Creative Property Investment Strategy

I want to share a powerful creative strategy that is very simple to apply and will help you generate money through property.

Picture: One of my residential properties I aqcuired using this strategy. This is actually 7 BTLs in one.

Can you imagine going into a shop and getting your shopping but asking if you can pay for it six months later?

People don’t think these types of things are possible, but I’m pleased to tell you they are, and I use them regularly.

I’m talking about deferred consideration; let’s examine how you can use this strategy.

Deferred consideration is a proportion of the purchase price paid at a later date.

So how may this be useful to you?

Firstly, let me give you an example of when I used deferred consideration and how this helped me structure a deal.

In my local town, there was a large derelict pub/hotel, which in its day was a very popular place for people to socialise. The building had been on the market with an agency at the other end of the country, and on a few occasions, I’d tried to arrange a viewing but found it tough to deal with this estate agency that was out of the area.

Nobody was available to conduct viewings, and I was constantly told somebody would get back to me, but I heard nothing. I was aware of other investors who’d had the same experience.

But while they walked away, my business partner Mike and I got creative. We searched the Land Registry to see who owned the property. It cost us a small fee of a few pounds to find out the owner of the property and their contact details.

When I got hold of Simon, the owner explained I was interested in the property and asked if we could have a viewing, as the agent had been no help. Simon told me he was looking for a new agent, but he’d be very happy to save this hassle if we agreed on a price. We arranged to meet the next day to take a look around the property.

To our surprise, the building already had full planning permission to be split into three two-bed apartments and seven one-bed apartments. The agency had not marketed this information; a building of this size (700 m2) with planning permission should have been valued a lot higher than what it was on the market for.

After looking around the property, I quickly knew that this could be a very profitable deal. At the time it would be the biggest project we had done to date. Simon was looking for a minimum of £170,000, as he needed the funds for a larger project.

I told him that we couldn’t stretch to this amount, and as he was very

keen to get rid of the property I knew there was an opportunity to negotiate. After some haggling, we reached a price of £150,000.

Once I knew he was at the lowest figure he’d drop to, I got creative

and told him I could pay £50,000 immediately and £100,000 in six months.

Initially, I thought he thought I was joking, but I explained that this would

give him the £150,000 he needed. Moreover, he’d get £50,000 instantly, which he could use to help fund his other project. I told him I would get a draft contract drawn up by my solicitor, and he agreed he’d consider the deal if I gave him a contract he could review with his solicitor.

I made a quick call and arranged an immediate meeting with my solicitor, where she drew up a contract stating that we would pay £50,000 on the signing of the contracts and the remaining £100,000 at the six-month point.

To cover ourselves, we agreed that the property was sold and put it into our names, and the vendor (seller) was to take the first charge on the property, this meant Mike and I were covered as we now own the building for only £50,000. The vendor was also protected as he had the first charge on the property.

This meant that if we were to sell the property at any point, the vendor would get the first £100,000 from the sale, just the same as the mortgage company would if we sold a house that we had a mortgage on.

With both us and the vendor protected, we could now use the £100,000 to increase the project's value. As the building was just a shell, the vendor was happy with this, as we were adding value to it and making it a lot easier for him to get his money back if there was a problem.

We also put a clause in the agreement stating that if we hadn’t paid the money back within the agreed six months, we would pay a penalty of £500 per month. This gave Simon peace of mind that we would repay his money on time. It also pushed us to complete the deal on time to avoid any additional fees.

We knew that by spending the additional £100,000 on the building this would add around £150,000-£200,000 to its value. The building was valued at just over £300,000, meaning the bridging company was happy to give us 70% of the property's value, which equated to £210,000.

We now had the money to pay Simon back and an additional £110,000 to complete the project. At this point, the first charge is removed because the £100,000 was paid to Simon, and the bridging company now take first charge, meaning we now owe the bridging company the money instead of the vendor (Simon).

With the additional funds we had enough money to complete the project and flip it onto a commercial buy-tolet mortgage, getting back all the funds to pay off the bridging company.

A creative structure like this one enabled us to do a project which had an end value of £630,000 by only using £50,000 of our own money. Using deferred consideration helped us structure this deal and it also gave Simon the £150,000 that he needed to complete his other project. Using deferred consideration was a win-win situation for both parties.

When buying properties, I often use creative strategies like this one and encourage my mentees to use similar ones. We actually have an award for the most creative deal of the year at our annual awards night.