Posted by My last few posts may have felt a little pessimistic, talking about my worst deals and the most common mistakes people make when it comes to Real Estate, so this week I’m flipping the coin and sharing the story of my best ever property deal.
Picture the scene: it’s 2006, and a really interesting commercial property comes up for sale. At the time it was big money for me –1.25 million. I put a deposit down and six weeks later I was sitting on a 2.5 million euro profit.
So just how did I do that?
A disclaimer
Before we get into this, I want to make it clear that this was, as you’ll see, in no way a typical property deal. There was a great deal of luck involved, so before you start thinking that you should hand in your notice, move into property development and wait for this type of deal to fall into your lap… don’t!
In fact, I often hesitate to tell people about this deal because I don’t want to give anyone the impression you can just click a finger and make profit like this in the property business. That would be doing you a disservice, because it is not that easy: it requires rolling up sleeves and hard work. Occasionally you get lucky, in the same way that occasionally you can get unlucky, but in this particular case it was just extraordinary.
Getting in early
I’d heard that a bank was closing in part of west Dublin, and started putting feelers out, trying to figure out what was going to happen to the site. I already knew the area because I’d done a couple of projects there, so spoke to a couple of agents who confirmed that would be coming onto the market. It was still a couple of months away, but having that little bit of information was absolutely vital. If you have any lowdown whatsoever, it just gives you that advantage over any competitors.
I started thinking about what I could do with the building if I was to buy it, and got an architect onboard. We started brainstorming the different configurations for that particular site –it was a very high-profile site on a corner and I thought we could either convert the building, or demolish it to build something new.
We spent a couple of weeks looking at all the different options and putting together plans: we thought a medical centre, with a pharmacy on the ground floor and a doctor or dental surgery on the floor above, could really be lucrative.
We had a couple of weeks to do our numbers and figure out the potential value if we were to demolish the building and build a new one. What would the construction costs be? What would the rent be? Would it be profitable?
In this case I worked it out that we could afford approximately 1- 1.25 million for this property, which would allow me scope to demolish the building, build something new and have enough profit left over when it eventually hit the market. As soon as it went on the market I lodged an offer of 950k, in order get to the front of the line and put myself on the seller’s radar.
The price is right?
As it turns out there was already another bidder in the mix who I ended up getting into a slight bidding war with. I bid 950, he came back with 975, so I bid a million. Rather than letting it drag on the agent came back and said they were going to go to best bids between the two of us – on Friday of that week they wanted us to submit an offer in writing. Whatever the offer was would be the bid and the winner would take the property.
So, I went and put together my bid. I said my offer would be 1.05 million, with a proviso that should another bid come in higher, I would be prepared to pay 5k more than the highest bid, up to a cap of 1.25 million. It sounds complicated, but basically meant that I was prepared to pay 1.25m, however was trying to get it at a lower price if it was possible. A few days later I was told that I’d been successful at 1.25m and was the winner. I was delighted but did wonder what had happened to my 1.05 offer!
Good news on the horizon
A few weeks later I got a from an agent pal of mine working in the commercial retail space, asking me to meet up. We’re having a bit of lunch and out of the blue he asked if I’d bought that old bank building. When I told him that I had and asked why, he said ‘I’ve got good news for you’.
A financial institution had been looking at that building and wanted to buy it, but didn’t get internal approval in time to make a bid. Now they had approval and my friend had been instructed to come to me and try to buy the property back for them.
Now, this is the point where you have start playing hard to get, which is a skill in itself. There’s a fine line between being seen as a bit of a shyster and being somebody who genuinely has other plans and wants to get on with a project. When he asked what it would take for me to walk away I said I already had an architectural team working on it, we had feelers out for tenants, and that I didn’t really want to sell it at all.
We went back and forth for about a week and eventually we agreed on the sale of the property at 3.75 million. We closed in about four weeks, leaving me with two and a half million profit in the space of six or eight weeks of gaining ownership of the property – absolutely mindblowing!
What was particularly incredible about this deal was that because I had put almost zero cash down (I’d been able to secure an almost 100% loan from my bank… this was 2006 remember!) it was an absolutely incredible return on investment: around a 30X return in the space of two months.
Now, I really have to reiterate that a deal like this is not typical – the best way to describe this deal was that it was a fluke. I do know one or two people who’ve done similar kinds of deal, but they’re very much ‘once in a career’ events.
In order to be in with a chance to even make this kind of deal though, you need to know the basics. My entry-level training course Foundations, is now live and available for you to join. It’s carefully crafted for novice investors (or anyone simply looking buy their first home), and is designed to mentor and guide you through the process, and basics of investing in the property market.
Entering the property market for the first time can be a daunting experience and this course will take you through the fundamentals in simple, jargon-free language. It explains how the market functions, what you need to watch out for, and steps to help you avoid costly mistakes.