How I sourced a purchase lease option (PLO) in Nottingham by cold calling....
Updated: Feb 4, 2019
“You miss 100% all of the shots you don’t take”
The key learnings within this deal are pretty much outlined by the title of this article, it’s a famous quote from ice hockey legend Wayne Gretzky and genuinely one of the most applicable quotes to property deal sourcing. This deal was my first PLO so it was tricky to not be too keen, PLOs are put on a pedestal so I wanted to make sure that the deal fit my usual parameters and that it was actually a deal and not just me being a motivated because it was a PLO. To find this property I used a sourcing strategy used to find rent to rent deals. It starts with scouring the internet for leads, looking on Gumtree and spare rooms. You collate the information of the rooms or houses which look like you can add the most value to. On gumtree and spare rooms, you can select the listings to be cheapest first for example. You then create a spreadsheet and take down all the important information. Once you have a list of 10-20 you sit down, grab a coffee and clear your throat to begin the calls one after another. I always did it! This was so that I wouldn’t lose momentum, the first few calls are ropey you stammer and stutter the way through your pitch but by call 3 or 4 you are on a roll and sometimes, you manage to sound like a professional. One after another I would take the “no” on the chin and move on, until someone would show some interest. The idea on this call isn’t to strike a deal. It’s to get a viewing and begin building a rapport. On this occasion I believe I was around 10 calls into my list when a landlord showed some interest. He was trying to rent his 4-bedroom student property through Gumtree for thenext academic year with a picture that looked like something off of a Saw film set. Just a lonely chair, in a dark unlit room.
Understandably he hadn’t had much interest and so my offer of guaranteed rent seemed to entice him. He was a hands-on landlord still visiting to trim the gardens and clean the windows. So, a deal whereby someone would take over his property and almost pay him the same rent he was receiving now but remove all of his issues really ticked a lot of boxes for him. The listing for a room was £50prpw in a 4- bedroom house. I knew that rooms in that area generally went between £80-£90pw so there was a huge uplift here if the building could be turned around cheaply. As we got to the end of the call I asked him what his future plans were with the property. His response was, “I want to retire, I can’t sell yet as I’ve just sold my other property and I don’t want to get hit with a large tax bill” the PLO alarm rang in my head.
Fast forward to the viewing… a few weeks later and we managed to agree a purchase lease option. Many people make themistake of over complicating things when trying to explain a PLO to a vendor. I find keeping it simple most effective. If I recall correctly I put it like this, “if I could rent this for 3 years and then purchase it at the end of that term all done through a contract with a solicitor would you be happy?”
I managed to rent the property for the next academic year showing prospective tenants around another project of mine which was just finishing. There was virtually no voids except the build time. To help rent the property and as we were aiming theproperty at students we decided to balance the rooms out so there was no arguments.
This project was completed in 2017, since then a lot of things have changed and I couldn't get this refurbishment done again for the same money. The refurbishment was relatively small as the property was an existing HMO the main two costs where the kitchen and bathroom, but just to give you an idea on the scope of works we didn't change any woodwork, doors/ windows, electrics or touch anything to do with the central heating. We moved one stud wall and created a larger room by creating a right angle off the airing cupboard and again extended the hallway into the bedroom the back of the property to utilise an old doorway in the front left hand bedroom. .
The numbers Agreed purchase price of £120,000 in April 2020 current value £140,000 Monthly rental of £600PCM £12,000 spend on refurbishment Rented prior to taking on at £1508PCM to students NET Cashflow of £689PCM managed 68% ROI