Our Notable Property Person this week is software engineer and property investor John B Corey Jr, from ‘over the pond’. Anyone in property who is on twitter will know John, he is a prodigious twitterer with nearly 15,000 followers. He is also a sharp cookie – for example from his entries on the 4Walls property forum I can tell that he, an American, has a far better grasp of (English) landlord and tenant law, than many English landlords, which is impressive. Here is his story:
1. Please introduce yourself. Say a bit about yourself and your company
My name is John B. Corey Jr., and my company name is Chelsea Private Equity.
With the formal bits out of the way, let me tell you a bit about my past and how that shapes my future.
I started investing in real estate in California in 1983. I was a new software engineer working at Hewlett Packard. Like many of my co-workers, the idea of investing in property was attractive as it was all about the numbers. In software you are building solutions to fit a business requirement and otherwise inventing the future. More so when the software you are creating is a product the company sells.
With real estate you look for ways to put a deal together. You study the numbers as they are and you make projections for how they could be. You see the glass as being half full while many times the seller notices the half full glass.
Jumping forward, in 1994 Swiss Bank Corporation (SBC) moved me to London. SBC was a Swiss retail bank plus a global investment bank. After a reverse take-over SBC became today’s UBS. I worked for the bank for five years and then spent time at few more investment banks. I also ran the software development function at Egg as an interim manager and did some work at Royal Liver in Liverpool.
My UK investing activities kicked off in 1994 but nothing all that serious happened until 1999 as I was too busy with my day job to really dive in to the UK property market.
These days I spend time advising clients on their property portfolios, I work on joint venture deals and I am overseeing the development of an iPhone application. The ‘app’ will let investors be more effective when evaluating a BTL deal.
2. How did you first become involved in property?
The detailed version of the story is I read a book called “Nothing Down” by Robert Allen
Not knowing anything about ‘analysis paralysis‘ I took Monday morning off from my day job and walked down to the nearest real estate office (estate agency in the UK). By that afternoon I had a ‘exchanged’ on a ‘nothing down’ deal for a detached three bedroom house. As I had been renting a bedroom in a large house with some fellow engineers I figured I could buy the place and rent out two bedrooms. I was soon the owner of a home where my month cash outlay was less than what I had been paying to rent a room in prior house.
3. What do you think is your greatest achievement so far?
Doing my first two deals. It was only later that I realized how much of a difference it made to get out there and take action. Put another way I did not consider it an option to sit on the fence. Being unable to pull the trigger was just not part of my make up. I calculated the downside and figured I could manage the details. Living in a house with others had been a way of life thru university and my first two years of employment. How hard could it be to send in the mortgage check and sort the maintenance?
4. Do you or your company have any exciting plans for the future?
Yes, but I would have to kill you if I told you.
My background is in technology. Many companies in Silicon Valley operate in ‘stealth mode‘ while they get a few things in place. You want to have an impact when you reveal your plans and when you launch the product. It should be noted that I spent a year working for Steve Jobs so I understand a bit about the Apple magic in terms of product launches.
That said, I can offer a peak behind the curtain if you promise not to tell anyone.
I find that the typical UK BTL investor learned their trade during one of the best markets ever for investing. Prices were rising and lenders were pouring money into the hands of the borrowers. Then we had the credit crunch. A number of investors were unprepared for what it really takes to run a self-sustaining real estate business. The days of refinancing to pull out equity every year or two are over for a while.
Given the above I find that BTL investors are pretty bad when it comes to the numbers. Or they are great at adding up some of the numbers while totally missing some others. What happens is a false sense of what break even is and what it takes to weather the market ups and downs. I know one investor / adviser who fails to remember difference between cash flow and profit. Many businesses in lots of sectors have gone bust by confusing the two.
I aim to raise the bar; to set a more professional standard. I have spoken to some lenders to identify Key Performance Indicators (KPIs) that should be monitored and reported. As the saying goes, this is not rocket science. Watching the right KPIs is similar to driving with your eyes open. You must be able to see the road in front of you while still monitoring the gauges and dials that provide the feedback as to how everything is operating.
The commercial real estate sector in the UK and the US operates this way. The US residential investment sector is also pretty good in terms of KPIs. Maybe the UK BTL sector can step up.
5. What do you think are the greatest problems facing the private rented sector today?
Two things:
It is a rather new sector having largely been born in 1996. Many of the smaller investors are still learning their trade. Quite a few run a good operation. That said, there is still a sizable portion who are focused on landing deals for the least deposit possible and not optimized for the ongoing cash flow. Grabbing the tiger by the tale and then not knowing what to do with the now angry tiger is one way to put it.
Second, and much more important is the political climate. As investors or SME businesses, the sector is rather fragmented. The public perception is any investor is somehow part of the landed gentry and that we are oppressing the tenants. The government statistics tend to say otherwise but the perception is a landlord needs to be placed more and more under state control. Landlord registry, councils being able to view sharers as living in an HMO and other recent ideas or changes are examples.
I am a believer in the right level of regulation. Not too much and not too little. There does need to be standards. For example I am rather supportive of tenant deposits being protected as the deposit is the tenants money up until there is a valid claim from the landlord. With that said, there is a tendency for elected officials and some groups to advocate for more regulation rather than implementing and using what is already on the books.
It is funny how the government sponsored reports and surveys almost all say that something like 93%+ of all tenancies end as agreed with no dispute. Something seems to be working so why the rush to introduce more regulations?
6. What do you think are the greatest opportunities?
To be more professional and to build scale during the credit crunch. The best deals come from motivated sellers. Credit crunches produce a lot of motivated sellers. A credit crunch also eliminate the dumb buyers who pay over the odds to secure a deal. The froth is blown off the market, lenders return to more sensible lending and people no longer believe property always goes up. There is time to evaluate a deal rather than rushing before someone else snaps it up.
7. We have a general election coming up – what would you like to see in the winning parties manifesto as regards the private rented sector?
On this topic I defer to the NLA. Working with government or opposing government takes a lot of time and money. The best way to gain leverage is to represent a group of voters. An individual voter is not going to be listened to as one vote makes no difference.
By being a member of the NLA a UK landlord / property investor has a team to lobby the government and to monitor the situation before changes are imposed.
8. Do you use social media (blogs, twitter, LinkedIn etc)? What place do you think it has in the future of the property industry?
Understand I come from a technology background. I have a degree in computer science and I studied Artificial Intelligence at Stanford while working in Silicon Valley.
I use most of the things people know about and a number of other tools/services that the public is yet to discover.
I started as a real estate investors when cell phones were bolted inside a car, when answering machines were device with a tape, many offices did not have a fax and the web had not been invented. Emailing pictures was not done and desktop video did not exist.
The tools that are available today speed up connections. You can get recommendations, you can refer people, you can research a topic and contact the expert. The fundamentals are still the same in terms of knowing your business, building trust with your customers, vendors and partners and delivering projects on time.
Most of today’s social media is nothing more than a different way to share or talk with others. That said, social media makes it a whole lot easier to find people of like minds. Much less need to use the local person if there is someone down the road who has superior expertise and skills.
9. What is the most important lesson you have learned during your time in property?
I will give you two.
First, you can be lazy. It is a long game rather than a way to get rich quickly. For the average person you only need to find a great deal every year or two and then hang on to the deal. This is not a sprint. How quickly you find a deal is not critical to your success. It might be emotionally more rewarding to see rapid progress but it is not required. Ten deals you still own spread over twenty years is better than almost any public or private pension.
Second, time will be on your side if you let time get to work. The sooner you buy the first property the sooner time can work its magic. Most of the gain in the residential sector comes from appreciation that is fundamentally tied to underlying or long term inflation. Housing is a good inflation hedge. If you own a property for 20 or so years you will likely find it is worth more. If, at the same time, the debt has been paid off by the tenant you win a second time. Inflation drives up the value of the asset and someone else goes to work to pay off the debt. The tenant gets a good deal as they get a place they can call home without the full cost and hassle of ownership. Win win.
Time is on your side if you make a decision and buy that first property.
10. What advice would you have to someone thinking of entering the property industry today?
Start simple. Buy a house to live in or buy a house that you rent. Just keep the deal simple. If they have never purchased a house before there is a lot to learn without trying to make it more complex. With the second purchase you can raise the bar slightly and learn a few more things.
Focus on keeping what you buy unless you have proven you cannot handle being a landlord. In that case I would suggest you become a partner with someone else. The greatest benefits occur over the long term so try and avoid the short term, buy to sell (BTS) model. With the exception of developers BTS just does not work well as there are high friction costs associated with the constant buying and selling (stamp duty, time spent, fees & commissions).
*****
Many thanks indeed John for your thoughtful and insightful answers, which I found fascinating, as I am sure many others will too. I wish you all the best for your undisclosed plans (which I daren’t ask about now …)