BIG DEALS vs SMALL DEALS | What Makes More Money?!

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Yo yo yo we are currently in the offices which are under refurbishment and in this video we’re going to talk about big property deals versus small property deals what’s the perfect deal size for you and what makes more money there’s a lot of guys on the internet shouting about their big deals

Which is great all credit to them if they have finished off the scheme and all the associated stakeholders and financiers have got their money back people are making good returns residents are enjoying the accommodation amazing keep smashing it however a lot of the time I’m seeing developers promote their

Big deals to The Wider public as if they’re this huge success story and they may very well be and if so amazing but use your common sense as the viewer if they completed these schemes over the last few years with unprecedented Global challenges a global pandemic rate hikes

And spikes in inflation the chances all things went swimmingly are very unlikely so just be careful when you’re seeing people promote their big deals to leverage their brand online what is what’s the real story the underlying numbers of those schemes a lot of the time developers aren’t going to share

That kind of that kind of knowledge so that’s why I’m creating this video really is to show the Dynamics of the big deals versus the small deals and just because a Project’s being finished it doesn’t mean people made a good amount of money now in reality this whole video concept is quite flawed

Because you just can’t compare big deals to small deals it’s not a like for like within those two domains there’s a subset of a whole load of strategies that are completely different and have different merits and also it’s got to be relative to the developer how much

Experience do they have and how much Capital do they have to deploy for example let’s say I’ve got the perfect 10 bed HMO opportunity so once in a lifetime deal no money down all your money out your mom’s aunt’s going to love it it’s it’s brilliant and then I

Go and present it to the Reuben Brothers they’re going to laugh me out the door CU it’s just not worth their time they’ve amassed such wealth and infrastructure behind their business that small deals just aren’t worth it they’ve got to justify their time spent if I then took that same 10ed HMO

Proposition and offered it to a younger developer someone earlier on in their Journey it would blow their mind they might even work for free just to be a part of the journey the reason for this basic example is to illustrate that there’s a spectrum of deal sizes and an

Equal spectrum of developer sizes and everything is relative to someone’s position so comparing a like for like big and small deal is a very tricky thing to do but we will look at the main variable cuz everything comes down to Capital when you’re starting out in property development Capital could feel

Like a scarce commodity and your deal size will be dependent on how much Capital you have access to as you grow Capital can become more readily available but your deal sizes should always fall within the remits of your available resources because of things like Capital exposure and the necessity

For more Capital should something go wrong and that’s really the main difference between big deals and small deals it’s when something goes wrong see on a small deal if something goes wrong you’re talking about the tens of thousands of pounds usually someone’s making that within their annual salary

Or may have it saved up in an Isa so in the event of a rough patch on a development project you can cover those gaps however if something goes wrong on a big project you could have cross collateral guarantees with your lender you could have personal guarantees on

Your home and when things go wrong you talk about the millions of pounds so it’s not good and why do the guarantees get called in in the first place well it’s because the developer took on an outsized Financial Risk compared to their readily available Capital so they

Geared up other assets around them or within their business or their personal home to pay for the shortfall within the deal when things went wrong sure they may have a given facility from the lender that’s their designed to fulfill the needs of the project but in market conditions where we’ve got Rising rates

Or inflation material costs may go up and they need to fund that shortfall and you simply can’t fund millions of pounds worth of shortfall from the average salary or by liquidating your iser account so that is the big difference between big deals and small deals the

Risk profile is just so much higher let alone talking about the The Experience levels or team members you may have around you just to deliver a large project Shanley Holmes are a big Development Group based down in in the south of England and they they have a really unique financing strategy they

Took a long game approach from many decades ago and have built up gradually and gradually and gradually and now their assets to liabilities are incredible some of the best in the property development world and it’s well worth going to study their business to see how they’ve managed that gearing

Level and the risk premium attached with larger projects now on the flip side there’s developers who haven’t built up over decades and decades and they just take on outsized risks so let’s look at some examples Lane end developments had a site of 177 homes in North Wales it

Went into Administration with 12 million in debts 112 workers made redundant suppliers contractors and employees all left out of pocket and development’s house limited an arm of Sunningdale developments went into Administration with a number of companies left without pay and resorted to construction adjudicators and Court action Inland home developments was contracted to

Build patchworks in waram Stow a residential development of 583 homes across six blocks the house Builder went to Administration in October this year and the list goes on and on and on many developers and contractors bite off more than they can chew and end up in administration sometimes it’s a

Strategic move when faced with bad market conditions but either way there’s investors and employ es who lose a lot of money but this doesn’t mean that small deals don’t also go wrong it’s just that they don’t make for great headlines but it’s very true that investors and employees can also lose

Good amounts of money on small projects so in summary every deal size can go wrong and you can always lose money the main thing to do is when you’re looking at your project assess how much Capital you have available how much Capital does the scheme need how much can you borrow

Relative to the capital requirements of the scheme and then how much do you have as a buffer should something go wrong and that’s the sensible way to approach any scheme and it’s always going to be relative to your position and the good thing about the smaller deals is that

Typically you can fund the whole thing in cash meaning no borrowing risk and if you did need to get a little bit more money out of it you can always gear it towards the back end and pull cash out to help finish off the project now

Here’s why I love small deals and why I think they’re just a great starting place for any developer for us as a business we wanted to generate a solid bottom line diversifying our risk and creating a lot of small wins on smaller projects which accumulate to large

Returns over a period of time this allows us to move more quickly and stay Diversified with eggs in different baskets because over time we’re building up our income building up our capital and we can take on slightly bigger projects which compounds our growth and we’ve never had to take on outsized

Risks and over time this allows us to consolidate our debt position and build up the income not only from our assets but but also the trading Vehicles we’ve built around them by no means is this an easy thing to do in fact it’s really difficult it takes a lot of time and

Effort but as we grow that income and the capital we’re hedging against the debt position we’re taking on on each new scheme as we grow and grow in size I strongly believe that this approach should be adopted by every developer early on in their Journey because why

Not diversify your risk why not take your Capital further through multiple projects and keep your eggs in those different baskets cuz you could take on a big project and you might not have the capital yourself but you bring in an investor who does and you think you’re

Swimming in gravy when in fact swimming in gravy isn’t very fun it’s quite a sticky position to be in especially if especially when something goes wrong CU if something goes wrong that investor might not keep putting capital in and you might have signed a load of guarantees or you might have your

Reputation on the line and if they don’t keep putting money in you can get into legal disputes all kinds of things could happen so why put yourself in that position in the first place always be able to manage the down side if the project goes wrong don’t just rely on

Your investor to bail you out so what is the answer for you watching this video well what you need to do is establish what would be considered an outsized Financial Risk based on the capital you have currently or based on your current salary your income the people you know

In your network how much money can you access relative to how much money you may need should the given scheme you’re looking at go wrong because it’s all well and good looking at the numbers on the scheme before you jump into it and going oh it’s going to be amazing we’re

Going to make loads of money blah blah blah but that’s that’s not a good way to appraise the sensibility of a scheme you need to stress test it look at it when it goes wrong how much more Capital will you need like how liquid are you as a

Person and it’s it’s really important to establish that before you start any kind of project and don’t do that typical property people person developer thing where you look at a project and you go oh it just looks stunning I just I want to do it the numbers look great and you

Kind of like blur the edges on the risk profile because you just want to get in in bed with the deal don’t do do that like really make sure you stress test it and even if you can afford to take on that deal and the risks attached to it

You might have a lot of money why not diversify if you’re early on in your journey just do two smaller projects keep the eggs separate and then over time they’ll accumulate and you can take on bigger and bigger projects as your experience and your residual income builds up ultimately everyone wants to

Get onto larger projects purely because the return on your time spent is far greater but it takes a solid amount of capital teames experience and somewhat fortunate timing with market dynamics so don’t bite off more than you can choose start small and stay there for as long

As you can building that robust bottom line that ultimately is going to act as the foundations to fuel your development Journey as the deals get bigger and bigger and bigger that brings us to the end of the video hopefully I’ve done an all right job at explaining the difference between big projects and

Small projects focusing on the capital constraints being the main consideration and if you want to see more videos like this let me know drop me comments ments down below and also I’m thinking about maybe doing a Q&A video a lot of people fire questions in the DMS but drop them

In the comments and we’ll make a compilation video Sun we’ll make a video where we sit down and go through each question and try and answer as thoroughly as possible but for now subscribe like the video do your thing see you later take two when you’re starting out

In property development when you start out when you’re starting out when you’re starting out in property development Capital can feel like a scarce commodity something that’s hard to get a hold of so get some that the chances of these schemes being as rosy as the ones being

Portrayed it’s probably not your mom and capital amounts your mom that for example let’s say I’ve got the perfect so the whole just appear I know I’ve not done a very good job at explaining the exact in but we will look at Capital which is basically

Capital and how much of it you have access to will depend on the deal size you can take on no it doesn’t it’s the other way around which compounds our growth and uh Keeps Us diversifi