A few years ago, near the start of my property journey I came across an opportunity to buy a plot of land and to speculatively build a house. We bought the plot for a good price and then through a builder I had close ties with we built a 3 bedroom timber kit home.
The plot was cheap, the builder was well known to us and there was outline planning permission already in place. Easy right, what could possibly go wrong? This deal ended up being really valuable to us, but not quite in the way we intended:
1: Verbal agreements suck!
First of all, the plot was not quite level so we asked the owner / farmer to dig out the south side of the plot. We had discussed this prior to purchase, but unfortunately now the deal was done he did not think it was anything to do with him anymore. So, the site excavation cost an additional £9K which was an expensive rookie error.
You can agree lots of things before a deal is signed as everyone usually wants the deal to happen, however despite the level of trust you may have built up you must always get all agreements into the contract.
A huge amount of the experiences & lessons you have learned from residential property deals are applicable to commercial investment…
2: Diamonds in your own backyard.
One small piece of information I should share about this build is that it happened to take 3 hours’ drive plus an overnight 14 hour ferry journey to get there. Now, before you conclude I must have been completely insane, at that time I did have a few business customers in the area so it was not unfamiliar to me and I had been visiting on a monthly basis. However, as you can imagine progress was extremely slow. Contractors would be busy when I was there for four days a month, but they would drift off to other projects as soon as I left. This taught me a valuable less, as Dr. Robert Conwell said “There are acres of diamonds all over your own backyard”. You don’t have to travel hundreds of miles to find the perfect deal. Sometimes if you look closer to home you will find deals that others have walked right by, particularly in Commercial Property investment. This lesson was great, even now all of our deals are within an hour of our main office. I don’t have to get on a boat to see any of our commercial investments these days.
3: Don’t ever pay up front:
There was an employee of the builder who was working on the build and he had agreed to install the carpet for a fixed fee. He had already completed half of it while I was around for a couple of days, but I was then scheduled to go back home for another couple of weeks and he asked if we could pay him for the rest as he was nearly done and would finish it over the weekend. He had been on most of the build and had a full time job with the builder so the risk seemed low. Stupid I know, but after I paid him he never came back, not even to his job. It is embarrassing to even write it down in this blog, but when you are excited and starting out you just want to get things done and trust that everyone else is the same. So don’t ever pay upfront no matter how compelling the argument.
4: Friendship or Professionalism?
Seasoned investors would be very familiar with the differences between working with “friends” and working professionally. I knew the builders well, we had shared some good wins together and shared a few beers. We agreed the build price and objectives up front, but when the inevitable challenges came up on site who was going to pay for them? Friendships can be a great place to start from, but as soon as things get tough those relationships can be tested. If you don’t have a professional approach to cost control, things can quickly spiral out of control and friendships will be stretched to breaking point. Even with close friends it is vital to have an agreement in place and a mechanism to control costs.
Friendship and a professional approach are not mutually exclusive. You can still be friends and be professional at the same time.
5: Sell or let & sell?
The strategy from the start had been to build a house and sell it for a good profit. Unfortunately when it was finished the housing market had gone flat. So we had to change tac and find a tenant to let it out. This also meant that the finance had to change to long term money. Fortunately we did find a tenant that stayed in the property for just over a year and then the next tenant really liked the house and agreed to buy it.
Sometimes your strategy just has to change with the circumstances
So, in the end we did sell the property and just managed to breakeven. However, we gained a lot of lifelong value from the lessons we learned. As it is in life, all the experiences you gain in property build up layers of knowledge from which we can evaluate future situations with increasing clarity either consciously or sub consciously. A huge amount of the experiences and lessons you have learned in residential property deals are applicable to commercial investment so don’t underestimate how much you already know.
For me the biggest lesson from this part of our investment journey was to just get on with it, start small and mitigate the risks as much as you can of course. Without building up real life experiences you can’t really get the many layers needed to really become great at your chosen strategy.
