This is never truer than when it comes to finding off-market deals. This is where you locate a property or piece of land with development potential and then try and purchase it from the existing owner. On paper, this sounds like a tough ask – if a commercial property isn’t currently on the market, why would the owner be prepared to sell it to you? The reason is that, as a developer, you can potentially pay a significant premium over and above the property’s current value. And just like any property owner, if you’re faced with a one-off opportunity to make a substantial windfall by selling out to a developer, you’ll likely consider it. It doesn’t guarantee a sale, but there are certainly enough cash-strapped business owners and commercial landlords out there who will have their interest piqued.
So, why do you need to ‘read’ these people? The key reason is that it can pay to be discerning. As you may be aware, many businesses target residential property owners looking for a quick sale, usually offering a cash purchase in return for a discount. These businesses tend to message indiscriminately, placing newspaper ads or leafleting entire towns. For them, it’s a numbers game. They don’t care which property they buy at a discount, and they’ve no way of gauging the propensity of any given homeowner to sell. Consequently, mass marketing is the only real option for them. As a developer, you’ll typically be looking for one deal at a time, and that deal is likely to net you a six-figure profit. So rather than take a shotgun approach by sending out leaflets, we want to target specific properties of interest and craft a more personalised approach to their owners. Put yourself in the recipient’s position – would you pay more attention to a flyer posted through every door in the street or to an individual, personalised approach from a serious developer?
Having identified a building whose owner you’d like to contact, we’ll be using those poker skills to ‘read’ our quarry and work out exactly who we’ll be dealing with. The good news is that you can do this armchair detective work in your pyjamas on a Sunday morning from the comfort of your own home (in fact, you can do it 24 hours a day if you wish, with or without pyjamas). So, what information would be on my shopping list? The first stop is the Land Registry to get hold of the title information and the title plan for a modest fee. This not only tells me who the owner is – the building itself may be tenanted, and you really don’t want to alert the tenant about your intentions – but also confirms what’s included in the title and whether there are any rights of way or covenants that could affect my development plans. If a private individual owns it, I’ll hit Google to see what I can find out about them.
If the building is owned by a business, my next stop will be a company search on the Companies House website. This free search will elicit a raft of details that will be useful to me. Is it a sole trader, a large corporation, or somewhere in between? An informal approach may be more appropriate for the former, whereas a corporate setup may suggest a more formal approach is needed. How old are the directors? A sole trader nearing retirement age might be quite interested in a cash windfall. Do they share the same name, with the birth dates revealing a generational age gap? Then it’s almost certainly a family firm. What’s the state of their accounts? A small unprofitable business may react differently to your approach than a larger, more profitable one. What line of business are they in, and what other companies do the directors own? If they’re in property development, you’ve probably missed the boat. Is it a business that you could visit as a customer? If so, you certainly wouldn’t be the first developer who has posed as a customer to start a conversation about a freehold purchase. Do they have a website? Again, a Google search can be pretty revealing and helps you build a picture of the people involved in deciding whether to sell you the property.
Google Maps can be another rich vein of information. You’ve already had a good look at the building you’re interested in, but why not look at the owner’s other properties? It can prove quite telling; I recall one case where not only was the owner’s property, a large shop, looking very tired, which suggests money might be tight, there was also ample scope to convert its uppers to residential, which would make for an even bigger opportunity. Just be mindful that Google Maps’ data is historical – you might get very excited about a conversion opportunity on Google only to find that someone else has beaten you to it when you eventually drive by for a first-hand look.
When it comes to contacting a building’s owner, there’s a real advantage in having what I call a warm connection. This is where there’s a ‘bridge’ of people between you and the owner made up of personal connections. The perfect warm connection is where you know (or have met) the building’s owner personally, i.e., you have a direct relationship. The next best is where it’s a ‘friend of a friend’, i.e., you have a mutual connection where you can ask that connection for an introduction. Even a ‘friend of a friend of a friend’ can work. In each case, the communication is between people – there’s no reliance on a ‘cold’ connection, e.g., where we’re sending a letter or email to someone we don’t know. Warm connections work better because you’re far more likely to get a response than you will from a cold approach. It certainly doesn’t mean you’re odds-on to acquire the building, but first base in the process is getting a response, and with a warm connection, it’s a lot more likely.
If I can’t see a ‘friend of a friend’ route in, then my favourite warm connection approach is to try and engage with a building’s owner through their accountants. How do you find out their accountants’ name? They’ll usually have it stated on the company accounts filed on Companies House (again, another useful piece of pyjama-clad research that you can do out of hours). While you may not have a connection to their accountants, your own accountant may have. Even if there is no direct acquaintance between them, it would be a matter of professional courtesy for the owner’s accountants to respond to a letter from your own accountants. This letter would be along the lines of ‘my client is interested in purchasing a building owned by your client…’, and you’ll have a good chance of getting a response.
So, there you have it – a few cases where some basic poker skills can pay dividends when it comes to property development. Keeping your cards close to your chest is always likely to be good advice as a developer, but taking the time to understand your quarry can also go a long way to achieving a successful result when seeking out those off-market deals.