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Welcome to a fascinating conversation with Kevin McDonnell and Jerome Wright, a seasoned property developer who reveals new ways to raise investors! In this eye-opening discussion, Kevin explores Jerome’s unconventional approach to property development, shedding light on the distinctive methods that have worked wonders in the industry:
🏠 Evolution in Property Development: Jerome’s journey began in 1994 when social media didn’t exist. Starting as an office junior, he eventually set up his own agency in central London in ’97. The 2006 credit crunch became a defining moment, leading him into the position of Permitted Development.
🏠 Two Strings to the Business Bow: The core of Jerome’s strategy involves buying without planning and selling to developers, ensuring profit from the get-go. Additionally, he delves into the challenges of newly built housing and the complexities of financing, highlighting the importance of planning in property development.
🏠 Cash Flow vs. Buy and Hold: While Kevin emphasises the buy-and-sell approach, Jerome delves into the nuances of cash flow, specifically in the context of rent-to-rent. The discussion unveils the risks and rewards associated with different models and the importance of making a margin while minimising risks.
🏠 Raising Funds and Investment Model: Jerome presents a unique model of raising funds. The conversation explores the dynamics of private finance, interest rates, and the impact of inflation on investor decisions.
DISCLAIMER: This video is not sponsored nor do any third-party affiliates endorse it. This is NOT financial advice.
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TIMESTAMPS:
0:00 Different Ways into Property
0:35 How Jerome Built His Empire
1:35 2 Streams of PROFIT
3:15 Make Money from Selling LAND
4:15 Kevin’s £3,000,000 DEAL
6:38 How Does Jerome Get Funding?
7:48 How Does Kevin Get Funding?
10:03 FREE DOWNLOAD
10:30 Why it’s EASIER to Raise £5,000,000 than £50,000
11:34 Refused Planning? NO PROBLEM!
12:41 The SOLUTION to High Interest Rates
13:57 INFLATION is a GOOD Thing?
15:45 How the Media PROGRAMS Your BRAIN
16:54 Stay Tuned!
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Kevin McDonnell: Serial Entrepreneur, Author, Property Investor and Public Speaker.
In the early days of his journey in 2003, he made mistakes that resulted in debts of over £135,000. However, in the last 10 years, he bounced back and now manages a property portfolio worth more than £14 million!
He’s dedicated to guiding others to avoid the mistakes he faced when he began. Kevin is known as the leading expert in innovative property investment methods in the UK, including Lease Options, Assisted Sales, EDCs, Vendor Finance, and Tenant Buyers.
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Hi Kevin McDonald here and today I’m joined by Jerome Roy who is a property developer educator and the reason for bringing him on here today and talking to you is that we do things very differently in property and for many people many of our listeners you will be
Thinking where do I get started in property what might be the right route into property for me and I thought it’d be good to get somebody in who’s very different to what I do but yet does things that work really well in property so um Jerome thanks for joining us
Thanks for having me Kevin I know do things a little bit differently so let’s go back to the start when did you get started in property how long you been doing this so I’ve been in property since 1994 back then there was no socials you basically answered an advert
In a local newspaper started out as an office Junior set up my own agency in central London 97 built that up to reasonable levels sold that in 2006 the credit crunch was the defining Moment On Life yeah and where things had gone wrong in terms of relying on someone
Else to pay you that’s really interesting cuz that was my defining moment too then got a call from a mate I was at school with had seen him for 20 years said I’m involved with a private Equity Fund up in edenburgh you want to get involved there’s this new thing
Happening called permitted development for the last eight years I’ve been taking planning risk I’ve built a bit of new build quite a lot of new build housing bungalows in particular the gray pound I call it they don’t really need mortgages so they’re not subject to valuations really and there’s a premium
Attached to the product yeah that’s that’s what I’ve been doing and we’re just going harder and harder at it I guess a lot of what you do you you buy and sell stuff while I’m much Buy and Hold I don’t know how much you hold and stuff but I’ve always done cash flow
Which is not owning it at all rent to rent just take a property off a landlord cash flow give them x amount and we cash flow a profit and then the long-term hold do you hold stock or do you sell everything on so there are two strings
To the big business firstly it’s we don’t buy with planning we sell to developers that’s profit one buy without planning get the planning make a decision on whether you’re going to build it out because you make your money when you buy and not when you sell and
This is a really important thing for your audience for whoever there’s too many people running around not making enough of a margin and taking all the risk yeah I guess the whole rent to rent thing I’ve never done it spoken to my son about getting into he’s 19 he lives
In London and I’ve had a lot of rent and rent people on my course and I get it it’s the same as what we do it’s trading on something for a margin exactly right profit pot number two is build it with all the uncertainties that brings and I
Believe unless you’re a a national house Builder barretts a redro personman or a builder that’s become a developer I don’t see how it’s possible to make good money and you build at the moment with the cost of material yeah inflationary and it’s going to be deflationary construction materials now
Inability at the back end for the buyer to get the mortgage and so on all all that stuff because everyone’s paying more now aren’t they so it’s just very very interesting space with your land you you’re not building it out at all so you like are you are you build you build
Out some but because of the returns that I look for yeah most of it’s in planning game most of it will be in planning game but all that’s when the investor gets their money yeah on when the planning consent lands I’ve built stuff as recently as 18 months ago new build the
Stuff we’ve got going through at the moment multiple sites in different local authorities some of it will get built some of the developments will be serviced so that’s the utilities if you’re not sure what servicing means an estate Road gas water electric up to the
Plot and then you can exit them you can sell a plot to an end user there’s all different ways of doing it you don’t necessarily have to build everything out with what’s happened to the cost of development finance and bridging Finance it’s cheaper for me to get an invested
To bankroll everything where are you at with finance and by to let Finance how do you raise your money all that stuff that’s really interesting because um I mentioned earlier we’re doing a obviously you’re doing land and I’ve just bought a cinema we’re turned into 20 we’re turning into 21 Apartments
Seven offices in a gym looking at the numbers so it’s in notam North naam you’re looking at about a gross development value at 3 million this needs planning it’s a cinema so you need full planning we bought it in September last year so literally we’re now just over 12 months in traditional thinking
Would be I could buy this borrow the money off a bridging company or a bank that does bridging so a private Bridger or a institutional Bridger put down 40 odd per upfront which is the big problem most people have is I can’t do this at don’t over the 40% borrow the other 60%
Of the purchase price borrow 100% of the development and and pay 1% a month we’re raised 1.95 million which I’ll come back to in a moment but if you imagine boring let’s call it 2 million quit we bought a pretty cheap 322 Grand that leaves 1.7
Million to develop it out if we borrowed that money at 1% a month you’d get bridging for 12 months I’d be 12 months in now and I’ve had I’d have had to pay the bridging back and I haven’t even got planning yet the planning committee meeting is in October so and it’s with
The recommendation of approval but I’d be month 13 I’d have had to pay back the bridge in or extend the bridge so I’d already be in for probably six figures of bridging cost Finance cost by the time we end up for delivering the development I’d have been around 3 to
400 Grand in finance costs well if I’ve built it for 2 million and it’s cost me 400 Grand on finance I’m in for 2.4 million in value 3 million 75% mortgage 2.25 million I got to find 150 Grand shortfall which means if I financed it with borrowed money and kept it all for
Myself the irony is I’d have to sell it all to get out cuz it’s 150 grand left in so what I did instead was I raised the money from investors so we we’re in for fully Cash There’s No bridging there’s no Finance costs we’re at 12
Months in I’ve not lost 100 Grand on finance we’re saving 400 Grand overall across the development on finance cost when it’s finished for three 3 million gdv if we go over our 2 million B budget for by a quarter of a million and we’ve told the investors it’s there’s a
Contingency we can keep them so I’ve got an extra 250 Grand in The Bu built cost budget and the point is we can long-term hold them so I’m not a huge believer in borrowing expensive money especially when you don’t know when you’re going to
Be able to pay it back how do you fund yours there are two different mechanisms to offer an investor now an investor in what we do because we’re taking planning risk has to understand they could lose it all yeah you’ve already got a cema you got an existing use value worst case
Yeah if you don’t get planning even though it’s be recommended we’ve not spent the money right it’s either give them equity in the deal or it’s I’m giving them a fixed rate of return an IR but payable upon exit yeah rolled up like a bridge but it’s not going to go
Into default and they’re going to Triple the interest rate and then there’s a penalty for going into default and then there’s the early Redemption if you want to get out none of that so there’s that two ways the 12 months in and you got to re Bridge it and so right because you’re
Basically at the mercy of the planning system if that’s how you’re doing it so it’s private money right so it’s either the IR or it’s the equity and the deal I prefer IR because we like to own all the shares in the vehicle the vehicle being the SPV special purpose vehicle which
You set up specifically for what we do in the development World which is going to be different to what you do what do you offer your investors the complete opposite here’s why right if I did the iror method even though I don’t have the risk of the bridge I’m still in for the
2.4 million and now I got to sell it to pay them back but what I do because I own the letin business we borrowed the money for a share of the business so we set up a special purpose vehicle separate limited company we then sold shares in the business to raise the
Money because we knew we had to get full planning and it would be at least 12 months I sold the business plan and what we said to the investors was we need 1.95 million there’s a contingency it could go to 2.25 but we’ll raise 1.95 now we don’t have planning we need 22
Grand for the purchase and we need money for planning costs planning costs are nearly at 100 Grand between planning and architect designers many people don’t realize the cost but then there’s over a million and a half sitting there we will use that money to do single at traditional buy refurbishment refinances
So while over the last 12 months we’ve gone out and bought other properties that are under refurbishment so that by the time we need the money to deliver the cinema that money is back in the bank account and we got cash flowing single Ed assets so we’ve sold them an
Overall plan the other benefit of that is when we finish the cinema those investors will be so happy that they’ve not just got a cinema they’ve also got all these singlets because the money was for shares of the company the aim is they leave the money in that company and
Then they do more assets I get a much smaller percentage of that building however we manage them through my letin business traditional letin management is 12% 10% plus fat for all of our JV Partners we manage the property for 8% so it’s cheaper for them than traditional etins it’s also more
Hands-On says an owner is looking after them like an owner would or a part owner but my share of the company is off the net profit but our leting agents takes 8% off the gross income so by the time I get 8% of gross income and share the
Profit that is a significant cash flow for the rest of my life for the business a different model to what you do but that’s my thought Pro around why I go joint venture over private investor so they’re investing in a model yes not in a building pause I’ve got something
Really exciting to tell you if you want access to the latest information of what is working in the property industry right now how you can start in property how you can scale in property what strategies you need to be using and which ones you should be avoiding then
In the description there’s a link to a free report that you can download right now and access the information that you need to start your property investment Journey right now let’s get back to the video we’ve created a new model and what that is that’s a a raise quite a
Substantial seven figure raise but not in one deal is easier to raise 5 million than it is 50 Grand yes agree 100 and this is another thing that people don’t get okay your dad or your grandad or your mate might have 50 Grand in a post office savings account but let me tell
You what the problem is when you’re borrowing from people like that they’ll be all over you every day because those people can’t afford to lose it they linger the money right and 3 months later they go oh I need it for this holiday okay yeah but you gave it to me
For 12 months yeah but I need it right and their lives are different to the people that we’re going out to raise seven figures because what we’re telling them is you’re investing in a model and your money could go into any of the 12 deals we’re proposing in the company
Quite similar but then for us we’re now looking at getting the fund regulated FCA so Financial conduct Authority all the regulations around that but no I think that’s extremely interesting and the way that everything’s cash flowing before on the planning we’ve just had a planning refusal on Monday so let’s kind
Of tell people the reality we buy fields or cleared sites not existing buildings at least you’ve got a fullback yeah so we’ve given a 20 grand non-refundable deposit to the land owner and paid five grand towards his legals room for 25 the planning costs are 104 up to today for
12 units in a high-end Village 45 minutes outside Colchester I knew we wouldn’t get it so what we’ve done is because we’ve bought it so well per plot there’s 12 it’s a fixed price per plot and you can’t go above 12 we’ve agreed that with the land owner otherwise we
Could keep on going back in we’ll go to appeal and we’ll do another 50k we might be in for 200 it will be two years but we will double our money on the original price we’re paying the landowner per plot longer term we do sometimes hold a
Couple of units at the development rent them out refy because at the point you’ve paid off your Development Fund at the bank yeah what’s left is unencumbered yeah how are you finding like stuff like interest rates in this whole Space yeah so the great thing about private Finance what we’ve
Pre-agreed with our investors because it was September last year and it was already talk of rates are going up we pre-agreed with the investors that on financing out on the back end so long as we can get a mortgage for 6% or less and we stress tested it that that works we
Finance out if mortgage rates are higher than 6% we leave the money in and cash flow it until mortgages come down below 6% CU they’ got the money in anyway and if we get their money out and put it in their Bank they’re just going to want to
Put their money back in another property because of inflation the thing a lot of people don’t realize what investors in my mind is they’re like why would somebody invest in me well the person with the money they’ve already decided to lend their money they’re they’ve got
A bigger problem than you if you’ve got no money they’re trying to get their money out of the bank and hedged against inflation and what we’re doing all the time is trying to refurbish and refinance the house and give the money back to them and they’re like who I
Don’t want it back I want it in a deal if interest rates are higher than 6% they’d rather leave the money in the property and get a better Bank re beaten return and if rates are lower than 6% they’ll refinance it out but then want to put it straight back into the Nick
Deal we have that model that we’re selling them rather than just the deal that we’re selling them does that make sense yeah so it’s become easier to to raise money because of inflation yes you’ve just hit the nail on the head so people without the necessary mentality
And or education will think the country is in a tough period there’s inflation there’s cost of the interest rates are going up how can I raise private money but actually you’ve just hit the nail on the head their money’s losing money every day in a bank because when you
Look at these high yielding interest rate accounts which are suitable for 25 year olds like yorkshare Building Society released one last week 6% you can put 150 quid a month into it but it’s a one-year Bond yeah that’s what they are so what’ you do go out and open
10 of them in like all your family members names it’s too much hard work it’s easier to raise money when it’s a bit tougher because those people need to make their money work exactly this is a a very a common misconception otherwise you’re chasing the cycle I spoke to uh
Someone yesterday quite experienced who’s trying to refinance stuff in London and she was telling me about the fees 5 7% yeah so I’m not in that space so the rate sub six still but the fees are seven that really shot me yesterday no it’s huge yeah it’s nuts I actually
Literally had a a message to one of my business partners this week a message saying oh rates are so low and literally yesterday I said the 5year fixed with a 7% fee is really 6.82% that’s the rate it’s just under 7% so it they sell it as
5.42 no it’s 6.8 when you add all the fees in and then if you’re stress testing it to 66 and a half% you’re losing money it’s really interesting on fees and the cost of fees and the cost of borrowing which is why we pre-plan in
To leave the money in when I had no money and I was living in a room in a shared house I thought everybody was broke everybody’s poor and when you listen to the media and the government the bank of England says everybody needs to accept that they’re poor in I thought
Everybody was poor the reality is there’s more money on the planet today than there’s ever been like if they printed trillions of pounds during the lockdown there’s money out there I say if you if you stay close to the fire yeah stuff will happen you got to be
Where the money is you got to be around people you got to be educating yourself because if you’re not you’re sitting at home listening to the media was it Warren Buffett that said when the taxi driver tells you which stock to buy sell and that’s the media the media is the
Taxi driver telling you what to do when to invest you’ve already missed the opportunity at that point the professionals are making money when everybody’s fearful and the amateurs coming in when the media are telling them to get in so drum really appreciate you coming in and and sharing your
Journey with this I’ve really loved this there been some really good insights about the differences in our business but actually they’re very similar it’s just one’s land one’s property yeah really enjoyable I can’t believe we’ve been speaking for so long it’s been ages so um maybe we can do this again
Sometime as well sure Definitely H
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