The Property Voice Podcast - Soundbite Episode: Reflections: from a couple of property deals…and also from a Cambodian freedom fighter!
I am still travelling and this week saw me visit Siem Reap in Cambodia. I had planned to give a brief update on a couple of my recent deals, which I will still do. However, my thoughts were more than stirred up by my visit to Cambodia and the story of our guide, who fought Pol Pot in an attempt to overthrow the wicked dictatorship. It wasn’t his fighting spirit that left its mark on me, rather it was his humility and most of all his sharing of what Karma means to him and many of his fellow countrymen. Join me then in a two-sided reflection of the tangible and intangible actions that we take…or cause and effect if you prefer.
Contact details of Bunleap, the guide that showed us around the sites in Siem Reap, Cambodia.
His phone number 0125 29905 or from oversea call +855 125 29905
By all means mention Richard & Catia if you do connect with him 🙂
Today’s must do’s
We should stop periodically and try to consider how our actions have a causal effect on our current and future circumstances.
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Transcription of the show
Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.
As you know, we are currently travelling around parts of Asia at the moment. This week saw us move to Cambodia and Siem Reap in particular. What a magical place this is, with the Angkor Wat temple, a World Heritage site and also a candidate for the ‘eighth wonder of the world’ award too. Sunrise at the temple with its pinkish hues behind the five towers reflecting in the lake is a sight that will live long in the memory I have to say. Anyway, this is not intended to be a travel podcast, although I hope that extra dimension resulting from my travels is adding to the curiosity value at least. So, let’s try and draw a link to property investing shall we in the main discussion of the show…
I will come back to Cambodia in a short while, but first I just wanted to give a brief overview of a couple of deals that I have been working on of late that have been a bit up and down and also proved a little challenging for a couple of reasons.
I will do a longer update on my recent activities a little later, however, given this is intended to be a Soundbite episode, here is a quick summary of a couple of deals that I have been working on lately…for better or worse.
The first is an instalment purchase agreement using vendor finance. OK, so that’s already quite creative isn’t it? Then, add into the mix the fact that the properties concerned are in Florida, USA and it gets even more interesting!
Yes, I am buying a couple of condos or apartments in Orlando. They are not in the Disney target catchment area, rather they are aimed at providing long-term rentals to local Orlando folk instead.
Here is a brief outline of the deals.
I am buying the properties by monthly instalments over 15 years. The net cashflow position is slightly negative by around $100 per month at the outset. However, when you factor in rental inflation and the fact that the properties will be owned outright after 15 years, I am pretty happy with that. There is no deposit to pay, although there are fees, including sourcing and legal fees. I carry the currency risk obviously too.
The trickiest parts for me in doing these deals were in two main respects. First, I had not seen the properties myself…gulp! So I had them inspected and also sought some warranties from the vendor as to their condition, which brings me to the second point. The second issue I had was with the legal contract. To say it was heavily one-sided and weighted in the favour of the vendor is something of an understatement! I spent quite a bit of time renegotiating the terms of the contract and was not swayed by the claims from the vendor’s agent that ‘all the other investors have signed it without amendment’. I can be a bit of a dog with a bone when it comes to legal agreements and I was not going to sign a contract that had no statement or warranty over the condition of the property, a one-way indemnity clause and a waiver of all claims against the vendor on my part…no, no, no, no…no!
As a result of the contractual changes, the deal dragged on a little longer than perhaps all would have hoped, but we got there in the end and I have just taken ownership of two Orlando condos to add some further country diversification to my property portfolio too.
The second deal I wanted to talk about was for a couple of lease option deals in Liverpool that I agreed to proceed with around Christmas. However, these have not turned out to be quite as good as I was lead to believe and so I managed to extricate myself from them…although that proved to be quite a challenge as you will hear.
The deals were for two terraced properties in Liverpool, with a 10-year option to but the properties for less than the owner paid for them, albeit at the peak of the market in 2007. They were both cashflow positive and had a payback period of around 2 years on my upfront cash investment. So far, so good then, so what went wrong?
The problem lay with the description of the condition of the properties. One was described as good and ready to let and it pretty much was to be fair. However, the second one was described as needing some and I quote ‘light cosmetic decoration’ to it. I had a figure of £500 written down from my first conversation with the sourcer, although he later backtracked on that figure and claimed he said £1500 instead. I had no problem with either figure in reality as the deal still stacked up based on these numbers.
However, what was described as minor cosmetic work by the sourcer, was in fact quite an extensive list of remedial works after what looked like the left overs of a visit from Jack Nicholson in the Shining! Walls were stripped of their plaster and in some cases missing altogether, the bannister had totally disappeared, all the radiators had been pulled of the wall, damaging the pipework in the process, the electric sockets had all been pulled off the wall, holes were kicked & punched in most walls and even the odd ceiling, kitchen units were pulled off, the bath was full of old rubbish, water, and even a radiator and goodness knows what else. There was evidence of damp and the roof and guttering was not in great shape either. The back garden was more like the local tip than a garden and so on. Never in your wildest dreams could you say the level of work required was only ‘cosmetic’. However, this became a point of contention between me and the sourcer, who was reluctant to let me back out of the deal and return my fee (more on this in a minute).
I was quoted around £12k to put the property back into a rental condition, so there was no way the deal would work on that basis.
The main issue I had was with this particular sourcer’s attitude. He maintained that the works were only cosmetic, despite a local agent refusing to take the property onto their books and describing it as the worst they have ever seen…and bear in mind they operate in this delightful part of Liverpool too! Also the quote of £12k was rubbished and alternative ‘quotes’ of £4k and nearly £2k were produced, although they did not address all the issues identified. It should also be noted that the sourcer did not provided with any internal photos before committing to proceed.
Rather cleverly the sourcer had worded his fee agreement to say that the fee was only refundable if the vendor was to pull out after commitment. Added to this is the fact that the fee had to be paid in full and in advance. I don’t mind sharing with you that you should not work this way with a reputable sourcer and nor do I under normal circumstances. However, on this occasion, I had negotiated a two for one deal with the sourcer and agreed to pay the fee upfront in return.
Anyway, to cut a long story short, I did manage to position myself with the vendor in such a way that they decided to withdraw from the transactions rather than me and so I was free and clear to receive the full refund of my sourcing fee then J I am sure I would have had a legitimate case to reclaim the fee in any event via the courts but that is best avoided for a number of reasons.
I guess the moral of these two stories is as always, do your full due diligence on all aspects of any deal you plan to get involved with. This obviously includes the property itself, but also the people concerned as well.
If you want to know more about either of these deals, then by all means drop me an email: firstname.lastname@example.org and we can have a natter about them and how I managed to structure the deals and protect myself at the same time.
OK, so I have rattled on a little bit even with my soundbites head on, so in brief then, I wanted to share a short reflection from my trip to Cambodia.
As I mentioned, I visited Siem Reap in Cambodia and whilst there had a guide who took us around the ancient monuments and temples.
Bunleap was his name, a forty-year old man, married with three young daughters. His story is fascinating really. He left school early and without finishing his education to take up arms and fight against the evil dictator Pol Pot, who has been accredited with wiping out 25% of Cambodia’s population or around 2 million people…including Bunleap’s grandparents and many more people he knew.
Bunleap still has a lot of shrapnel in his body from the war, but he was one of the lucky ones who managed to avoid being killed or maimed by one of the thousands of landmines that were left. He then taught himself both English and Spanish, mainly from books and the Internet before retraining as a travel guide after leaving the army.
He is a humble man but quite a character as well. He is trying to encourage his children to get the best education they can, so they can have better opportunities in life than he did at the normal school leaving age. He also shared with us some of the teachings of Buddhism, given that was relevant to our tour.
What struck me in particular was the notion of Karma, or what you give out you get back. Many of the Cambodian people are Buddhists and share this idea of Karma as a result. I was reflecting on the meaning of Karma myself over the course of this week and I think, whether or not we happen to be Buddhists, there is a lot of truth in the concept. Just as we sow, we also reap. If we put out good energy and do good unto others, good will return to us also. The opposite is also true I believe.
Now, I am not about to convert to Buddhism any time soon, however, it did make me stop for a moment and think about the idea of Karma a little bit. What if it is true and you are paid back in kind for your previous actions, good or bad? Regardless of fear of the consequences, I believe this to be a truism and a reflection of human nature and we do ultimately get back what we give out. It’s quite a deep and profound concept when you stop and think about it isn't it?
OK, so given time and my pressing itinerary, I shall call it quits in this week’s episode and leave things there for now.
If any aspect of today’s show has stirred your thoughts, be it how to get involved in instalment contract deals in the U.S., how to avoid being bitten by the sharks with deal sourcers, or if you happen share some of the same philosophy as me, then by all means do get in touch; I would like to hear from you.
I will be back next week with another soundbite episode, so I look forward to you joining me then.
Meanwhile, as always, thank you for joining me on the show today and until next time on The Property Voice Podcast…it’s ciao ciao!