How to structure a property investment with a property investor

In this episode we discuss:

- Blindly offering people percentages  
- Lack of strategy around raising finance within the property industry
- Why 50/50 profit split can be better than 10% per annum
- Property investing agreements are a blank canvas
- Loan agreements vs JV agreements
- Is it easier to offer 10% than a jv?
- The process of talking to people 
- It’s not just about the product but the other person 
- Marketing campaigns are built on the person, not the product 
- Knowing your clients needs
- Having the confidence to ask the right questions

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Transcript

Al: 0:02

Hey guys, you're listening to arrays in finance talks with Sam UNAL. We are on an absolute mission to help developers raise their first billion from investors. So they can go on and do deals with six figure profits.

Sam: 0:14

So if you're not moving forward with your property business, or a lack of cash, then this podcast is for you. We're going to seek dive into all aspects of raising private finance. So thanks for listening, and let's dive in. Welcome to this week's episode, everyone. This week, we're going to be talking about how to structure a deal with investors. Because believe it or not, 10% returns is not the only way. And certainly not always the best way. If you're

Al: 0:52

new, you could see the shock on my face right now. I'm excited to find out why Sam, tell me don't might. Yeah, no, this is a really interesting one, isn't it? Because, you know, the structure of a deal we all know, is super creative, which we'll get on to. But before we do, mate, how's your week been? And you've, you've had a bit of a nightmare Avenue with the old chicken pox.

Sam: 1:13

Yeah, we've had that we had chickenpox in the House this week. So planned workweek went out of the window. But yeah, that's one of the good things about running your own business and being in property right is that freedom, like Jasper has chickenpox Monday morning, everything's cancelled with me and Sandra splitting our time between looking after him and doing work. So it's kind of a couple of hours work here, look after them, you know, then a couple of hours, maybe at the end of the day, and that's it. So, but it's great in a way, because it's just I was reflecting on it this morning. It's just so easy. Yeah, I obviously my plans for the week go out the window. But that's all good. I'll just work on what I can when I can. And that's it. And there's nothing no, no stress, no hassle. Really, that's kind of one of the great things that property brings is that kind of freedom, to not be really too disrupted by something like that.

Al: 2:06

Yeah. And I remember, like, all the way back 2017 When we started talking originally, that was kind of a goal, isn't it? It's like always to, to be able to have that, as part of the lifestyle as part of that freedom and choice and all of that good stuff, it seems, I guess, right at the beginning, quite difficult to grasp, hold off. But actually, you know, when you're living it, and you see that, wow, like, I've actually created that kind of lifestyle for myself that that I wanted, which is which is pretty amazing, to be honest. So it's yeah, it's good to see but obviously not good to see Jasper.

Sam: 2:40

Yeah, he's doing pretty well. He's alright. That's good. That's yeah, it's all about the time freedom, money freedom, though, isn't it that those two those freedom is the goal. But it's obviously the, you know, when you're working away, and you get results in property that can just bring your see the money, freedom, and the money can just buy you time as well? Yeah,

Al: 3:00

yeah. No, it's cool. It's good. But yeah, let's get stuck on them to get stuck on stuck into the structuring of a deal. And this whole notion around the percentage pushing 10% 8% 6% 12% being the only way that people can structure a deal, or at least it seems that way from what we're looking at.

Sam: 3:23

And it seems seems to be the preferred route, it seems to be like we were talking about this before, it seemed and where it all comes from, it seems to be just a really easy way for people that are maybe doing courses, masterminds, whatever, just to just sort of position as this is what you should do. And that's it. It's easy, isn't it? It's easy just to say you should just offer people 10%. And that's it, there's less admin,

Al: 3:51

there's less hassle, it's just easier. And it's also it's easier to take from from the perspective of someone who's listening to that they're like, Yeah, I can actually see that, you know, if that's all I have to do, I just have to find something and be able to offer them 8%. And that's the hook and they're all in great stuff. But we know it can work in many, many different ways. And it's part of the reason as well, why, like property investing in itself is so amazing in terms of the structuring and the creativity of it. It's it's a blank canvas, isn't it? And this is something that we're gonna dive into really deep but yeah, I mean, what, what things are like from our experience, from your experience, especially what what things have we sort of come across what things do we need to delve into here that people might either be experiencing themselves or problems they might run into the interesting to go into this first.

Sam: 4:43

So I think a lot of people think that is easier to offer 10% than do a JV because quite often, someone you know, has got a loan agreement in property so you can just pick up that loan agreement and templates. Repurpose that template. There's floating around, or maybe you've got no free from course you did or something like that. So that just feels a lot easier when you know, a JV agreement might cost a couple of grand three grand maybe to get put together. But from my experiences, it's good to have options for to do both really, because it's all about what's, you know, what specific daily doing, what's the project? What are the exits look like? You know, all of that stuff is going to influence the kind of agreement that you want to go forward. And obviously, it all depends on what the investor wants.

Al: 5:37

Yeah, no, absolutely. One thing I did want to say, though, this episode is not about bashing the percentage, by the way, and saying it's terrible, you should we should be jiving with people. I need to put that one in there as a disclaimer, because obviously, we've done we've done loan agreements and that kind of stuff as well. But the idea here is just to explain, or at least share, that there's more out there that there are other ways of doing it. But yeah, I agree, mate, I think it is sort of that that that little hurdle of, okay, setting up a JV might be a little bit more time consuming, a little bit more difficult. But yeah, I agree that, you know, it's a blank canvas, who is it you're talking to, and what might work for them as well, that's really key, which kind of like leads us into, you know, the fact that there isn't really much strategy around it is there, you know, there isn't a lot of strategy around raising finance in itself, and the sort of the industry saying that, you know, basically the route is, you know, Chuck an investor pack out there. And it'll stick if it's good, because they're like the percentage, or the banks will lend you some money. Or I can just get 100 per 100% Finance product on what I'm doing. So that's another thing, isn't it? Like, we know, it just goes a little bit deeper than that? Yeah, we know, it goes a little bit deeper than that. I'm clicking my pen, by the way. Bad podcast form.

Sam: 7:08

Yeah, it does go a little bit deeper than that, obviously, you know, banks will lend, but you need the rest of the money.

Al: 7:17

Let's talk about that.

Sam: 7:20

Banks aren't gonna lend you all the money, surprise, surprise. Even Even if you find a really cheap deal, just for example, if you find something that's you can buy for 600k, but it's valued at a million, then banks or banks or bridging companies are still going to want you to put in some of their money. There are products out there that you can get 100% Finance, but they're very rare. And I don't think I've ever actually seen anyone use one. Yeah, to be honest. So they are out there. So you are going to need to raise some money. It feels a

Al: 7:59

little bit with 100% product like that. It's like just grabbing you by the balls a little bit as well. I don't know, there's that element as well. Senators

Sam: 8:06

often feel that way. I think I've seen the percentage of advertised for the 100% products, and ya know that.

Al: 8:16

But that sort of, you know, lends us into, you know, so is it easier, then, you know, this is again, coming back to the percentage? Like, is it easier to just offer the percentage return the 10% loan agreement return over a JV like that, that seems to be the general consensus out there. And I think this is something that we will delve into, and kind of the reasoning why it might not be, you know, the only the only thing out there so yeah, I think that's really key. So yeah, let's get stuck into sort of some solution based thinking for everyone and have a little look at sort of other alternatives. What what else is out there? May what else is out there, Sam talk talk to us.

Sam: 9:01

So the big thing I want to talk about here is just if you go out and you start offering people percentages, blindly, essentially, if you're just firing out investor packs, or you're just putting notes or posts on Instagram saying, I'll give you 10% Well, number one, you shouldn't be doing that anyway. But number two, no, no, if you are doing that doing that, then you're offering someone something when you have no idea what they actually want. So there's there's just a lot of work to be done before you start offering people things really.

Al: 9:38

This is when the process comes in, though, isn't it? Yeah,

Sam: 9:41

this is. This is all part of our process, isn't it? Yeah, yeah. Yeah, go on it. No, sorry. Go. No, go. So yeah, like we say this comes back to our process, really, which is about doing a lot of work beforehand. And when your split and then when you're speaking to people, it's finding out what they're looking to achieve and why and what might suit them. Why they might prefer a JV, why might they prefer a percentage, they might want to be in kind of shit, some kind of shareholder agreement, it all depends on what their, what their preferences could be based on. Other people I know that have invested in property and they want to do something similar. They might have been involved in something before where they, it was a percentage return. And they prefer now to do a JV. So you've got to find out and ask all those questions about what people have been up to why they might prefer certain things, what a good sort of project or what a bad project looks like to them, finding it all that stuff. It's not until you do that, and you have sort of multiple meetings or conversations with someone then you find out okay, this is the kind of project that might suit you that I'm doing. And this is the kind of setup, you know, how does that sound to you? So you start talking about it rather than just blindly offering? Hey, this is what I do. I can give you 10% Yeah, it might not land with a lot of people. And it's gonna land with some people because they love the idea of Timpson and that's great. But why not just spend a bit more time figuring out what they actually want?

Al: 11:21

Yeah. And I think if you look at any business out there, this is how things are set up, right, someone comes up with a product, they don't just fire the product out there, with absolutely no idea of who it's going to what that person looks like, what their likes, dislikes are. And you know, granular habits might be, you know, that's how sort of if you want to call it marketing campaigns are built, they're built on the other person, not on so much on the product, of course, the product has to be good. I get that, you know, of course, your development, your deal your project has to stack, I absolutely understand that. But it's not all about the product. It's also about that other person and what we're doing here, if you think about it, when you're just offering 10% to someone without any sort of acknowledgement of who they are, what they like, and all of this stuff and what they've done before and, and so on so forth. And again, yeah, that is against the FCA rules, we know that. So that's something to think about too. But you're you're just putting a product in someone's lap without asking them any questions. Now, logically, that makes no sense. So what we're trying to talk about here is changing the script a little bit, try to think more about, okay, how do you approach these people in? Or how do you approach this situation in a different way, because the hook is not always going to be the percentage. And that is absolutely right, or to sort of begin to understand in some shape or form, that there is a different hook, there can be a different hook. And that hook is dependent on that other person.

Sam: 13:07

And my experience of this is when I have been talking to potential investors. You know, one thing I did was do a blended rate with someone where while it was it was a rite, where we had a low percentage return, so it was like 4% annually. But we also did a profit split as well. So it was it wasn't a 5050 because they had the guaranteed 4%. But they also had a small amount of the profit split as well. So I got to that kind of agreement and offered them that because they talked about wanting some kind of return that was guaranteed. But they also liked the idea of being in the profit share as well. Yeah. So okay, well, how about a small profit share and a bit of a percentage return best of both worlds? myself? Oh, yeah. Like she said, or didn't even think that. But yeah, sounds like a really good idea. I haven't heard anyone else offering that to be honest. But we're just it would work really well for them. They said they liked the idea of both things, but not sort of completely one or the other. So let's mix it up.

Al: 14:18

Yeah, but that's their needs, isn't it? And it's like taking that into consideration. Knowing that you know, you're on a blank slate here and you can script it out in in numerous different ways. And just having the confidence to be able to you know, ask him those questions and go deep enough for to find out that information is key. So what happened with that project? Did it turn out all right, did they get what they wanted? Were they happy?

Sam: 14:41

Yeah, they do. Indeed. Yeah.

Al: 14:43

Were you happy?

Sam: 14:44

I was happy. Yeah, it was a great projects. Great. Yeah.

Al: 14:47

So there you go. Is it a massive like, that's the example isn't it? It's how you can do it differently and still work out like really well?

Sam: 14:54

Yeah, that's it. I think it was about I think it was nudging 30% profit on GD V that one nice Some little commercial conversion, purchase price 345. Pretty simple build no extensions apart while did the loft that was an extension, and then a refurb of the internals to create two two bedroom flats. Yeah, purchase price 345 Build was just under 200. And gdv was like 939 35. So nice. So yeah, nice one. It's amazing what you can do. Indeed, and yes, some obviously nice, some good percentage returns for the 4% for the investor. But then yeah, a nice, nice return from the profit, because there's obviously plenty of profit in that one.

Al: 15:38

Yeah. And I think we hear these words right all the time. And it's really interesting to me, because that, to me, sounds like a win win. Right? That, to me, sounds like you created a win win for all parties. Now, we hear the Win Win sort of concept a lot. And I think it's just knowing that the Win Win can come in different ways. You know, it's not purely monetary. Like, you know, obviously, we've given you an example of profit, and that, that that was in the deal. But, you know, just knowing what that other person wanted, you create that win win. And I think that's key, because you always know what you want, or what you can have and what you can't have, you know, you've done your due diligence on what yourself. But I think that that now allows you to create that win win with somebody else. And I think that's really key to, to consider always,

Sam: 16:37

and always just knowing what you're prepared to accept as well. Yeah, yeah. If you're, if your ideal lifestyle was based on X amount, and you can get that through doing a development where, just for example, if someone invests all of the money, but they want 80% of the profit, just for example, and you can get the life you want from doing that deal that year, and you get a 20% split on the profit, then are you happy with that?

Al: 17:06

Well, this comes down to actually doing that work on yourself, doesn't it?

Sam: 17:10

You know, people will say, Oh, no, there's no way I'd you know, do all that work for 20%. But well, what's the deal? What's the profit? What do you actually get out of doing that deal? Yeah, they're not not particularly favourable terms. But if you get the life you want out of it, that you've planned for banks, or costed out, then why would you do that deal? It's an interesting question to ask.

Al: 17:32

It is interesting. But um, I am going to throw in disclaimer number two of the show, which is, we're not telling everyone to go out there and offer a percent to every investor they say. Can you imagine that the next Facebook wave of posts would be 80% return? Anyway? Yeah, just needed to throw that out there just in case. So yeah, I mean, so the result is, you know, potentially more profits, right? So being creative, being able to sort of move the needle and build that sort of structure out with someone in a human like way and conversation, finding out what they want. It can mean more profits for everyone. And not always don't get me wrong. And like I said, we've said it a few times that, you know, the percentage return on a loan agreement could be more profitable, and it could work better for all parties. And that's great. Yeah.

Sam: 18:30

As opposed to a 5050. JV. Yeah, yeah. Yeah. But maybe not. That was one of the one project I did, we had a couple of delays. One was a build one with party wall agreements, where there was all sorts of chat around threats of high court and having to put 65 grand in escrow for any potential damage, because the one property, so that was kind of protracted party wall agreements that lasted for about six or seven months. And then yeah, one of the builders, chucked them off site after about halfway through the build. So there was extensions that and you know, the whole project took over two years. In the end, it was a conversion of a house to four flats. And then, if I've sort of worked out afterwards, after just having a look at things, if I'd have gone into that with an investor and paid them 10% on the money they put in, then I would have actually been worse off by about 30 grand if, if I'd have given them 10%. So the fact that we went 5050 on the JV worked out actually better for me. Yeah, it's what they wanted anyway, but I just thought it was interesting to go and look back afterwards and figure out actually, that JV doing 5050 is far better than taking someone's money in 10%. Obviously, if you do a quick flip there You know, you've got a little flat that you can buy, and you can do like, you know, like an eight week build and flip it on, then chances are that it might be better for you to do that 10% return. But it might not be, it might be still be better to do a JV 5050. So, yeah, it's 10% is not the only way. And there's obviously loads of different ways you can set up your deals. And you can do a mix of things like I did, with the fixed return as well as a sort of smaller profit split. And obviously, any agreement starts with a blank piece of paper. So anything you want to put in there you can put in,

Al: 20:35

yeah, no, I like it. It's an eye open Actually, your your example, I find that really interesting, especially when you go back to it, because maybe that is part of the reason why we feel or some people may feel that the percentage is better, because they just think they're going to get that, that that's what it's going to be. That's the 10%, this project is going to take this amount of time, because all projects take exactly the amount of time they're supposed to. And then they've put all of their sort of focus on that that's going to be the situation, but we know that you know, really, property is it, there's so many variables, so many things can happen, as Sam's example says, and it's really important to factor that into. But the one thing that I thought about when you were talking around that sort of example was your investor, I would imagine, and this is only throwing it out there. I would imagine that that investor was probably more committed to making things work when times were tough than someone that may be who you were just giving them a loan agreement return. And that was what they were getting. And, you know, I'd imagine maybe because that person who was investing with you was part of it was probably a little bit more committed to making it work as well.

Sam: 21:54

Yeah, absolutely. Very supportive. Quite hands on as well. So yeah, really good person to work with. They had a bit of experience in property, and also accounting as well. So that actually took care of some of the things I don't like too much, which is doing the VAT returns and accounting payments and all that. And yeah, so it was a great JV setup, really, because I had the experience with the build, they had experience in other areas, and it worked really well together.

Al: 22:22

And that is another thing, isn't it, that might not be about money. But that makes a JV work that makes a partnership work is you know, when you're talking to someone and like learning all that stuff about someone like that helps you shape a deal, he helps you shape how things look. And that's amazing, right? That you can not only be sort of thinking monetary, okay, how does this look in a percentage split or whatever it might be? But you can also look, how does this look and skills? Like what are we both good at strengths and weaknesses? And how do we make this work better

Sam: 22:55

than others, some investors might not want to be involved whatsoever, but other ones that are quite happily to put some time and a bit of effort into it, especially if it can they can really be adding value to the project. So

Al: 23:06

yeah, no, I agree. So the final thing I think we're going to talk about is, for me, probably one of the most important things of all, and it really focuses on something that we have learned and we have experienced to be a big, big issue when people are going out and talking to people is like why do I need to ask all these questions? What's the reason for it? Well, what we've discussed in this episode so far, it gives you a genuine reason for finding out what people want, whilst having a conversation with them. All of this stuff gives you that that genuine purpose and intention around the way you speak to someone that is is surrounded about around this sort of subject of well, this is this is the structure, we're creating the structure. But in order to do that, I need to know what what's in it for you. I need to know more about you and your experience of investing and all of that stuff. So we can really get over that hang up of why am I asking all these questions? What's the reason for me having to have all these conversations with someone? Because surely it's just a percentage thereafter? Well, actually, it's not. And this gives you the reason yeah.

Sam: 24:23

And it's just so easy just to be open with them and say, look, the reason I'm asking these questions is for X, Y and Zed reasons, you know, I need to know these things. Because we're going to do this together. I need to know what you like what you don't like all the rest of it. So we can put something together that suits you and it suits me. So you can just be really open and just say this is why I'm asking these questions,

Al: 24:45

kind of ducked and dived gone into multiple different areas of this. So let's wrap it up. Thanks very much everyone for listening. As always, please subscribe if you're enjoying what we're doing and also share it with someone that might benefit from it. That's the whole purpose of us doing He needs to get the message out there so that people can start raising some money.

Sam: 25:05

And if you could leave us a review, that'd be great.

Al: 25:08

Oh, that would be good.

Sam: 25:10

Thanks a lot. Thanks, guys.

Al: 25:11

See you next week.

Sam: 25:14

If you want to attract investors without asking for money, check out raising finance club.com for our free resources, and you can also follow us on Instagram and Facebook at raising finance club