Property Secrets have acquired a new member, adding to our our team of writers and one you might know having written for Your Property Network amongst others in the past. Paul Hanafin has gone from busker to property millionaire from playing guitar on the streets of the North East where he grew up he now has his own letting agency and seven figure portfolio. We interviewed Paul below and he’ll be advising over the coming months ways that you can follow on becoming a successful property investor from scratch.
My start in property was quite an interesting one. After graduating with a degree in medicinal chemistry, I got a job in the science industry. I didn’t enjoy it, and as music had always been a hobby of mine, I decided to try and make a career out of it.
I ended up playing around the country, writing my own songs and even lived in Spain to perform at holiday resorts. I was on the radio too, but no number one albums, though. I managed to just about make a living out of it.
For ten years, I was singing at weddings, pubs and bars. I was a regular busker and a resident musician in all the local pubs around me throughout my 20s. But by the time I was in my 30s, I had a family. I didn’t want to do gigs in the evening any more, because I knew I’d never see my kids. I needed to find a stable job so I started teaching music.
I was going through an emotional time. I was a bit lost career-wise and I was frustrated at teaching kids who didn’t listen. I was suddenly facing the harsh reality that I was never going to be a touring rockstar. I came across Robert Kiyosaki on YouTube, and he introduced the idea of different business styles and not needing to be an employee to make money. It hadn’t occurred to me that it was even possible to make money in this way.
Off the back of my work singing at weddings, I set up a wedding services rental business, renting out photo booths and the like. I learned how to orchestrate the business — not only hiring the booths out, but getting people to man them too. I ended up earning a relatively passive income, so I started to look for other ways of creating an income from renting things out. I realised that property was the best way to do it.
Through the Facebook algorithm, I started seeing adverts for Robert Kiyosaki’s seminars and events. I attended one and joined the property circuit. At this point, I knew that property was the way to go. It felt like the right time to set up a property future for my family, build something stable and not be reliant on a fly-by-night business.
THE BEGINNING
I bought my first property four years ago as a BTL. I tried to do it sensibly, so I bought one that didn’t need doing up, just so I could learn the process of buying and renting it out. I decided to take on a small project for my second property, to learn how to do a refurbishment. And it went from there. I eventually worked up to HMOs, and I suppose I’m still on the journey now. I’m looking at some bigger developments at the moment, but you can always go that one step further. I think I’ve done a lot in the time I’ve been doing it.
“As the portfolio has grown, I’ve built supporting businesses around it with other members of staff and business partners.”
I started buying a BTL with no money, and now I have a lettings business, project management business and a sourcing business, on top of my own portfolio.
One of the things I realise about what I’m doing is that I was singing in the street for a few coppers, and I’m now overseeing millions of pounds’ worth of financial transactions, just solely from my own activities. It’s quite a change! It’s benefitted the local economy too. I employ a lot of tradesmen and contractors, and there are tens of thousands of pounds running through all the time. I did a calculation recently, and worked out that there was at least £3m of capital coming to the region I live in, all based on things that I’ve done. It can be anything from an investor in London buying a property facilitated by me, or the contractors who are paid to do the refurb. It’s a lot more impactful than what I used to do in terms of the local economy, so it’s quite rewarding and interesting to see how far I’ve come.
GETTING STARTED FINANCIALLY
It’s difficult getting started for most people. How do you buy a property when you haven’t got any money? It’s not just about getting the deposit, because there are a lot of other risk factors involved with purchasing a house. I learned that I had to be prepared for much more than I thought.
When I was working on the wedding business, I started to get a bit of savings, but it wasn’t anything special. And my first couple of deals were quite risky, because I used business loans and paid contractors on credit cards. It was a gamble, to be honest. I didn’t have any money, but I threw myself into it and used the loans and credit cards to get going. It was a crazy way to do it.
I had attended a lot of the courses with various providers in the UK, and I learned as much as I could, which helped me a lot and I believe it was worth it. There’s a lot of talk out there about how courses are pointless and everything can be found in a book, but I didn’t feel like that. For me, it was money well spent.
Someone close to me lost £100,000 because of a property deal that went wrong. They didn’t have access to property education and took bad advice from other people. I didn’t want that to happen to me and I didn’t want to repeat those mistakes. I needed to learn what to do and not take any uncalculated risks, because mistakes can be a lot more than the price of a course.
The education paid off and the revaluation was exactly what I thought it would be. I got the money out and nothing was left in. It was mortgaged, but there was no remaining capital left in from me. It worked, and it’s a good job it did. From there, I just repeated the system and reinvested the money and have gone on from there.
RINSE AND REPEAT
I’ve found that the best way to recycle funds is to find creative solutions. There’s no way I could build a substantial portfolio by saving for every deposit. It could take years to just get a handful, and a handful doesn’t change your life.
The philosophy I have to do it quicker is to use other means of finance ie, not using my own money. Cash is limited, and when it’s all used up there’s nothing more to do other than stop. I’ve developed good relationships with angel investors, and it’s been a big lesson for me.
At first, I felt like I was asking someone to borrow money, but now that thought has been flipped on the head and I realise that I’m making them money. Even if they are not actively involved, they’re still getting paid. I commit to giving them the returns on their money that they couldn’t get in a bank, and I need to work my socks off to find deals to enable me to offer this.
In order to grow, I think that both cashflow and capital are necessary. To get cash flowing, the main strategy is to buy and keep, and capital is the method of raising finance through earning, not loans. Flips are a good example of gaining capital. We also have the other businesses to generate revenue through sourcing and project management.
A big learning curve for me was realising that to buy a lot, I had to use other people’s money, and in order to make that safe, I needed to be generating capital to pay it back or to pay down a deficit if money is left in deals.
People talk about the deals with all money in and all money out, where the refinance covers the costs. However in my experience, it’s not that common and it’s not possible to build an entire portfolio by buying this way fast. It’s quite a complicated topic and I’ve mulled on it day in day out for years.
SUPPORT FROM FRIENDS… AND FAMILY
When I first started out, I didn’t tell anyone what I was doing for a long time. I didn’t want to receive any advice from anyone else, because I wanted to do what I wanted, make my own decisions and I didn’t want any influences. I didn’t tell anyone I was attending classes or courses.
When I eventually told my wife, she was very supportive. She didn’t discourage me, but when I opened up to other family members, they were more cautious & concerned for me in a well meaning way. I have many family working with us now so it has moved on. You have to make & take responsibility for your own decision in life, that is the only way to learn for yourself.
BALANCING LIFE AND WORK
I’ve really struggled with finding a healthy balance recently. It’s not all been rosy with property — it’s been stressful at times and there’s been a lot of challenges. It’s a hard business to be in. It’s quite a large-scale transactional business and there are tens of thousands, if not more, at risk so there’s a lot of stress involved. But it’s also challenging because its self-employed business too. At first, the phone would follow me home and I didn’t track the hours I was working. At one point I was working continuously and I almost lost consciousness of what was going on. I got into a bad place on a personal level because of all the stress, but I’ve worked myself out of that,. but I’ve worked myself out of that,. It wasn’t easy, but I’ve definitely improved since then.
It’s all part of growing and learning. I don’t think you can take on a big business and a big endeavour and expect it to be a cakewalk. I’ve had to change my outlook and have had to learn to cope with it. I now have a work phone and a non-work phone, which was a big adjustment for me. I know it sounds simple, but it took me years to do it. It’s nice to be able to switch off and not have notifications outside of working hours. It’s something I would recommend to everyone.
Finding a work-life balance is difficult. I’ve been growing the business, but it’s something I have got to get used to and try to improve with it. I think it’s a natural part of growing a business.
LOCATION AND STRATEGY
I live in Darlington in County Durham, and have properties in Newcastle, Teeside, Gateshead and Sunderland. It’s quite a wide area, but all within a 40-minute drive. We have different strategies for the different sub-areas. Darlington is good at the moment, because there’s a lot of investment and developments, including a new Amazon fulfilment centre, which is attracting a lot of investors to the area.
Newcastle has a large Article 4 area, so there is a strong demand for HMOs but purchasing can be difficult. The key markets for us at the moment are Darlington and Teeside due to the developments and leisure parks being built around the areas.
Because more people are looking at this area to invest in, it’s difficult to know how the market will change over the next few years. If there’s a higher demand, it might be matched, but it’s hard to see how the balance will sit at the moment. I think the market is stable enough for BTLs, and it’s probably getting better.
I am a huge advocate for BTL, and I’ve bought a lot recently. I can see why some people think that it’s not worth it as a strategy, because it can be quite eye opening to calculate that if something goes wrong, all cash flow can be wiped out. But one of the things I like about it is how hands-off it can be. Of course, it depends on the exact house and tenant. I’m also acquiring properties for the longer term to try and grow my asset base of future appreciation, and BTL is a great strategy for the long term.
But also, consider the alternatives. Although HMOs and SA generate more cash-flow, the occupancy is often lower than the first calculations and that could affect the return on investment. Plus, after taking into account the amount needing to spend to meet various regulations, it’s hard to get a good capital deal on it in terms of the overall spend on the property versus the bricks and mortar value. With the current crisis the buzz words such co-living & SA are hit hard – and single family buy to let is still strong as it is a fundamental way of living rather than a trend or circumstantial niche.
Therefore, in the long term, it’ll take a long time to generate any growth because of the amount spent in the first place — maybe even more than what the house is worth in the first place.
This isn’t to say that I avoid these strategies. I buy HMOs for my own portfolio and manage several on behalf of other investors. It’s a good little way to get some temporary cashflow, but overall I don’t think it’s better than BTL.
TENANTS AND MANAGEMENT
As our portfolio is scattered throughout different towns in the North East, we cater for a lot of different types of tenants.
I would say that the working professional would be our majority, but we also have students and DSS too. We never rule anyone out, and a lot of it comes down to the referencing and the gut feeling of the tenant at the time.
I have a dedicated team of staff for managing the properties. If a house needs to be visited, I encourage them to make the best use of time and do a couple of inspections or do some viewings. I always try to avoid one-off trips.
If there is a problem in any of our properties, a member of the management team will call the relevant trade. We have different contacts for each of the areas and maintain good relationships with them.
SOURCING PROPERTIES
I have dedicated staff in our sourcing business who scour the local market. As a company, we have built some relationships with other estate agents who will often pass us something they think we might be interested in. Recently, people have also started approaching us directly to sell their properties.
I have a set checklist for the sourcing team to follow when looking for suitable properties. When it’s almost ready to start the buying process, I will assess it myself and consider whether it will be a good fit for my own portfolio, a sourcing client or a JV partner.
If any money needs to be spent on a property, I prefer those in which the overall spend is no more than the bricks and mortar predicted value, preferably less. If the property is sourced for another investor, it can be difficult to discuss predictions about costs because they can be impacted by a number of different variables. It could need more work than initially thought or a surveyor could value it for less than expected, for example. I always prefer any numbers we look at to be based upon comparable sales if possible. I believe it is important for investors to do their own due diligence according to their own circumstances, then make decisions for themselves in spite of any advice. It is impossible to predict the future so any projections, although useful, are just estimates.
We find similar conflicts when considering the ROI too. Although we try to gain an annual net cashflow of 20% ROI, it will still depend on many future variables. It will always be an estimate.
ADVICE FOR OTHERS
Something I’ve always been a big advocate of when coaching people (which is something I do with any spare time I get) is having a second exit. When getting into a project, it’s always good to start thinking about what would happen if it doesn’t go according to plan.
I’ve had no money before, and I think back to the days of when I was doing music or when I was on job seekers allowance. I had no backup plan. I don’t want to be in that situation again.
I think very cautiously. The estate agent might say that it would rent for this, or it would be worth this after a refurb, but it could go wrong. Refurb could be higher and the rent could be lower. So it’s important to make sure the second or third exit will work just as well as the initial plan or provides an exit you’re ok with.
As an addendum to that, I always factor in huge contingencies on all our figures as well, so that I’m covered in that respect as well. But ultimately, the safest second exit we’ve come across is making sure that we don’t spend more than what the property is worth.
That’s the best bit of advice I give to people.
Stay safe x
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Paul Hanafin