How To Become Your Own Property Developer - Part 2

In this second part of how to become a property developer, Liam takes a deep dive into funding, and how you can get started using none of your own money!

KEY TAKEAWAYS

There are many companies in the Uk who specialise in lending developers money in order to go and do deals. This is know as development funding.
Banks will typically lend you 75-80% loan-to-cost. For example, if the total cost of development comes to around £1,000,000. £750,000 to £800,000 could come from a bank, which means you need to find £200,000 to complete a million pound development.
The bank will want to make sure that you, your investors and your partners have an element of risk in the scheme. This is known as “skin in the game”

BEST MOMENTS

‘The fact is, you can become your own developer using OPM – other people’s money!’

‘People call me the money man in property, and if I can do it, then you can do it’

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FULL TRANSCRIPT

Part two, how to become your own property developer. And in this podcast, we are going to be talking about funding and how you can do this using none of your own money. I’ve been in property for over 20 years now, for the first 12 years, I made every single mistake in the book and I lost over 2 million euros. But for the last eight years, I’ve personally raised over 9 million pounds of other people’s money been involved with over 28 million pounds worth of property deals. People call me the money man in property. And if I can do it, you can certainly do it too. So where can you go and fund your developments, or your development funding is really broken down into two main parts. Number one, typically, it’s what we call development funding. And the second piece is what we call the equity part. This is where the bank is going to want you to have skin in the game. So let’s look at the development funding side. There are many, many companies in the UK that specialize in lending developers money to go and do development deals, this might be a small development where you find a parcel of land, and you’re just going to build one house or two houses or three houses. Or it could be for much larger plots, where you’re going to build building out maybe 10, or 15, or 20 houses, I typically tend to do smaller developments, I like to be in and out of the deal much quicker. And I’ve also done some bigger stuff. I’m working on Maidenhead right now, where we’re doing a new build a commercial conversion of commercial unit, just under 10 million pound dVV project 26 units and a 6000 square foot commercial space. But that’s taken much longer, of course, there’s more risk, yes, there’s more reward, there’s more profit. But for anyone really starting this process, small parcels of land, where you can be building four or five houses, you are going to make great profits, the risk is going to be down. And it’s going to be a much smoother process because you can be in and out of the deal, really within a 12 to a 15 month period. So the funding part, the banks will typically give you around 75 to 80% loan to cost. What does this mean? Let’s say the plot of land is going to be an investment of half a million pound. And let’s just say to go and build the houses with professional fees, architects planning consultants, the construction costs, let’s just say for example, you in for another half a million pound. So the total cost of the development 1 million pound, you can typically borrow 750,000 to 800,000 pounds of that from the bank, they might lend you a percentage for the purchase, and then a percentage for the build cost. But I always work this our other round about 75 to 80% loan to cost. So from a million pound all in development, you will only need to go and find, let’s just call it 200,000 pounds. Now that doesn’t necessarily have to be your money. It depends obviously on what the lender will allow. But you can go and find somebody else to put the equity piece in. This is what we call skin in the game, because the bank is going to want to make sure that you your investors, your partners, you also have an element of risk in the scheme. Now, if you are a brand new developer, it may be more difficult to get the development funding. However, there are solutions you can joint venture with an existing developer for example, this is exactly how I got involved with my first ever development. My business partner, Jay Munoz. He’s a chartered civil engineer. He’s worked on some of the biggest builds in London. He had what I like to call the developer blue tick. So me and Jay became business partners. The banks really liked Jay. And they also liked me but I didn’t have the development experience. But because I was partners with Jay we were able to get the boring on our feet. The last day of the site, which is where we built seven flats and two houses in primary street culture stuff. That was an incredible scheme. It was a 52 week build process, we was in and out of the deal in 18 months, many ups and downs, but a fantastic, fantastic project to get started. And that then really gave me the confidence to move into doing other types of developments, commercial conversions, land developments, and much bigger deals that I’m doing today. So the 80% will come from the bank, and then you need to find a 20% equity. And my whole model is using other people’s money. So even if you’ve got the 200 Grand sitting in the bank, I always prefer to use someone else’s money, then you can use your money for other investment projects. This is how you scale over the longer term. So the 200,000 pounds shortfall that could be done with a joint venture partner, so they put in the money, you do the work and then you share the profit 5050. Or you can do it on a savings accelerator where you borrow the money on a coupon a fixed rate return. And let’s just say you borrow that at 6%. So let’s say I’m the investor, I’ll lend your company the 200,000 pounds. And let’s say I lend it to you for two years, you’re going to pay me 6% per annum. So at the end of the two years, you’re going to be paying me back my 2000 pounds, plus 12,000 interest year 112 1000 pound interest year two, that’s 24,000 pounds, that’s more money than what you’ll make having the money sitting in your bank account, with interest rates being where they are right now. Now, it doesn’t have to be one investor, that gives you the 200,000. Maybe it’s two investors at 100,000 Each, maybe it’s for investors at 50,008. Maybe it’s 20. Investors at 10,000. Deeds. There’s many different ways in which you can slice up the 200,000 pounds that’s needed. This is how you can go and fund your developments. This is how you scale. And once you’ve done your first development, the bank, once you pay them back, they’re going to love you. And then they’re going to offer you more money for bigger developments. Now caution. Don’t go too big too quick. Take your time, make sure the sites are reduced in risk in and out good schemes where you can build the right type of houses for the right type of client, you can find the right land, I shared that in part one of this miniseries, so make sure you go and take a look. ⁣
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Now if you haven’t done Part Two, we’re talking about funding. And then part three, we’re going to be talking about filming or flipping those particular sites. But the reality is, it doesn’t matter who you are, where you’re from, every single one of you can go and do developments. You don’t need to start with single let’s you don’t need to do deal packaging, you could go straight in and do your own first development. So where are you going to find investors or investors are absolutely everywhere. Friends, family members, business associates, they’re on social media, they’re at networking events. The issue right now could be that you want to do this, but you do not know what to say to the investors. You’re not quite sure how to structure the deals, you don’t have the confidence. And this is leaving you stuck and overwhelmed, confused, and really leaving you in a place where you keep doing what you’ve done all these years are not getting a better result. You need to be brave. You’ve got to get yourself educated. There is more money out there today than ever before. Honestly, it’s easier to access. And there are investors right now that no you but you are the world’s best kept secret that will give you the money. So what do you need to do next? Well, if you’ve enjoyed this video, and if you want to build a property business using none of your own money, then I am running a very, very special event. You can click the link somewhere around this video. I am running a number of events where you can come and spend time with me and my great business partners. And I will show you how to go and use other people’s money I’ll get to meet you will get to hang out. I’ll really take you behind the curtain and show you exactly what’s needed for you to become a professional property investor. I’ve been turning ordinary people into extraordinary property investors getting life changing results. And now in my expert opinion is a great time for you to become a property investor. Hey, well if you’ve really enjoyed today’s podcast and you want to start scaling grow a property portfolio then why don’t you head over to www dot assets for life.co.uk and grab yourself a free ticket to one of my upcoming exclusive property events where you can hang out with me, my business partners, and we will take you on this incredible journey and you could become one of my next big success stories making at least 250,000 pounds from your first or next development deal. Go and do it now at www.assetsforlife.co.uk and grab your free tickets.