Part 2 - Doing : How do to build your own investment property?
The Job Delusion Book tells the story of how regular guy Kevin H. Boyd, discovered the secrets of the millionaire mindset to escape his day job and become Financially Free.
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Kevin H. Boyd:
Midlife Entrepreneurs Podcast Number 10.
Kevin H. Boyd: (00:04)
Hello fellow entrepreneurs and mindset hackers. Uh, this is Kevin Boyd, business coach, entrepreneur, and all around psychology nerd. In this season of the podcast, I want to share with you my 2012 book, the job delusion, where I talked about my own journey of discovering how the wealthy think and then using that knowledge to free myself from the delusion of having a day job and finally becoming financially free. Today’s show is brought to you by audible. Audible is offering you, dear listener, a free audiobook with a 30-day trial membership. Just go to audible trial.com forward slash midlife and browse through their vast selection of audio programs. Download a free title and start listening. It’s that easy. So go to audible trial.com forward slash midlife to get started listening today.
The job delusion, how to start thinking your way to financial freedom, written and narrated by business coach Kevin H. Boyd.
Kevin H. Boyd: (01:30)
Chapter seven, build your own apartments. If you build it, he will come! From the movie field of dreams who is now the middle of 2007 and the property market was at his peak in London. Property was going so quickly when hardly had a chance to see a property before it was sold, usually for more than the asking price, what to do. He also was a bold and simple one. I would have to build my own apartments. It was the only affordable way to do it, but to buy a house in north London and convert it into say three apartments would take around 500,000 pounds and that was five times more than I personally had. My mentor Jaycee had discovered a small loophole in the planning regulations that promise to return a good profit. If we could find a large enough house classed as a single dwelling that had never been modified so that it still had the use of it’s permitted development rights, the joys of permitted development or just plain PD. It works like this. You take a single dwelling with its PD rights intact. Then you first increased the size of the property by the allow 10% of its volume without requiring any planning permission and then you apply to convert it into flats. That way you get far more volume out of the structure. Then if you just applied straight away for planning permission to create flats and more rooms means better rents and valuations by the mortgage companies. Good plan.
Kevin H. Boyd: (03:07)
Here’s one I made earlier. JC had just completed such as development, so even though Islington Council did not like it, there was nothing they could do about it. So we had a template of how to build it. And then in late summer 2007 of property came up in Tufnell Park, north London for the princely sum of 850,000 pounds. It was even owned by lady Tufnell. The place was actually being used as a bedsit, but it never been legally split into multiple rooms, so it still had its single dwelling status. So it looked perfect. Even though it was the most expensive doss house I had ever bought.
Kevin H. Boyd: (03:48)
Finding a business partner, we would need around 350,000 pounds to do the development and need to put down a 25% deposit of 212,000 pounds and stamp duty, a 4% totalling 34,000 pounds. So in total I needed 596,000 pounds at most, I had 150,000 pounds to invest.
Kevin H. Boyd: (04:13)
So where would I raise the rest? I looked into development finance, but the fees and interest rates of 20% made the deal profitable and after all profit was one. I was doing it in the first place and not for the joy of talking to the planning department for the next year. Then JC stepped in and firstly put me in touch with a friend. Yes, who had been thinking about investing in property for a while, but I hadn’t taken the plunge. We both felt we could work together and so our partnership was formed over a cup of herbal tea at his kitchen table. I had learned from my mistakes in the past when working with friends that although it is great to trust people, it is always best to get your agreement in writing as it is amazing how quickly people forget what they agreed to. So we had a solicitor draw up a joint venture agreement which laid out who was responsible for what finding investors.
Kevin H. Boyd: (05:10)
They say it is who you know in this world that counts. And I was about to learn how true that saying was. Even though, ES and I, where combining our money we still needed to find is development costs estimated at 350,000 pounds. A property guru, JC stepped in again and introduce this to a friend of his. He wanted to invest in property but did not have the time to do it. We agree to loan a 100,000 pounds at 12% interest payable at the end of the year. The legal framework for the loan was based on a 10 pound promissory note I downloaded from law depot co UK, so you don’t have to spend hundreds of pounds on bespoke legal documents. As a result, I saved a lot of expensive fees and higher interest rates that regular development finance would have charged me. I then found two other investors, each with a hundred thousand pounds to invest using the same approach, this decision to use ordinary people instead of banks, would prove crucial to weathering the storm of the banking crisis that lay ahead of us. People are always easier to negotiate with than faceless banks.
Kevin H. Boyd: (06:21)
Today’s show is brought to you by Audible. Audible is offering you, dear listener, is offering a free audiobook with a 30 day free membership? Just go to audible trial.com forward slash upward spiral coaching and browse the vast selection of audio programs they have. Download a title for free and start listening. It’s that easy, so go to audible trail.com forward slash upward spiral coaching to get started today. Back when I was a youngster in the 20th century, I worked in the early tech industry, which required me to read huge, thousand page, computer manuals and I found it relatively easy to make sense of them. But today in the 21st century, I just don’t have time to sit down and read and I’ll be honest, I feel my brain just doesn’t enjoy reading pages and pages of texts anymore, but that has been transformed by using Audible because now I can listen to the longest and most complex books as I go from my evening walk around the park or even when I’m cooking. As an example of that, and currently listening to Jordan B. Peterson’s 30 hour epic Maps of meaning. There is no way I would read such a long and complicated book, but with audible I can dip in and out whenever I have a spare few minutes of downtime. I’m learning so much every day just by using audio books. So to download your free audio book today, go to audible, trial.com forward midlife, again, that’s audible, trial.com forward slash midlife. And you can get your free audio book today.
Kevin H. Boyd: (08:00)
Before we dive into this next section, I just want to say the next six and a half minutes is a very detailed description of all the technical problems we had developing our property. Now if you’re really into property development, this is gold dust, this stuff, but if you really not, all you need to know is that our builder messed up many, many times. We lost our planning permission. We had to fight with the local council and we got our planning permission back after about a year in court. So now you know that you can skip forward six and a half minutes. So the final section.
Kevin H. Boyd: (08:38)
Let the work commence. And so in November, 2007 we exchanged contracts on the building but managed to negotiate a three month grace period before completion of the sale to give us time to organize the architect and builder to do the work. This saved as a further 9,000 pounds an interest on the mortgage. We also rented out one of the usable rooms to have friends during that time where he’s provided some extra income and protected the building from potential squatters. So then on the 12th of February, 2008 we completed the purchase and the conversion work began on the 31st of March, 2008 with a projected completion date of 24 weeks completing on the 15th of September, 2008 architects and builders don’t seem to talk to each other. Our builder SC and been working for the architecture company. We approached to do the work as their quote was rather high SC, who was the foreman there offered to run the job for us as he had wanted to set up on his own.
Kevin H. Boyd: (09:42)
We thought this is a great opportunity to save money, but with hindsight, he did not have the skills to run such a complex job. We also made an incorrect assumption that the architect and builder we’d liaise and that the architect would check that the building where it was being carried out in accordance to his drawings. This service is usually charged out at 10% of the building cost, so around 30,000 pounds. But as we were only paying the architect 10,000 pounds for his design, it seemed too high price to pay. We would later regret not doing this. What’s an a cubic meter? Six months into the building work, the council inspectors came along and miss-measured our Dorma and ground floor extension and told us they exceeded the 10% volume increase allowed under permitted development or PD. Our architect argue that they were wrong and all would be fine as he had been through this issue before and it had many case law examples he could use to back up his argument.
Kevin H. Boyd: (10:47)
The main dispute was about whether the parapets of the two roof terraces we had just built should be included in the volume calculation. This minor issue would drag on for many months and we could not stop the development work to await their decision. So with my architects reassurances we proceeded to the next stage and started to convert into three flats and completed the building work in December of 2008 we did also have the drama of dealing with our builder cracking under the strain of the development and going bankrupt, leaving us to complete the final flat ourselves. Fortunately, we had held back 10,000 pounds in the contract for three months after the development had completed for any snagging work required, which helped pay for the completion by another contractor. Hell hath no fury like a council planning committee. Unfortunately the council continued to insist that our building exceeded the 10% permitted development by one cubic meter and because we had continued with our conversion into flats, we therefore had lost our permitted development rights and the whole building now had to be considered under a new planning application, judged on standard flat conversion ratios without any of the extra volume available to us under permitted development.
Kevin H. Boyd: (12:08)
The case ended up in front of the monthly isn’t in council planning committee where it was instantly rejected even though it complied with their own urban development policy of 2004 they really did not like what we had done and mixture of nimby attitudes by the councillors and annoyance that I was using the loopholes in their own rules. We needed a hired gun, so we hired ourselves, our planning consultant who advise us to gather evidence and other developments in the local area and to negotiate with our neighbours over the roof terrace extension. We did this and thought they had agreed with us to erect screenings along the terrorists to prevent them being overlooked, but when we turned up at the next committee hearing, there are only three counselors present. The minimum allowed. One neighbour turned up and completely slated us for even building the extension and then just one of the councillors managed to reject our amendments because she did not like the look of the windows in the Dormer.
Kevin H. Boyd: (13:10)
Here comes the cavalry. The planning inspectorate. The Labor government of 1997 to 2010 had been criticized for their many quangos but the one they set up to deal with irrational council planning committees was our savior in the whole dispute. We spent an afternoon walking around the local area with a with a long lens and snapped many photos of roof extensions and dormers similar to our own even being challenged by the local neighborhood watch representative who asked if you were burglars casing out. Our next break in. We presented this evidence to the planning in spectrum along with detailed plans from the council’s own planning website showing other similar developments in the area as sacrificial lamb. After three months the planning permission was finally approved. Though we did have to erect screens on each of the terraces to stop the neighbors being overlooked, which we had offered to do beforehand and the first floor roof terrace had to lose his entire left side reducing an L-shaped terrace, to just a small rectangle.
Kevin H. Boyd: (14:16)
It just seemed crazy to me for the council to force people to have reduced outside space, but something had to be given up to satisfy the neighbors. The planning costs this whole process to 10 months and costs around 10,000 pounds to resolve and the loss of three re mortgage products with just 0.59% above base rate for three years. In the end, we had to take a mortgage in February, 2010 at 4.2% above the Bank of England base rate of half a percent which came to a loss of 35,000 pounds a year for three years. Ouch. We had been truly hit by the credit crunch lessons learned.
Kevin H. Boyd: (15:02)
So here are the key points we learned during the development that will hopefully help others in their adventures into property development. Number one, the devil is in the detail, so check everything and assume nothing. Number two and people say no, it can’t be done.
Kevin H. Boyd: (15:20)
Don’t believe them and find a way that it can. Number three, when dealing with your local councils, planning department, check and chase every detail. They are just not motivated to help you. You need to become an expert at their job. Number four, you are responsible for every detail, not the builder, architect or the council. Number five choose your team with discernment. Business partnerships can just as easily turn into enemies as they can. Friends. Number six, build a team. Everyone can be part of your successful team, the mortgage broker, investor, and even the key cutter if you involve them in the project than support can arrive in the most unusual but often perfect ways. Number seven, you get out what you put in. If you’re after good yields on your investment, invest a little bit more on the fixtures and fittings. Not only will they last a little longer, your tenants will recognize quality and treat the property with more respect. Number Eight, take your time creating a comprehensive contract between the builder and yourself with a clear payments schedule based on the progress stages of the project. Number nine, ensure the builder is insured. We had a wall fall down when the site manager was absent. Number 10 find a mentor. The road can be plagued with potholes. And so having a guide helps you sleep at night. Number 11 don’t ever give up, even if the planning department says that your entire development is illegal.
Kevin H. Boyd: (17:05)
If you need help changing the way you think and behave around your own wealth mindset thing, get in touch with upward spiral.uk.com and book a free consultation with me to see how we can work together to free you from your own job delusion once again, that’s upward spiral.uk.com and I look forward to hearing from you.
Kevin H. Boyd: (17:33)
Thank you for listening. This has been Kevin Boyd of Midlife Entrepreneurs. Please subscribe to my podcast and follow me on Youtube and get in touch if you want to discuss how I can help you transform your life.