Watch: Fear kills property deals – how to act with confidence?

Speaker (00:05.87)

Hey everyone, how are we doing? So, has anyone got one of those things that really pisses them off? That every time it happens you like pull that face where you go like that. So I’m going to talk to you about my pet peeve today. As someone that’s spoken to lots of property investors over the years, this is something that comes up quite a lot. So as has been said, I’m Sam Norris, I’m the owner and director of Grand Union Finance.

And we are the best property finance company in the country, which is a direct quote from my mum. So obviously that’s true. But joking aside, over the last 18 years, I’ve spent a lot of time helping property investors with their finances. And over the last five years since I started Grand Union, we’ve helped hundreds, if not thousands, of property investors, just like yourselves, with their mortgages, with their bridging finance, development finance, and commercial mortgages as well. And when I…

I get on the phone, I still have the privilege and the pleasure of speaking to most of the clients that come through the gates at Grand Union Finance, the newbies, before they get allocated to brokers and the team help them out. I always get on the phone with them, and I start with one thing, which they’re not expecting. They’re usually expecting me to go through a lot of paperwork with them, because that’s what finance is all about, isn’t it? But I start with a question. What does your property business look like?

when it’s finished. And that usually takes them by surprise. But there’s a really good reason that I asked that question, is because it really gets me, it allows me to understand where they are now and where they’re trying to end up. And whether that is, they’ve got a business, they’ve got an important job, that’s their main focus, and property is just on the side, or whether they want to go for world domination, I need to know where that kind of lies. And so today, I’m going to take that view.

and I’m going to do a of a rich dad, poor dad scenario, tell you about two different clients that we’ve worked with over the years. One that had a particular mindset and one that have the other. And I’m hoping that you’re going to leave with one mindset over the other. And as you’ll see, this is all about how fear kills deals and more importantly, how the fear of interest rates kills deals. So I’m going to start with number one, client number one. Now, the talkative world domination.

Speaker (02:22.798)

But one of the things that sticks in my head about this particular client is that when we first got talking to each other, this is probably going on about eight to 10 years ago now, he hit the on the title of his emails in block capitals, it said, make me the UK’s biggest property investor. you know, mediocre kind of ambitions there. And this was back in the days before Zoom, where you went and sat down with your clients, you went and met with them.

So he had an office in North London, went over to see him. He was big in e-commerce. He built his business through e-commerce. And I’m quite a clumsy person, which is why I was really worried about stepping up on there and making a fool of myself earlier on. And I got to his office, little office space, and this place was like a modern day Aladdin’s cave. Floor to ceiling, anything you can possibly think of from supplements to electricals, and how I meandered my way through that without falling flat on my face is beyond me. But eventually I got in front of him.

and he’s sitting there behind his big desk, grand chair, and again he reiterates this ambition. He wants to be the UK’s biggest property investor. And you know, 10 odd years ago, I’m not the broker I am today, I didn’t have as big a client bank, I was quite impressed with this, I was thinking, brilliant, this is gonna make me a bit of a dollar. And I got very excited about it. Now, not only was he quite successful in e-commerce and in business, but he actually had been running a very successful property sourcing business up in Manchester as well.

That just added to my excitement. This guy has got a track record. He’s up there, he’s finding BRR projects before BRR was kind of a thing. Up in Manchester, yields of 7, 8, 9, 10 % on buy-to-let properties. You don’t even get that anymore. And he was… And obviously he’d done the e-commerce and then he’d built the sourcing business on top of that. Very much took one model and made it work with the other. So the third piece of this incredible puzzle…

was that he also had inherited quite a decent property portfolio of ten properties in London, which was only leveraged, only geared at 40 % loan to value. So, clearly, this guy was absolutely on to a winner, and I was very excited to work with him. Now, with these properties being in London, as you all know, London’s yields aren’t all that great. It’s one of the reasons we’re all enjoying being here today and talking about HMOs, because the yields are a hell of a lot better, but this was a buy-to-let portfolio, relatively short yields, and I did say to him, look…

Speaker (04:47.245)

From a mortgage point of view, the way in which we figure out how much we can borrow is based on the rental income, not your income. Lenders have rental calculators. The lower the yield, the harder it’s going to be for us to get those funds out. So harder to get to 75%. I don’t think he really listens to me. But anyway, I trotted off young mortgage broker to go and see if I could find this guy an awesome mortgage to help him raise the funds, basically take it from 40%.

to 75 per cent, was going to pull out half a million pounds for him to go up to Manchester and become the greatest property investor. fact, his exact words to me were, it’s inevitable that I’m going to become the biggest property investor in the country. Now I’ll be thinking, right, Thanos, chill out, But any way I can get a geeky reference into a talk, I’ll do my best to do so. If you have no idea what I’m talking about, don’t worry.

So I tried it off, and I found him a mortgage, funnily enough, because that’s my job as a mortgage broker, and I went back to him, I was very, very happy, and I sat down in front of him and I said, guess what, mate, I’ve got a really good bit of news for you, we can borrow the money. I found a lender. Even though your yields are rubbish, 3.5%, I found you a lender. Now, as I said before, we had to go a bit specialist, and I’ll be honest with you, I imagine most of you in this room, if I gave you this right now, you’d probably…

bite me arm off for it. This is back in the day, don’t forget. I said, it is going to cost a bit, but don’t forget, we’re borrowing the money over here, we’re going make more over here. He go and hit me. said, it’s 3.5 per cent. went, what? He looked at me like I just slapped his dog. He was so disappointed in the fact that I come up to him with a 3.5 per cent rate. His current mortgage was on about 1.9.

And I said, well, you look, you’re borrowing the money over here, 3.5%. You’re going to be making 10 % yields over here. Clearly, the difference in that is your profit margin. Surely, you want to be saying, yeah, let’s crack on. Let’s get that money out, and let’s go make it put to work. Couldn’t get over the fact that he was going to have to pay a 3.5 % rate. Nowadays, that’s probably like me coming to you and saying, we’ve got to pay 6%, 6.5%. Understandably so, you know, these rates do get in the way. But…

Speaker (07:06.003)

purpose of this exercise was to pull money out to reinvest, and the yields were going to be greater over on this side than the cost over on this side. We actually ended up going, he said, well, it’s too expensive, another lovely bit, sort of response I like to get, it’s too expensive. My question is always too expensive compared to what? This is what we need to do, this is the best thing for you right now. That’s up there with are you sure this is the cheapest rate I can get?

I’ve been wasting my time for the last two days researching the market to come up with a random rate for you. No, this is the cheapest for you. So, we ended up going back and actually looking at a 60 % loan to value product, and still he wasn’t happy, even though the rate was a lot lower. Now, I’ll be honest with you, we never did anything with this client. I got a bit bored after a while of going back and forth with him, trying to convince him that this was probably a really good thing for him to do, and that he could go and he could build an incredible portfolio and become…

the greatest property investor this country has ever known. And I think he had the tools to do at least a fair whack-a-neck, give it a good go, especially in the residential space. I’m still friends with this guy on Facebook now, and the only thing he ever posts about is going on runs, so I’m going to make the assumption that he hasn’t gone on to world domination. That’s a mindset that has held a lot of people back that we work with, or have tried to work with.

On the flip side, I’m not going to say like the rich dad poor dad thing, he’s not the poor investor, just one that didn’t have the right mindset. on the flip side, and bearing in mind this guy was in his 40s, potentially even early 50s, had run a business, he should have understood the numbers. Next we’ve got client number two. Now this guy could not have been more different from client number one. 22 years old, straight out of university, first job, 24K a year, I think it was that he earned.

which I thought was amazing because my first job out of uni was 18 grand a year, I thought I was a pimp with that money. But that was quite a while ago, I’m a bit older than I look. And he came to me and he said, and I asked him the same question, what’s the plan? What are we trying to do here? What does your property business look like when it’s finished? And he said, I want to build an HMO portfolio. And I said, okay, cool, that’s fine. Why? Well, I’ve just come out of university and the quality of the accommodation that I had was really rubbish.

Speaker (09:31.203)

And I’m on a mission to try and improve the quality of the student accommodation that’s available to students where I went to university. Loved it. It’s so important to have a really clear vision and mission that isn’t just, by the way, I want to earn £10,000 cash flow a month, which is… If I had a pound for every time someone had said they want to make 10,000 net cash flow a month, I’d probably have £10,000.

That is not a tangible target, by the way. We want something a little bit more visionary, a mission that you can follow. So this is awesome. I have to give him the bad news. This is back probably seven years ago. It’s like, look, you’re a first-time buyer, you’re a first-time investor, you’re in your first job. There ain’t going to be too many… And by the way, he had an offer accepted on an HMO at this point, I should say, so a little bit of pressure on me. It’s going to be really hard.

for you to get a mortgage. Lenders don’t tend to like to lend to first-time buyers, first-time investors, particularly if it’s on an HMO property. So he took it in his stride, said, fine, Sam, and off I trotted again to go and see if I could find him a mortgage. And success. I managed to do it. Apparently I’m half decent at what I do. And I found him mortgage.

quite the opposite of the other situation where I was quite looking forward to seeing that guy and telling him that I found the money for him, I was a little bit concerned about going and speaking to this person because the rate that I had to share with him on this occasion was 5.5%, which to be honest nowadays is actually okay. That’s not too bad. But back then, it was extortionate. The base rate was at 0.1 and this lender was asking for 5.5%.

Now, this was actually a bridging lender that did a midterm five-year product to help people that couldn’t get a normal mortgage elsewhere. And I’d sort of calmed myself, got on the phone, presented this to him, waiting for him to tell me to piss off, quite frankly. And he didn’t. It was just silence. And I thought, he’s passed out. But no. His next question was, so how much are the monthly payments?

Speaker (11:49.803)

thinking, hang on a second, we’re still talking. I thought that was going to be it. No. What are the monthly payments? told him. Bear in mind, we’d had the conversation previously about maybe buy a buy-to-let first, maybe start with something a little bit smaller. And so I told him rough rates and things like that. So we had all of that information already. The next thing he said was, OK, cool. So roughly, my cash flow on this is going to be about this. I was like, yeah, cool, yeah. We’re still talking.

And he said, OK, so let me compare that to if I put the same deposit into a buy-to-let property and I managed to get a much better rate, but the rent was a lot lower, my cash flow is going to be about half what I would get on this HMO, even though I’m paying 5.5 % on an interest rate. And I was like, yeah, it is. And to be honest, that was a of a clicking point, like a moment for me, where I suddenly went, yeah, hang on a second. Yeah, this is how we should be looking at these deals.

and he said something that would stay with me forever, so this is a client teaching me stuff. He said, the interest rate on this is irrelevant.

I wish every single one of my clients had that mentality. It make my life a hell of a lot easier. But we went ahead with the deal. He bought the property, and he now has a very nice portfolio of HMO properties that are done to an insane spec that helps a lot of people that have since gone to the university that he went to. And he has been ultra successful on the back of that. So if you compare that to that.

There’s a clear, clear difference, isn’t there, between the two? And what I’m hoping is that when you leave today, that hopefully I’ve been able to, by sharing those stories with you, you can ask yourself the question, was I or have I ever been in camp number one, where I’ve got a little bit hung up by the interest rate? Maybe I haven’t done a deal because how much it’s gonna cost me to borrow the money has really put me off. And are you now potentially gonna convert?

Speaker (13:55.197)

into somebody with this mindset, the one where we’re focusing on what the really important numbers are, which is what’s the cash flow and how is it going to allow you to then project forward and actually succeed in achieving what you want your property business to look like when it’s done. So, hopefully, that’s been really, really useful. Thanks very much for sitting in the heat and listening to me. Enjoy the rest of your day, and again, thanks very much for listening for me.