One blow of the wind in the wrong direction…
Let’s talk about risks and over-stretching and creating problems…
I was charged with Fraud by False Misrepresentation for being out of my depth in the construction industry, for having no relevant experience of fighting the fires that come up working with many trades and contractors, for robbing Peter to pay Paul, for being too gullible, optimistic, naive and stupid. I didn’t see where my express train was heading and I drove it at full speed into a situation that caused upset to several people.
I did all of this operating in one of the fields/disciplines that are causing problems at the moment.
I was a walking liability in that industry and I paid the ultimate price for my mistakes.
Can you imagine the risks and challenges that someone in the property space faces when you add in many more variables…
– dealing with private investors
– relying on GDV valuations to come in
– relying on projects to be executed on time
– having to fulfil promises of investment returns and profits
– dealing with many JV partners and agent investors
– running multiple sites
– making sure rental projections are obtained
– working with expensive lending and maintaining lender support
– dealing with planning delays and council red tape
All of the above bullet points are IN ADDITION to the problems I faced with my inexperience and own personal problems at the time and I was only dealing with ‘quoting for a build job and finding a team to undertake the work on budget and on time’.
If there’s that much risk attached to the building industry just think about how much added risk there is for, say, an angel investor backing a business or property deal on a fixed return or as a JV partner!
They haven’t just got to worry about the individuals that they are lending the money to and their ability to run a project on time and on budget, they are having to rely on room rates, tenant trends, surveyors, underwriters, subcontractors, expensive bridge arrangements…you name it.
No wonder so many of these arrangements go wrong. There is simply too much going on for the average property person to handle.
How soon after one or another project starts to bleed money is a ponzi created?
One experienced developer said to me…
“The real issue in developing HMOs is the quality of the builder. The smaller the project, the higher the risk in having a builder that will overrun or pack up and leave the site”
He went on to say, “on larger sites (new build developments etc), the quality of the contractor is much higher and there are higher levels of security and professionalism”
Add to this all of the above issues around the local HMO nuances and the lender market and you have a very brittle model.
One blow of the wind in the wrong direction and there’s an issue.
Since I’ve returned to the HMO world, and talked about my mistakes and experiences (as well as completed my day job of assessing hundreds of HMos), I’ve had dozens of conversations with people who have lost funds that they lend into HMO development deals and also a handful of calls from developers who have admitted that they are sailing very close to the wind.
It’s been a real eye opener learning just how much of this ‘HMO social media world’ is balancing on a knife edge.
The 2 hats I wear from my 2 big areas of experience are proving very important right now.
Hat 1 – HMO valuer and advisor where I see the realities of HMO deals and if they stack or not. Lots do, it’s not all bad out there!
Hat 2 – Someone who has come out the other side of making huge mistakes years ago in the building industry and learnt numerous, sometimes very hard-to-swallow, lessons.
I’ve never raised any angel investment, never had any JV partners, never promised fixed returns, never sold a dream and I still came a cropper working with builders and trying to be the ‘front man’.
If I did a workshop where I did 2 sessions;
1. How to appraise potential HMO developments as an agent investor looking to lend cash.
Many of the people who lend funds are smart business people, they understand numbers, facts, figures, ROIs – but do they know if the room rates on the investment pack are accurate? Do they know if the local HMO market is reaching a tipping point? Do they know if the refinance expectations are achievable?
All of these points are just as important as doing DD on the business they are considering lending money to or the personalities that have drawn them in.
2. A session on the issues that can be created by working with inexperienced people who take on too much and overstretch. How to spot things in advance, what questions to ask build teams and how to mitigate risks associated with developers/builders. How to make people accountable for their mistakes.
All of the things I wish I’d done on the contractors that I employed but didn’t because I was in too much of a rush. And, to be honest, all of the things that my clients wished they’d done on me to avoid them using me on their build job.
It is such a critical time right now if you are lending money to people.