Russell Leeds (00:07): Welcome to the Property Investors Podcast. Thanks so much for tuning in. Make sure you subscribe so you never miss an upload. You can catch us on Apple Podcasts, Spotify, and YouTube. Enjoy this week's show and don't forget to share it with all your friends.

(00:21): Hello and welcome to the Property Investors Podcast. My name's Russell Leeds.

Ricci Mandal (00:25): I'm Ricky Mandal. And

Russell Leeds (00:26): On this week's show, we are talking about how we analyse a property deal. Now, I've got to be honest, this is probably one of the most important skills as a property investor.

Ricci Mandal (00:37): Before we begin, go on. I just want to say happy New Year.

Russell Leeds (00:43): Happy New Year, bro.

Ricci Mandal (00:45): I mean, you're going full force, full swing into how to analyse a property deal, but actually first let's just address the Happy New Year.

Russell Leeds (00:54): But the thing is, people might be listening to this in a month's time, in two months time, three months time. And what they actually want from this show is they want to know how to analyse a property deal. What they don't want to know is that you went to New York for New Year.

Ricci Mandal (01:07): I did go to New York and I ate a lot of food, and it was brilliant and a happy new year to you.

Russell Leeds (01:13): Did you put weight on over Christmas?

Ricci Mandal (01:15): A lot of weight. A hell of a lot of weight. However, now I'm going to be working on my body and my fitness, going on a fitness process. I'm following in Samuel's footsteps. He's inspired me. So it's kind of like, because I knew I was going to go in this fitness process this year. It's kind of been the last month. I've been like, I'm going on the process. So you may as well go all out for the last month.

Russell Leeds (01:37): Yeah. I've gone a little bit away from the 10th of December to today. So 10th of December, everything was going well. And then obviously you got all the Christmas parties,

Ricci Mandal (01:46): But did you go all out or were you just like, right, I'm just going to enjoy myself, or, because my mindset was, I'm going to enjoy myself and go over the top.

Russell Leeds (01:53): Do you know how much heavier you are now compared to what you were

Ricci Mandal (01:57): A month ago? A month ago, I've probably put on maybe three kilos.

Russell Leeds (02:01): Okay. I'm half a pound heavier.

Ricci Mandal (02:04): What's that in kilos?

Russell Leeds (02:05): Not 0.2.

Ricci Mandal (02:07): Oh, it's nothing. It's like mine's noticeable. If you watch this podcast and you watch one from three months ago, you'd be like, wow. He'd put on weight. Yes.

Russell Leeds (02:17): Might be a bit less than not. Point two might be not 0.1. I don't actually know the conversion rate exactly. Someone will say more coin below and say, but I did put on a little bit more, but I've lost it already. I did a 48 hour water fast.

Ricci Mandal (02:30): Oh, I can do that. I'm hungry now

Russell Leeds (02:32): On the first. Really? Yeah. Alright. Anyway. So

Ricci Mandal (02:35): Anyway, how to analyse a property deal,

Russell Leeds (02:37): How to analyse property. Now, I genuinely think this is one of the most important skills as a property investor that you can have is to be able to find and therefore analyse good property deals. So the very first thing I think you need to do when you are assessing a deal, analysing a deal, very, very first thing you need to do is to have an outcome in mind as to what you want the property to become. Right? So for example, it might be that you find a property and you want it to become a service accommodation property. How are you going to rent? Is that, how are you going to make money from this deal? Do you want to do it as a HMO? Do you want to do it as a buy-to-let, is it a development opportunity? Is it that you want to take a large property and turn it into flats? So I think the very first thing you need to do is you to have an outcome in mind as to what you want to do with that property.

Ricci Mandal (03:32): I also think the outcome comes after the viewing. So I think you can have an idea of what the outcome is going to be before you go to the viewing. But until you've actually been to the viewing spoke to the landlord or the agency, I don't think the outcome can be set in stone because the landlord might not want the, I'll give you an example. You might go there thinking, all right, I'm going to buy this house, I'm going to rent it out as a single let. And then you go to the property and you realise actually you are going there thinking I'm going to buy it, rent it as a single let. But when you get there, you're speaking to the landlord and they don't need the money. Now they might be a negative equity or, oh,

Russell Leeds (04:10): Well, this is the next point. Oh,

Ricci Mandal (04:12): You carry

Russell Leeds (04:12): On. You're jumping ahead.

Ricci Mandal (04:14): You carry on.

Russell Leeds (04:14): You are going to be now talking about how you're going to take control of the property, right? Yeah. Yeah, a hundred percent. That's the next point. But right now, the first thing you need to decide is what is the best way of making money from this property? So how am I going to rent it out? How am I going to be getting cashflow from this property? And that's the cool thing about having lots of different strategies that you can do. If you go and let's say for example, you're an HMO landlord and you're only HMO landlord, you might go to a brilliant property and view it and go, doesn't work, doesn't work as a HMO, and you walk away from what could have been an amazing BRR to buy to let, for example, or could have been an amazing service accommodation or it could have been an amazing, there's a plot of land to the side that you could have built up

Ricci Mandal (05:05): House, you

Russell Leeds (05:07): Missed the opportunity. You were only in the HMO mindset. So the first thing you need to do is go assess it and then weigh it up. And how would you work out, for example, what would you say the main things they need to be looking for in terms of a rental strategy, I suppose, or in terms of making money from the property? Yeah.

Ricci Mandal (05:26): Well, I mean, I guess the very first thing is actually how much money will it generate? So if you are going to rent a property out a single HMO, whatever it may be, how much rent are you actually going to collect? That's the first thing that I'd be looking at. What am I actually going to collect from this property? How much rent will they be paying? Once you know that amount, the next thing

Russell Leeds (05:49): You and how can you work that out? Let's look at the top three ways that we do it. Let's buy to that HMO service

Ricci Mandal (05:57): Accommodation. So buy to lets, there's a few ways. First thing I'd do is I'd look at what's actually on the market right now. So how much rent are landlords asking for right now? What's on the market? What's available for rent? How much are they charging? Then once I've seen that piece of evidence, I'll then back up that evidence with facts. And the facts would be what's already been rented. And you can find this information out. There's a website called open rent. If you go onto open rent, you can see all the properties that have been rented in an area, not for rent, not property. That being advertised. They do show that as well. But you could also see actually what's being rented. What are people actually paying right now? And more times than not, and

Russell Leeds (06:41): Just explain to people what's the difference between, let's say you went onto right move and you saw, ah, there's a very similar property there that's on for rent at 2000 pound a month, for example. Why would that not be a perfect comparable? The exact same. It could be in the same street. It could be next door, it's on the rent.

Ricci Mandal (07:00): Well, because that's like me saying here, this coffee, if you want this coffee, I'm going to put it out on the market and I'm going to charge a hundred pounds for this coffee, but no one might actually rent or buy the coffee for a hundred pounds. That's just what I want. I'm just saying I want this much money, but no one's actually said I want it. But when people say I want something, that's the price that they're willing to pay. So when you look at comparables, great one's that being advertised for rent, it's good to know that's some evidence for you there to have a look at. But you need to back it up with are people actually paying that price? If this cup of coffee, I'll market it for a hundred pounds and then I'll look and there's people that have actually paid a hundred pounds, then the chances are I'll probably get a hundred pounds. But if I market it for a hundred pounds and then I look at if there's a website week, see how much people pay for a coffee, but people are only paying five pounds, then the chances are I'm probably don't going to be able to get a hundred pounds for it. I'll probably get the five pounds

Russell Leeds (07:55): Out interest. How much did you actually pay for it?

Ricci Mandal (07:58): I don't. I dunno. The thing is maybe four pound 80, something like that. So I fought five pound, I put a 20 P margin on it. Yeah,

Russell Leeds (08:07): You already trying to profit.

Ricci Mandal (08:10): So rented ones are fax, aren't

Russell Leeds (08:12): They all people are actually paying. Yeah. And you can see it on open rent. You

Ricci Mandal (08:15): Can see it on open rent. And that will back up what's on the market.

Russell Leeds (08:21): Or you can speak to agents.

Ricci Mandal (08:22): Well now you, now you're going ahead now. That was my third point. Now you just sold a thunder. Now the third way is you could speak to agencies. That's a

Russell Leeds (08:30): Good idea though. True.

Ricci Mandal (08:31): Now, here's a little tip. When you're speaking to agencies, and this is just so cool, this is genius. This is if you go to an agency, you go to a letter agency and you ring them up and you say, Hey, I'm a landlord. I want to put my property on the market to rent. How much do you think I'll get? What do you think they'll say, well, what they're going to say is, yep, you'll be able to get X amount for it. We'll take it. We'll be able to rent it. And they'll tell you, the higher you'll get, maybe inflate it a little bit because they want you to give your property to them to put on the market. So what I like to do is I like to ring agencies, and this isn't a lie. I might want to rent somewhere someday, but I say to agencies, I say, Hey, I'm looking at moving into the area.

(09:11): I'm looking to it rent somewhere. I'm on quite a bit of a budget. What do you think I'd be able to rent? If I'm looking at a three bedroom house to buy, I'll say, I'm looking at a three bedroom house. There's a small amount of us. How much am I looking at rent for a three bedroom house based off of a smallish budget? And then what they'll do is they'll give you an answer that's more realistic. Now they're trying to help you out, rent somewhere within a budget, three bedroom. They'll give you a more realistic amount than probably what they would give you if you were a landlord looking to give you a property for them to rent.

Russell Leeds (09:44): So you come in from the eyes of the tenant. Yes. So they're not going to inflate. It's like it's trying to

Ricci Mandal (09:48): Business. Yeah.

Russell Leeds (09:49): Yeah. That's smart. And then service accommodation, HMO, it's basically the same thing. It's just looking at different places, right?

Ricci Mandal (09:56): Yeah, you're looking in different places. And I guess the only other difference would be when you're looking at HMOs and buy to that, it's a monthly rent with service accommodation. It's a nightly rate.

Russell Leeds (10:05): So with service accommodation, you need to be factoring in your occupancy rate. So let's do HMOs. There's there HMOs. Where would you go? Places like spare

Ricci Mandal (10:13): Room. Yep. Look at spare room. And it's the same principle again, looking at spare room, looking at what's renting and what's rented, but also ringing. Hm O managers. So what you don't want to do is you don't want to ring a letting agency to find out the rents that are being paid. Some letting agencies do manage HMOs, but where you want to go is actually to a specialist in HMOs, which will be a HMO manager. You've got letting agencies, letting agencies usually will deal with single let properties that have families or single occupancy and net. They don't really do HMOs. Some of them do. Most of them don't. Even if they do, where you want to go is a HMO manager because the H hm O manager specialises in filling HMO rooms. So they'll have a better idea of what you're looking to get. If you were to rent out your room as HMO, whenever HO managers I go in with under the landlord, not that I'm looking to rent. I don't know why I just go in with more of a landlord. I'm the landlord. I'm looking at buying in the area. What do you think I'll get if I rent this out on the run Byron basis? Do

Russell Leeds (11:16): You think that HMO managers are more realistic then why is that? Because surely the psychologically, it's the exact same. Why would that change it?

Ricci Mandal (11:28): Because I already kind of have an idea of what people are willing to pay. Because the difference is with single lets, I can look at what's been rented and what's renting with HMOs. I can see what's rent out on the market. I can also see what's being rented. But also another bit of information which you can't get with single lets is what are people actually willing to pay? Catch this. You guys are going to love this. Go on with HMOs. If you go into spare room, not only can you see properties for rent, but you can also see what people advertise themselves. People go onto this website and they say, Hey, I'm Ricky. I'm looking for a single room and I'm willing to pay this much. This is my budget. This is what I'm willing to pay. So based off that information, I already know what people are willing to pay for a room.

(12:22): People are screaming out saying, I'm willing to pay 600 pounds for a double room. I want a double room. I want a double room on spare room being marketed. But you still have more people in some areas than not. And if you guys have been to a crash course or you come into a crash course, we show you this in front of you. We show you that there's properties on the market. Then in some areas there are more people looking than there are properties on the market and they're saying, Hey, I want a room and I'm willing to pay 500 pounds. I'm willing to pay 600 pounds. So therefore I know once I've looked at that information, I know that people are marketing themselves. They're saying, I want a room for this much.

Russell Leeds (13:00): Is there any other of our sort of property market or place where people do that you don't have on right move. Here are the houses and here are the people. Hey,

Ricci Mandal (13:13): You don't

Russell Leeds (13:14): Looking for a four-bed house to buy in?

Ricci Mandal (13:17): Yeah, you don't. I can't think of any. Spare room is the only place where you can look at people advertising themselves to rent some work.

Russell Leeds (13:26): It's like they used to general, the old wanted ads in little magazines. They used to do it there. They like, I'm after this, but

Ricci Mandal (13:34): We're out of the days of magazines. We

Russell Leeds (13:37): Are. But it's a similar, it's funny, isn't it? Our HMOs have spare room, et

Ricci Mandal (13:42): Cetera. I wonder, I'm just trying to rattle my brain to as to why it is. Why do people advertise themselves to rent room? Think

Russell Leeds (13:50): I'm looking for a place to live. I know I'll create little advert for myself. You just go and look.

Ricci Mandal (13:56): This is the thing. RAs, when you look in some areas, and again on the crash course, we show you this, right? There'll be more people looking in some areas than there are properties available. So let's say there's a hundred rooms available, there might be 150 people looking, but there's not actually 150 people looking because not everyone is going to create a profile of themselves saying, I want a room. How many people out of a hundred would create an ad saying, I want a room. Maybe what 10 if that 10 people out of a hundred that are looking for rooms would create an ad for themselves. So that means that if there's 150 people that have advertised themselves looking for a room, there's actually, I'm not going to mass, but there's actually loads more because most people wouldn't create an ad of themselves.

Russell Leeds (14:51): So that's how you do HMOs. That's

Ricci Mandal (14:53): How you do HMOs.

Russell Leeds (14:53): Service accommodation, very similar, but you're right, because we have a single with a single let buy to let, with HMOs, you factor in voids, don't you factor voids? But pretty much no one's going to say, oh, single that. I only want it 20 days this month. You get paid for 20 days.

Ricci Mandal (15:12): Well, you have a minimum term anyway. You have a minimum

Russell Leeds (15:14): Term six. You might have little gaps in between, but pretty much lets HMOs are the same, albeit probably a little bit shorter. On average service accommodation, you need to factor in, number one, the 90 rate, not the monthly rate, but number two, the occupancy rate as well. So Nike rate is pretty easy. It's very similar to what we've just said. You're looking on places like booking.com, Airbnb, what are other people charging? And the cool thing about this as well is you can go more off what they're asking for because the fact they're asking for it means that they're getting it because they're asking for it again and again. It's not like a single let where I could go, I'm going to put my house on the market, I need four grand a month. But it's not worth that. The fact that it's on there and getting bookings is showing that it's working. Right. So you can get a very good idea of your nightly rate occupancy rate's a bit trickier.

Ricci Mandal (16:06): Yeah. Well, you'll never get an exact occupancy rate because one, there's nowhere to get an exact information about occupancy rates anyway because they fluctuate so much. And also, even when you look back at your service accommodation history, if you've got a service accommodation unit, if you look back at your history of your occupancy rates, the chances are every month your occupancy rate will be slightly different anyway. So you'll never get an exact amount. The good thing is because some people think, oh, well, that's worrying. Well, the good thing is it is risky like any business, but you limit the risk by doing your due diligence and having the right knowledge and education and know what you're doing. But also the rewards are massive. The reward outweighs the risk, especially if you have the right contracts and you can have a break clause in the contract doing a service. If you do a rent to rent service accommodation, that is less risky, in my opinion, than buying A HMO or a single letter.

Russell Leeds (17:06): Yeah, although we haven't gone to how you take control

Ricci Mandal (17:08): Of the property. We haven't done that bit yet. I'm going too fast. You

Russell Leeds (17:12): Look at service accommodation property, you work out rough occupancy rates. The best way to work out the occupancy rates, I think is to, again, is to look at properties that are similar and see how free they are. See how much of it Now it's not going to give you exacts because it's possible that they might've blocked it off for themselves or for another reason. But if you look at a few and not just one, and you're looking and you get a feel for the area, have a look at the hotel, speak to the hotels. You often go in, don't you? And actually go to local hotels and go in and speak to the staff

Ricci Mandal (17:44): There. Yeah, anytime I'm, even if I'm not staying at it, if I'm staying at it, I'll always have a conversation. Even if I'm not saying that, I'll always pop in as I'm walking past, speak to the cleaners, speak to the people that work there and just ask the questions. Hey, just out of curiosity, just wondering, is it busy at the moment? How full are you guys? You must be swept off your feet. And what happens is sometimes the cleaners will be like, no, we're pretty quiet at the moment. And I'll be like, okay, that's interesting. Now I know I probably don't want to be looking in this area, but most of the time they'll say, oh man, it's so busy. We're swept off our feet. We're a hundred percent. There's no rooms available at the moment. And the thing is this, if there's a hotel in the area, the chances are it probably works because the hotel would've spent thousands, if not hundreds of thousands of pounds on doing their market research before they even put the hotel there in the first place. So they've done your due diligence for you,

Russell Leeds (18:36): And they will tell, you can see where hotels are coming, right? Yeah. It's like, oh, we're opening a new premier in X, Y, Z place. It's like, ah, there must be a reason they're opening a premier.

Ricci Mandal (18:47): Yeah. Yeah. A lot of people try and find gaps in the market, but with service accommodation, you don't want to find a gap in the market. If you find a gap in the market, you'll be the first one to do it and you'll be the last.

Russell Leeds (18:56): You want to find somewhere where it's already working. Yes, I agree. So when you assess, so if you find a property, for example, we'll do this every time. We'll assess it for H hm o for service accommodation, for buy to let, and you'd look at it and go, right, does it work? What are the comparables? Are there properties here that some areas you could just go and go, well, no, this doesn't work for HMOs. It is not the wrong area. It's not busy enough. It's not whatever. It doesn't work for service. Accommodation everywhere works to buy tolet. But the problem with buy tolet is it's not as profitable, right? So you can assess the three. Now that will give you an idea of how much rental income you're going to get. That's the first thing you need to know how much money am I'm going to make from this? How much cash flow I'm going to get from this? Next thing you need to do is you need to work. How much money am I going to have to spend getting it into the condition that it's ready to be rented out?

Ricci Mandal (19:46): Because

Russell Leeds (19:46): This is all going to be cash that you need up upfront. So how much, if you are doing it as a buy to that, it might be that it's perfect needs nothing spending on it, or it needs liquid paint. But it might be that if you are going to do a service accommodation, it's a big unit and your plan is to rent it out, room by room, service accommodation, or you're turning it into a HMO to add en suites in every room, for example, that might cost

Ricci Mandal (20:07): More.

Russell Leeds (20:08): The next thing you need to work out is how much money am I going to need? How much money in to refurb this property? Now, it's not all money down the drain because if you are going to do it, we actually target properties that are an absolute wreck that need loads of money, then you're adding value, which means you are raising the value of the property. So there are pros to this as well. It's not all bad. It's not all bad money down the drain. It's good money, but it's how much money am I going to need to spend? So the next thing that you need to know next, you've touched on this already, is how are you going to take control of this property? So it might be that you work it out and it doesn't make sense to buy it. You can't afford to buy it with the figures that you've worked out, but they're desperate to sell. It's a really good deal. So it might be that you can work out something creative. So do you want to give some examples of creative strategies that you can do to take over the

Ricci Mandal (20:59): Property? Yeah. So a common one is a lease options. A lot of our students are doing lease option agreements at the moment where they're going into properties like what we've spoken about, potential hmo, potential service accommodations, speaking to the landlords and realising that the landlords don't actually need the money right now for various reasons. It could be that they're in negative equity and they can't sell it for what they want. Their debt is higher than their value of their house. It could be that they just want it off their hands. They don't want anything to do with it. They've got lots of money. They're wealthy, they don't need the money right now. So they're open to doing a lease option. And a lease option agreement is simply where you take control of a property now and you lease it for a period of time before you actually buy it. So it's almost like buy now, pay later. You agree a price today, let's say you're a landlord, Russell and I come to you. This is your property, beautiful, brilliant. It's going to work for me. You don't need the money. Now how about this? How about I give you 500 pounds a month for seven years, and in seven years I'll buy it off you for a hundred thousand pounds?

Russell Leeds (22:03): Yeah, it's, do you know the loan system in football where you loan a player? You've got the option to buy 'em at the end of the loan, or if you don't want to, you can give 'em

Ricci Mandal (22:12): Back. Oh, that's the beauty of it. You've got the option to buy it, not the obligation.

Russell Leeds (22:17): So Arsenal just loaned David Raya from Brentford. We loaned him and we got the option to buy him at the end of the season, and now they've activated that. So now they are buying him. It's exactly the

Ricci Mandal (22:26): Same. Are you happy with that?

Russell Leeds (22:29): That's an interesting one. It's not a football podcast.

Ricci Mandal (22:33): True? It's not. But

Russell Leeds (22:35): I'm not sure. I'm not about, the

Ricci Mandal (22:37): Whole reason I'm asking you now is I really don't care. But I know after the podcast finishes, you're going to be talking to me about it. And I'd rather just you get it out of your system now and keep it short while we're filming than to bore me with it an hour later. But anyway, we are on a property podcast. So that is a lease option agreement.

Russell Leeds (22:54): That's an option. Another option you mentioned earlier is rent to rent. So rent to rents. Well, you don't buy it at all.

Ricci Mandal (23:00): No,

Russell Leeds (23:01): You just rent it off them. So let's say you think this will work really well, service accommodation, but it's a million pound property. And to be honest with you, it'ss too expensive. It's not going to give me enough return for the amount of deposit I'm going to have to put down, et cetera. You could offer to take it on as a rent to rent, or it might be that you have no money at the moment at all. You're trying to rent money from property and you don't have any money, so you can't buy it. So you take it on a rent to rent, you rent it off the landlord, and then you rent it back out again as service accommodation or as a HMO and you cashflow from a property that you don't even own. Brilliant strategy. Or it could be just a straightforward purchase, which is the normal way that you buy a property, which is right. Okay, so you assess the, you go, right, this property would work really well, service accommodation, it is 10,000 pound spending on it. It's up for sale for 300,000 pounds, right? I'm going to buy it the normal way. So you need to decide how are you going to take control of the property? Are you going to get on an option agreement? Are you a rent to rent or are you just going to buy

Ricci Mandal (24:02): It? Oh, I'll throw another one in the mixer. Or are you going to package and sell it? That's another way of exchanging on the property. You could either buy it, you could rent, buy it, control it, or you could package and sell it. And one of the questions that we get asked a lot is, which strategy should I do? Which one should I focus on? What should I do first? And the answer's kind of always the same. The answer is, well, it depends on the deal. It depends on what your outcome is, what you want to get from it, what your goals are, how much money you've got to invest, what experience. It all depends on the different number of factors. But

Russell Leeds (24:34): If you've only got one strategy, I kind of think of it as a toolbox. So if you've only got one strategy, let's say your one strategy is HMOs, that's it. You want to buy HMOs, that is it. It's like going in with one tool. It's like going in with a hammer and then you've only got a hammer. It's like, yeah, but for this job you need a screwdriver, or for this job, you need a saw or whatever. I'm not very hammer. It's a very happy,

Ricci Mandal (24:59): I'm

Russell Leeds (25:00): Think a tool

Ricci Mandal (25:01): Or a screwdriver. A screwdriver or a sort or some blue sack.

Russell Leeds (25:06): But it's like your toolbox of strategies. So when you're going to assess a deal, it's like, well, which tool fits, strategy fits? And there's lots of different combinations that you can do. And depending on the problem, depending on the deal, other ones wouldn't work. And I've seen loads of people that walk away from great

Ricci Mandal (25:26): Deals, missed opportunities.

Russell Leeds (25:28): Yeah, totally missed

Ricci Mandal (25:29): Opportunities. And also it's not even when you've got the deal, you could still potentially interlink the strategies. How many of our students convert rent to rent deals into lease options. But if you don't know how to do a lease option, you dunno anything about it. Even if you know a little bit, let's say you watched a few YouTube videos or you listen to a few podcasts, you right, I understand these options. Let's say you get a rent to rent and then the landlord says, I'm actually thinking of selling it in a few years time and you have no idea what to do.

Russell Leeds (25:57): You're like, oh

Ricci Mandal (25:58): Yeah, yeah. Oh dear, I'm going to have to end the rent to rent. Or no, if you know what you're doing, have to do lease options, then you could be the one that has the option to buy it in a few years time.

Russell Leeds (26:07): Yeah, a hundred percent. A hundred percent. It just makes sense. So the final thing, once you've worked out all these things is you need to work out then your return on investment. It's right. I know how I'm going to take control of it. I know how much money I need to spend doing it up. I know how much cashflow I'm going to take. First of all is how much money in am I needing for this whole deal? That's going to include everything that's going to include if you're buying it, your solicitor fees, your stamp duty, your deposit. It's going to include the refurb on the house, every single penny that you spend taking control of this property, how much money am I going to need? And that's your money in. Then you're going to look at your money out. So this is all the money that you're going to put out of the deal in the first year.

(26:52): So that'll be all your rental income. And it could even include refinancing the property. So if you are taking it on, if your plan is to do the buy refurbish, refinance strategy, which in my opinion is my favourite strategy of everything that we do, that is you are buying the property for say, a hundred grand. You are spending say 20 grand doing it up. So you're 120 grand in, but now you've pushed the value of the property up to 160 grand. And then you can refinance it, remortgage it, and pull basically all the money out that you put in. Which basically means that you're making a hundred percent

Ricci Mandal (27:31): ROI. When we talk about money out, are we talking the turnover or you're talking profit?

Russell Leeds (27:39): We're talking any money that comes into your forget profit because we looking at, we've already accounted all our money in, right? And then we're looking at all our money

Ricci Mandal (27:51): Out. Okay, so for example, if you get a grand a month from a single letter that's 12 grand a year. So that 12 grand a year would be the money out?

Russell Leeds (28:02): No, because you take off the monthly expenses.

Ricci Mandal (28:05): So it'd be the profit at the end of the

Russell Leeds (28:06): Year. It'd be the profit. Yeah. But sorry, I thought you were talking about the money that you're putting

Ricci Mandal (28:10): In No, no, no, sorry. The money out. When we say money out, yes. We're talking about profit.

Russell Leeds (28:13): You're talking about profit. Yes. A hundred percent. A hundred percent. So it's what profit am I pulling out the deal? So for example, I see what you're saying. Let's say you're doing it as an HMO and you have to pay a 10% management fee. You take that off. You

Ricci Mandal (28:26): Wouldn't count that if you are paying the bills, you take the bills off. Yes. Yeah, exactly that. So money you are left with at the end of everything

Russell Leeds (28:33): That you are left with at the end. So that's what you need to how much money in and how much money out. And then you can use those figures to work out your return on investment. So for example, if you were, let's keep the maths nice and simple. If you were putting in a hundred grand, a hundred grand is what you needed for the deal, and at the end of the year you're going to pull out 20,000 pounds in profit, you'd know that 20% of what you'd put in, you'd managed to pull out, which is a 20% return on investment and 20% of return on investment's. Pretty good. Pretty good. Now you've got an asset,

Ricci Mandal (29:06): I'd take it.

Russell Leeds (29:07): It's not great if you are not owning the property though.

Ricci Mandal (29:10): No, no. If you're control, if you're doing rent to rent to release options, that's unacceptable because with a lease option and rent to rent, you're not putting hardly any money in any way. So if you were to get 20%, that would be dreadful.

Russell Leeds (29:22): Yeah. So how much would you aim for at

Ricci Mandal (29:25): Least? At least 200% for a rent to rent. So that means that we'd expect to get our money back that we put in within six months.

Russell Leeds (29:37): Yeah. Yeah, I agree.

Ricci Mandal (29:39): You looked surprised that IN to 200%. No, no. It took me a minute to work it out in my head. Then a hundred percent would be your money back in the first year. I was

Russell Leeds (29:47): Thinking about lease options as well. See, I think lease options is a little bit different because depending on the fee that you've agreed at the end. So it depends on, I think it is a little bit different with a lease option,

Ricci Mandal (30:00): Well lease optimum, what you'd do is you'd

Russell Leeds (30:02): Put the carrot at the end. So if I was making, let's say if I made a hundred percent ROI on a lease option,

Ricci Mandal (30:12): But at which point are you working out the ROI? Because what You could argue

Russell Leeds (30:15): The year one.

Ricci Mandal (30:17): Yeah. But what I would potentially argue is, alright, you've got this lease option. I would work out the return investment based off the money I've put in straight away to the money I've got out in that first year and every year up until I buy it. Then when I buy it, I'll then put in a chunk of money as deposit to buy. I buy with cash.

Russell Leeds (30:35): What I'm saying is though, with a rent to rent, you've got no carrot at the end. The deal is

Ricci Mandal (30:40): What the deal

Russell Leeds (30:40): Is. So it's all about cashflow. So 200% makes sense with a lease option. Give an example. So we are doing a lease option at the moment. We've actually took a hotel on one lease option agreement and we've agreed to buy it for two mil. It's worth about that now, but in 10 years. So for us, the carrot is the, we get it for 2,000,010 years where it's probably going to be a bargain in 10 years time. And the cashflow is good. However, it needs quite a bit of money spending on it. A couple hundred grand. So probably year one we probably all make a loss probably. But it's more about,

Ricci Mandal (31:17): It's almost I see what you're saying. I see what you're saying. Yeah. That's the long run. The big

Russell Leeds (31:23): Picture. By five years, we'll have made a lot of profit. The reason the year one won't make much profit is because the money's going to have to spend on it. But the reason we're spending the money on it is because we've got the option to buy it at the end. Yeah,

Ricci Mandal (31:31): No, that makes sense. That makes sense. Yeah. Rent to rent, you've got no benefit or no incentive to put money in and reverbs and stuff like that. You've got nothing at the end. You've just got a lease agreement basically.

Russell Leeds (31:43): Yeah. So it has to be really hard lease option agreement. It depends. And then normal deals, normal properties, we typically aim for 20% plus. I think you should do a lot more if you know what you're doing. But I wouldn't sniff at 20% either.

Ricci Mandal (32:00): I think for a single right now in today's market,

Russell Leeds (32:04): 20%,

Ricci Mandal (32:04): No. That would be unheard of right now. Be

Russell Leeds (32:07): Unbelievable. A single let you do well to get 5%,

Ricci Mandal (32:11): You'd do well to get 8%.

Russell Leeds (32:13): Yeah, you would. Right now you would If you're just doing the buy-to-let, but if you're using service accommodation HMOs, you can obviously get a lot, lot more. Yeah, I bought a service accommodation property recently. After two years I'd made all my money back. Everything.

Ricci Mandal (32:28): That's good. That

Russell Leeds (32:29): Is 50% ROI

Ricci Mandal (32:31): Purchase. Yeah, that's very good for buying it as well. Yeah, and you've got the appreciation to come

Russell Leeds (32:37): According to the, where you can go and ant like on deal sourcer and we can analyse the price. It's already gone for about 70 grand. So I've made that as well.

Ricci Mandal (32:47): Bawling. Laughing.

Russell Leeds (32:49): I'm laughing, mate.

Ricci Mandal (32:50): Maybe you should have bought that football player, had 'em in your pocket. Just buy a minute because you can.

Russell Leeds (32:55): Yeah. So anyway, guys, I hope you found that really useful. So just to sort recap the key steps. Number one is you always start with the outcome, right? And that's true of any negotiation or any business deal. It's like, what's the outcome of this? So when you look at the property, it's how am I going to make cashflow from this in the end? Well, how am I going to rent this out? What's the outcome? Next thing you need to look at is how much going to cost me to get there in terms of refurb, et cetera. Third thing is, what is the best way of taking control of this asset? Do I buy it, lease option? Do I rent to rent? And then once you've figured all that out, what is the return on investment? How much am I putting in? How much am I getting out? And that is how you assess and analyse any property deal. How you found that useful? I've been Russell Leeds.

(33:39): I'm Ricky Mandal.

(33:40): We'll see you next week.