculated by the rent minus the running costs and dividing it by the total amount invested to purchase the property. This will give you a percentage, the higher the percentage the better the deal.

So our formula would look like this:

 

Yield = (((Monthly Rental – Running Costs) *12) / Investment)*100

 

Let us do a simple worked example:

Suppose that you have found a couple of potential properties that you are interested in but now you have to decide which one to choose. Property one costs £175,000 with a potential rental of £650 per month. Property two costs £200,000 with a potential income of £800 per month.

 

Property 1.

Monthly Rental Return = £650

Investment = £175,000

£650*12 = £7,800 (Annual Rent)

£7,800/£175,000 = 0.044

0.044*100 = 4.4% Yield

Property 2.

Monthly Rental Return = £800

Investment = £200,000

£800*12 = £9,600 (Annual Rent)

£9,600/£200,000 = 0.048

0.048*100 = 4.8% Yield

 

Although property two costs more to purchase it gives a higher yield, therefore a better return on investment.

 

The above examples is a simplistic version, as it does not include things like voids which can skew your calculations, so you may want to stress test the calculations by using a figure of 10 months annual rent instead of 12 months. You also have to obtain accurate information which includes the following:

  1. Cost of property
  2. Stamp Duty
  3. Mortgage
  4. Mortgage arrangement fees
  5. Building Insurance
  6. Survey Fees
  7. Legal fees
  8. Tenant acquisition fees
  9. Refurbishment costs
  10. Maintenance Fees
  11. Voids running costs (Council Tax, Utilities etc.)

There may be other items that you need to add to the above list e.g. for HMO you may need to include a licence fee and furniture, so do your due diligence and be as accurate as possible.

 

Be wary of yield figures that are given by agents and developers as they are often based on the basic cost of the property so that it makes the deal look more attractive. So do not be afraid to ask questions and ask how they have come up with their figure and use your list as a checklist to help you. Also, do your own due diligence and do a comparable check of local property prices within a ¼ of a mile of the property that you are interested in and what they sold for and also do a similar local search for the rentals in the area.

 

Make the Impossible Possible

Make the Impossible Possible: One Man’s Crusade to Inspire Others to Dream Bigger and Achieve the Extraordinary. By Bill Strickland

I came across Bill Strickland when I was browsing the TED Talks and was immediately struck by what he had achieved. So I did a search on him and found that he had written a book, so I sent off for it and I am pleased that I did as Bill’s story is really remarkable and this autobiography is well worth reading.

Background

Bill was born in 1947 and raised in Manchester, Pittsburgh, USA. This was a poor ghetto that was predominately black and he describes it as ‘The streets around me were lined with sad, sagging row houses in various states of collapse, their walls made of grimy, mismatched vinyl siding or bowed-out brick. Paint peeled from the rotting window trim. Torn curtains or shredded plastic blinds hung in many of the windows. Some windows had been busted out and repaired with cardboard and tape. Weeds grew wild in vacant lots, as high as my head, and yards and lots always seemed to be filled with junk – old tires, rusted kitchen appliances, automobile parts, mounds of garbage.’ From the description, you can imagine the despair of living in such a place and having to see it day in and day out. Bill describes the type of people that lived there ‘I passed ruined people in my neighbourhood every morning on my way to school. Some use to scare me – the scam artists, the drug dealers, the predators and small-time hoods. You had to give them a wide berth or they find a way to get a piece of your life. Others simply saddened me: people who were lost, frightened, hollow and used up.’ Bill’s mother was determined that her family would always act with respect and dignity as she told them ‘Just because we’re poor, we don’t have to live like defeated people’

Bill was cutting classes and was cruising his way at school doing the bare minimum to scrape through, until one morning whilst walking down a school corridor he smelt coffee, so he followed the smell to a classroom where a teacher was working on a potter’s wheel whilst listening to jazz. Bill was intrigued and wandered in to get a closer look and ended up having a go at working the clay. He became hooked and showed up to every class and he was encouraged by his teacher Frank Ross who went out of his way by speaking to the other teachers when he started missing some of their classes because he was hiding out in the art class by telling them ‘This kid’s on fire, and I think he has potential. Can’t you cut him some slack?’ which they did. Bill became more focused, disciplined, optimistic and mature and he was soon asked to exhibit some of his work in a gallery. This was a turning point for him as he was asked to appear as a demonstration artist at the Three Rivers Arts Festival in Pittsburgh where a crowd people soon appeared to watch him work and ask questions and as he puts it ‘These folks, most of them white, saw past all the labels they might have otherwise used to define me: Disadvantaged. Black. Poor. They were seeing me as a person with something unique to offer.’ Bill decided that he wanted to help his community by starting an art centre so he put a proposal together and it was presented to the bishop of the Episcopalian diocese of Pittsburgh. The bishop thought it was a great idea and to ensure that Bill did everything properly they sent him off to their lawyers who were the most prestigious law firm in the city to learn how to become incorporated. Bill called his centre the Manchester Craftsman Guild, and it wasn’t long before he began to hear from teachers of the public schools and parents of the kids that showed up to the arts centre telling him that the kids were showing signs of improvements in their lives.

It was not long before he took over the Bidwell Training Centre which was used for job training programs in Manchester but did not live up to its expectations. The centre was run down in a seedy part of Manchester where people were doing drugs and gambling. The rooms were cramped, bleak and dingy with windowless classrooms and where vandalism and theft were rampant. Bill got his staff together and told them that they were going to paint the place that weekend and anyone who did not show up would be fired. They thought he was kidding until one staff member did not show and he fired him. Bill made a statement to his staff ‘We aren’t going to live like this or treat our kids in this way anymore.’

There was a fire at the Bidwell Centre which was quickly contained by the fire brigade but when they looked around the building and found that there was no fire escapes, sprinkler systems that were just for show but did not actually work they condemned the building. Bill found a nearby warehouse to rent and moved the centre to it. Bill was now desperate for funding so he kept his eyes peeled for a sign that could help and it came in the form of the new IBM electric typewriter. He needed new typewriters at the school and the sales rep made the case for the electronic versions, so he told him that he would buy them on condition that he met with the regional operations director for IBM. After giving the executive a tour of his centre and talking to him they decided to collaborate on a training program that would turn out typists specifically prepared to master the new machines and the executive Ed Conrad joined Bill on the board of directors. The next big thing that was spotted was that Warner was putting in cable television, so Bill called the executive and after introducing himself asked who was going to build the cable system? The executive told him that they had not figured that bit out yet, so Bill suggested that they collaborate on a training program to train the workforce which was agreed. Although this helped the centre, the future was not really secure as finances were very tight and at one point knew they were going to miss the payroll and so had to let people go. Bill felt a sense of loss and as he puts it ‘How did you let this happen? You’ve been treading water for fifteen years. You let yourself become a miserable grant writer, going door to door with your hat in your hand. You let the powers that be define you, man, you let them decide what is and isn’t possible. You need to stand for something. You need to make a difference to people’s lives.’ At that moment he glanced out of the window at a barren plot of land and was startled by a vision. ‘I saw a sleek, hip, low slung building, earth-toned, honeycombed with windows and skylights and bathed in golden light.’ He remembered seeing a similar light before when he had visited Frank Lloyd Wright’s residential masterpiece Fallingwater. He knew that he had to build a centre bathed in that light that he saw in his vision to make a difference in his community.

A few weeks after his vision he was talking to a leading architect Tasso Katselas about his vision and mentioned Frank Lloyd Wright, to which Tasso showed him a framed photograph of him and Frank Lloyd Wright together, it turned out that he was one of Frank’s students. He produced a model of the building that Bill wanted which Bill then took on visits to corporations to try and raise the five million dollars that would be required to build it. On one occasion he was told ‘Come on Bill, Manchester doesn’t need the Taj Mahal’. Undeterred he continued to try and raise the money, so far each corporation told him that they would give him money towards his building on the condition that he found matching money. Bill had a friend called Diana Jannetta who was chair of the Pennsylvania Arts Council and she believed in Bill’s work so she arranged for him to meet the governor of Pennsylvania Dick Thornburgh in a private meeting. Bill describes the meeting that took place ‘When the door opened and they waived me in, I laid the model on the governor’s desk and let him look it over. He smiled approvingly and asked a few questions, but I sensed that he had already made up his mind. ‘You think you can make this place work’ he asked. ‘Yes Governor,’ I said, ‘I do’. ‘ Then stick out your hand’, he said, ‘you’re going to get your centre.’ They broke ground and started to build the centre in 1984 and began to get noticed by powerful people. One of the most important was John Heinz, a US senator and heir to the Heinz company who told him ‘I like what you are trying to do, and we want to be part of it. As you know we’re trying to improve our minority hiring efforts at Heinz. You can help us a lot if you’d include a food training program at your new facility.’ Bill at first was reluctant as he did not know anything about food, but the senator was persistent ‘What if we kicked in a million dollars and full time services of the head of our research department’ he asked. ‘Well Mr Heinz, ‘ I replied slowly, ‘ it looks like we’re going into the food service business.’ With Heinz help that put a training program together that almost guaranteed that graduates from the centre would get good paying jobs not only as food technicians at Heinz but also as chefs at restaurants throughout the city.

Bill said that he learnt a lot from John Heinz and is thankful that John embraced his vision that so many others had dismissed. The lesson to Bill was ‘Trust your passion, identify your dreams, and find the courage to share them with others, no matter how many times they call you a fool. If your vision has merit, no matter how impossible it may seem, someone will recognise it and help you make it come true.’ A day after the centre opened the pharmaceutical giant Bayer came and visited the centre and said ‘We hear that you’ve been training food technicians for Heinz, we need chemical technicians at Bayer. We would like to work with you on creating a program that would give us the kind of employees we’re looking for.’ This was soon followed up with visits from other labs and chemical companies, then hospitals and were soon training people for highly skilled jobs. This went against the norm where ‘Society has always seen poor folks as a social burden, people in need of charity and assistance. But we showed the poor people to be people of unlimited potential, assets to the community and valued employees to the companies that hired them. When corporations support us now, it wasn’t out of social obligation. It was because our programs worked – for the community and for their own bottom lines. We had found a point where the interest of capitalists and inner-city folks intersected. We had turned conventional attitudes about the poor upside down.’

Bill found ways to pay for his passion to help his community and turn it around and he also used it to help him become a part time commercial pilot by thinking out of the box. After his first ever flight as a passenger he decided that he wanted more of it and so when everyone was scrambling to get their hand luggage and get off the plane Bill hung back then met the pilot and asked him how could he get a job as a pilot. At first they chuckled but then saw he was being serious and told him that it would not be easy but the first thing he needed to do was to get a private pilot’s licence. So Bill found a local flying school and got his licence, now he needed to get his commercial flying licence, the other pilots as the flying school made jokes about it but Bill wasn’t going to let them dampen his spirits. To qualify for his licence he would need to log at least one thousand hours of flying time which he calculated would cost $50,000 which he could not afford. As he was driving past an open hangar he saw an aircraft for sale with an asking price of $50,000 ‘It struck me that my flight school might need another plane for training, so I called and asked the owner if he’d be interested in leasing a plane from me. He said he’d be willing if the terms were right. The next day, I took his willingness to the bank – literally. I told the loans officer I wanted to buy an aeroplane, then lease it back to the fight school for a monthly fee that would cover my loan payments. The maths added up, so they loaned me the money.’ Bill obtained his commercial pilot’s licence and went on to fly for Braniff Airlines.

 

Conclusion

Bill shows through his work that you don’t have to move away from your area to be successful, you need to understand your area and come up with solutions to the local problems. Bill also demonstrates that having a good network is important and that you should be politically neutral as it will open more doors for you. As he puts it, ‘No one accomplishes anything really worthwhile without the help of others. Learning to spot others in life who can help you to achieve your goals is a key component to success. But I’m convinced that knowing how to present yourself in a way that allows them to recognise you is an even more important talent to master.’ Having a dream that you can follow with passion is a must as ‘A successful life can be built – must be built out of the simple and profound experiences and values that make us feel most human and most alive.’ Throughout the book there are lots of golden nuggets that is useful and that you can learn from and apply to your business. Has Bill’s model worked? Well his model is now being exported to towns and cities across the world to help solve local problems. The centre has gone on to host Jazz concerts with the biggest names in Jazz appearing there and has its own record label that has won Grammy Awards, it has opened a large greenhouse which grows orchids and fruit and vegetables which it supplies to local markets and it is going from strength to strength.

To learn more about Bill Strickland you can visit his website:

http://www.bill-strickland.org/aboutbill.html