Watch: The art of cash-flowing properties you don’t own

Simon Smith (00:04.652)

Yes, yes. How’s everybody doing? Good. Good event so far, right? Beautiful, beautiful scenery. So listen, I recently went to the Maldives. Who’s been? Beautiful. Pristine beaches, clear waters, absolute luxury, right? And one evening, I was sipping on my glass of brute watching the sunset.

And I struck up a really interesting conversation with a member of staff. The gentleman told me that the owner of the island was in fact a Malaysian billionaire who had injected $600 million into this beautiful island.

Simon Smith (00:53.728)

As I started to dig a little bit deeper, I started to reveal that in fact, the owner had leased not the island, but a lagoon. In other words, a piece of the Indian Ocean. He then developed four islands, one of which he kept for his own luxury hotel brand. Islands number two and three, he leased on to the Ritz Carlton.

Check it out if you get chance later. Unbelievable. So Island 2, Ritz-Carlton tourist, Island 3, Ritz-Carlton staff, and Island 4, he’s currently developing and looking for his tenant. I’ve inquired.

Simon Smith (01:42.733)

thought to myself, that sounds a lot like rent to rent.

That sounds like billion dollar rent to rent, right?

And then, you know, I went about my business thinking to myself, okay, he’s owning everything then.

And then I also thought, I wonder what the guaranteed rent would be on that. I’m Simon, rent to rent specialist, mentor. And over the past six years, I’ve specialized in controlling properties I don’t own to buy properties that I do. Because that’s what we all want, right?

And I constantly have this battle with myself. Do I control for cash flow or should I maybe be turning my attention to buying more? But it wasn’t always like this. Just six years ago, I had no property experience whatsoever. None, none whatsoever. And I was actually in the music industry.

Simon Smith (02:55.084)

And in the music industry, I two forms of income. Income stream number one was doing gigs. So I used to MC in the dubstep and drum and bass scene and exchange my time for money. I do a gig, I get paid. Then COVID happened. All gigs canceled. The second income stream was songwriting. So my idea was sound. If I write songs,

for other people. I would get the publishing royalties whilst I’m earning in my sleep. But sadly, I didn’t write a Christmas anthem. And it was tough because every quarter I would run to the front door, I’d look at my royalty check. This one year, I was lucky enough to actually be invited to LA to write with Britney Spears. So I was in Britney’s mansion writing songs. I thought, this has gotta be it.

Got two songs on the album. One of the songs was chosen for the sound check of Fragrance. I thought this is it. Went to the publishing check.

Nah, I can’t feed my family with this. So I decided, you know what, after 10 years in the music industry, I’m just gonna get a good proper stable job. And long story short, I did interview one, it went great. I was invited to interview two and lo and behold, I got into this interview, they gave me this backpack to put on my back. They had me on a bus traveling through Nottingham and then they had me stationed outside of a co-op.

selling life insurance in the freezing cold. Right there and then I knew I needed to make a change. Okay? I knew I needed to do something.

Simon Smith (04:45.111)

But the first property, well, actually, if I really go into the story, I went to one of those free property courses. I did run to the back of the room with a credit card that I only got to fund my wedding. And long story short, I decided I was gonna buy a property for £87,000, which was great, but it took nine months.

I was making 600 quid a month and then obviously I ran out of money, right? I was waiting for the refinance. You know how it goes. I’d had to lend quite a lot in order to do that. So I came across this little strategy called rent to rent. And essentially, that’s the island by the way.

Simon Smith (05:36.48)

I completely transformed my life through rent to rent. I’ve done over 70 rent to rent deals, SA and HMO. And then I’ve reinvested that into assets that I own, right? Because that’s what we wanna do. But I wanna ask you a little question because I battle with this. If you could only pick cashflow, as in monthly income or capital appreciation, what would it be?

All in favor of cash flow, just show me your hand. Don’t be shy. All in favor of capital appreciation, your hand up.

Yeah, it depends, right? And that, to be fair, I’ve been having a lot of conversations out there and it feels like cashflow first, capital appreciation next. But here’s the thing with capital appreciation, and I battle with this. Okay? The first thing is net wealth, Capital appreciation feels good in terms of looking on the balance sheet. Okay, but us as property investors, a lot of the time we’re not looking to sell, right?

Who here is going to sell property?

We’re never gonna sell it. So it looks good on the balance sheet. And don’t get me wrong, we can leverage off that money, but the capital appreciation is rarely realized. So I’m thinking to myself, am I ever gonna see that money? I’m never gonna sell. Then there’s this third little thing called refinance, right? So every now and then, the value of the property increases, we have excess equity, so we can refinance that.

Simon Smith (07:18.932)

and put it into the next deal.

But it’s a slow game. It’s a slow game in terms of cash flow. And even if you get the best BRRRR, it takes a while and there’s no guarantees.

Now, I think a common misconception with rent-to-rent is there’s no appreciation.

Okay? But I thought back to my tycoon, my Malaysian billionaire, and I thought to myself, I wonder if he minds. Because in 20 years’ time, if he decides, actually, I’m out, do you think he has appreciated the business? Do think he can prove we’ve just done however many billion dollars of income and he could sell that at a premium? Well, rent-to-rent’s the same.

Imagine I’ve got a rent-to-rent portfolio that does 20 grand a month. Let’s just call it 200 grand a year. And there’s three years left on the contracts. Let’s call it 600 grand. Would you pay me 100 grand for it?

Simon Smith (08:34.155)

Would you pay me 200 grand for a 600 grand return?

Would you pay me 300 grand to double your money? Just saying. And that’s exactly what I’ve done a bit of. I’ve realized that these contracts have value and they are a saleable and scalable business. Investment. this gets me every time. I’ve got a rent to rent deal. I’m four years in. The landlord wants to sell. Okay, but I’ve got another…

a year or two on the agreement. I think it’s two years left on it. Now, it’s already operating as a HMO. I have no more investment. It makes about 800 pound a month. Okay? Or I can buy it. I’m gonna need 100 grand and I’m probably gonna make about the same with interest rates at the moment.

So if I do nothing, I’m making 900 pound a month.

And then I’ve got to put 90 grand in then to make the same 900 pound, but I own it. It’s tough to justify, man. So in terms of capital, let’s take two properties.

Simon Smith (09:55.55)

Both make a thousand pound a month, right?

Simon Smith (10:00.586)

This is the actual real life case study that I was talking to an investor about last week. 600,000 pound purchase price. Remember, there’s two houses. Let’s just pretend they’re next door to one another. 600,000 pound. You would need a whopping 197,000 pounds to buy the property.

Okay, so 25 % stamp duty, excuse me, 25 % deposit. Stamp duty is actually 35 and a half. Legal’s £2,000, setup costs £10,000.

As a rent to rent, there’s no deposit. You ain’t buying it. There’s no stamp duty. It’s just 10,000 pounds. So I start to think to myself, do I want one property I own or 20 properties? It’s a thousand pound cashflow versus 20,000 pounds.

And I struggle with that. I really do. Because I don’t know if I’m ever selling. And I don’t know if I’m ever really going to realise that capital appreciation. Now, I know what you’re thinking. We use OPM. It’s not our money.

Simon Smith (11:25.609)

But we’re still investors, right? We still want the maximum return for our money. And most of us want to live today, not in 25 years.

Let’s talk a little bit about risk.

Simon Smith (11:45.299)

By the way, can I say something really controversial?

Can I say something really controversial?

I’m all for JVN.

with my wife. I’m all for JVing, but you know what?

One thing I’ve realized through doing property management, through rent to rent, through business and through life is the less variables and the less people, the simpler life is. I hate the idea of having 50 JV partners right now. I’m just saying. So I’ve always wanted to reinvest in assets I own and ideally, ideally, at least until I’ve secured my freedom, I JV with my wife.

Simon Smith (12:36.521)

But let’s talk a little bit about debt.

Simon Smith (12:41.972)

There’s good debt and there’s bad debt, right? But there’s still debt. And when I decided to really supercharge my assets, I’ve took on debt. Don’t get me wrong, I got a lot of cashflow from the rent-to-rent business, which helped, but I’ve took on a lot of debt. And you know what? I don’t love it.

And I feel like sometimes as investors, I use the phrase over the hill. And over the hill is a date when you feel like you’re going to refinance that, you’re going to sell that one, this is going to happen, and you’re going to do that, and you’re just going to clear the debt for a minute, right? Who can relate to that?

But then the next deal comes. one more. Then the next deal comes. this one’s too good to say no to. And before you know it, you’ve got 1.3 million pound of investor finance, and that is risky. Okay?

I like to sleep good.

Banks might call in the loan. Investor might get a little bit tricky, decide he needs the loan back when you’re supposed to have it for three years, but someone’s died.

Simon Smith (14:02.674)

And I’ve heard about people lose deck a million pound portfolios for just doing the wrong thing. Too many intercompany loans, too much this, too much that. And then something happens in a property and someone gets hurt and then all the loans get called in. So we do have to understand debt.

Not to scare you guys. Exposure.

Exposure is a really interesting one for me because I’ve realized that I want to try and get my loan to value down. We don’t want to be sitting at like 75 % forever, right? Want to get it down to 50%, 25 % and ideally down. Which by the way is a bit of a snag when we talk about refinancing. And last but not least, exit.

Have you ever tried to give the bank back a property that you own?

Mid-term, not fun, not easy, not quick. The property is I control, I give two months notice at any time.

Simon Smith (15:15.689)

So I battle with this.

Simon Smith (15:20.029)

And last but not least, speed.

Simon Smith (15:27.433)

I have basically been buying two to three properties per year for the last three years. And as I say, sometimes it’s really great, it’s really smooth. We’re building long-term legacy wealth and that’s good. But I recently, or it should be recently, but two and a half years ago, I decided to put my big boots on and I decided to do a bigger development. Purchase price, 450,000. Build, 400,000.

GDV 1.2 million.

Simon Smith (16:02.482)

Three planning applications later. Restrictive covenants.

Neighbours who are crazy.

Constant planning battles and just a builder went bankrupt halfway through the build with 80 grand of our money. Ring any bells?

man.

Simon Smith (16:28.2)

I speak to investors and if you’re not careful, you can build your portfolio to 10, 20, 30 and be poorer than ever.

Simon Smith (16:41.576)

as all the money gets reinvested.

Simon Smith (16:46.952)

So when it comes to cashflow, rent to rent has been a real savior for me because it’s allowed me to do things fast. I can source a deal today and almost literally cashflow it tomorrow. Scale, man. Year one, I did 20 rent to rent deals. 20 grand a month. Call it 15.

It’s very hard to do that with developments, right? Very, very, very tough. Not impossible. I heard a gentleman earlier talk about doing 30 in two years, but that’s not gonna be everyone, right? And last but not least, lifestyle. Who has the lifestyle they want today? Stick your hand up if you have the lifestyle you want.

The ideal lifestyle that you want.

Simon Smith (17:42.362)

If you have a cashflow goal that you’ve not yet achieved, okay, stick your hand up.

Simon Smith (17:52.178)

That pretty much should be everyone.

Simon Smith (17:56.882)

So here’s the thing.

I wrestle with this every single day and then I landed on a revelation.

It’s called Rent2Rent 2.0. And it’s about controlling property, cash flowing it, systemizing it, and then using that vehicle rather than JVs, rather than OPM to fuel my property portfolio. And we’re currently, I mean, I’m still very like, I still consider myself new. You know, I’m still humbly.

Here I know some people have been doing this for decades.

Simon Smith (18:45.755)

But I’m about to purchase properties nine and 10 from rent to rent cash flow.

and very small amount of other people’s money. And I can live without the stress, without the drama, and the cash flow is there. So the second thing I’ve realized is the best way to grow wealth is to have a big cash flowing business, right? Whether you’re a high paid person, a professional, whether you’ve got a cash injection.

that can really help you fuel your scale, but also protect the downsides. And that is what I’ve landed on. The best of both worlds, right?

Rent to rent for cashflow and then reinvest that into assets for the long term that my daughter can enjoy or blow, whatever, it’s okay. But I know one thing for sure, I need to enjoy my life today. And if you could just take one thing from my talk, it would be this. Keep pushing. Keep pushing, have these big goals.

But whatever you do, position yourself so you can enjoy it today. Come on, man. Think about where you was when you started and what your goal was and those goals. Like, we’ve got to improve our life today. You owe it to yourself. You owe it to your family, okay? And us as property investors, if we’re not going to enjoy it, why the hell are we doing it?

Simon Smith (20:27.93)

Thanks very much.

Simon Smith (20:36.263)

So some of my thoughts were controversial. So apparently I’ve got a few minutes if anybody has any questions.

Simon Smith (20:46.815)

No, just said apparently I’ve got a few minutes left, so if you have any questions, I know some of my thoughts were slightly disruptive.

Simon Smith (20:56.368)

Okay, let’s go feedback.

Simon Smith (21:04.474)

Thank you very much.

Simon Smith (21:09.626)

Yeah. Yeah.

Simon Smith (21:18.151)

Yeah, so did everybody hear that? Okay, it was how can you focus on high quality property because you can only invest a certain amount in it. To be honest with you, what I’ve tried to do is create a professional image and go for high quality properties. I believe there’s three investors or three landlords that are great for rent to rent. And my favorite is the sophisticated landlord.

This is the landlord that is not tired, is not hard up, is not particularly motivated. They buy property cash and they’ve got big businesses and they just want five, seven, 8 % every month. And they buy a lot of new builds. I go there on the day. I collect the keys at completion and it’s really helped to supercharge our cash flow.

Simon Smith (22:16.39)

Yes, largely. I stick to Derby, stroke Nottingham. And I feel like you can go beyond. I’ve got a couple of people I work with that have gone national, but I really like just niching down and being the master in an area. Plus, I’m really lucky because Derby has the biggest per capita earning outside of London and we have the Rolls Royce headquarters. Shout out to Sean at the back. Yes, my bro.

Any other questions? Yes. Lady at the back, please.

Simon Smith (23:09.765)

So just for clarity, the rents the landlord wants are making it unviable in your area.

Simon Smith (23:19.407)

Sure.

Simon Smith (23:28.805)

Sure. I mean, to be fair, I’m finding that with purchases with the interest rates. I do believe it’s kind of like an equal playing field at the moment. There was a time when the guaranteed rent I was paying was 800 quid, but the mortgage would have been 350. That changes things a little bit. But yeah, I think it’s all about finding those right landlords where you have that connection.

So a recent landlord we had was extremely motivated, had a great property, but extremely motivated because they needed to move out to Australia very urgently. And they wanted somebody that was going to babysit their property. So it wasn’t necessarily driven by the financial.

Simon Smith (24:18.477)

Any other questions? Hey mate.

Simon Smith (24:35.853)

Yeah, so the minimum return for a property you don’t own.

Yeah, it’s a good question. I usually operate based on breaking even. So for service accommodation, for example, which has been extremely lucrative for me, I want to break even around 50%. So if there’s 30 nights in a month, if I’ve got 15 for I’m about breaking even, which gives me a decent amount there. HMO wise, it’s usually in between one or two rooms empty.

Right ladies? Exactly. Any final questions? Okay, at the front.

Simon Smith (25:22.51)

Good question. Believe it or not, not really. mean, one of my most annoying rent to rents was, it’s a funny story actually. So I got this property, it was through an agent. And at the time I met the landlord and the agent there and they said, you know, the last tenants, had five kids. They said they only had two. They had dogs in here, this, that and the other. I was like, okay, cool. No, no worries, we’ll sort it out. So we did a refurb on this property.

cleaning of the carpets. And anyway, week one, the tenants reported there was fleas in the property. So I went back to the landlord and said, yeah, you know that dog, I think it’s given the house fleas. She said, no, that won’t be yours. That’d be your tenants. So there’s been a few niggles like that, but common mistake with rent to rent is there is three things that you need to look for. One of them is the property. The second is the landlord.

Are they the right type of landlord? And the third thing is, do you like them? And whenever I follow that three step process, I always get a good deal. Whenever I compromise on right type of landlord, cool property, don’t really like them, that’s when things can go wrong.

Sir? Yeah.

Simon Smith (26:48.804)

Mmm.

Simon Smith (26:55.044)

The most I’ve ever put into a rent-to-rent was 12 grand. House is worth 500 grand. As I was saying, I wrestle with myself. I’m like, hang on a minute, I could buy this house and it’s gonna cost me 130 grand, or I could just control it for 12 grand.

Simon Smith (27:19.416)

Cheapest one I ever did was a microwave.

So he already fully licensed it, fully everything. He didn’t have a microwave and I think a fridge, 250 quid.

Simon Smith (27:41.635)

wherever possible I offer asking or above. But it’s my, a lot of the time if a property doesn’t work for a HMO, it works as an SA.

But what I love to do at the end of reviewing is I say, hey, I want to move forward. What rent are you after? I say, do need that? If I offered it to you for five years, would you need that? And then pretty much whatever that figure is, I try and do it because that’s a win-win, right? OK, I think I’m done. Thank you so much. I’ll see you out there at the bar. Cheers.