Ever had to deal with an issue as an emergency? And when looking back realised that the issue could have been mitigated if you had spent more time considering the risks? In today's episode we speak to Martin Rapley, who has over 35 years experience in building and construction, and he shares with us how to follow a process to stop this from happening again in the future.
Too many investors don't spend enough time considering the risks, so as a result, when things come up they are a surprise and have to be dealt with as an emergency - rather than them being a potential issue that is on their radar. Martin Rapley has over 35 years of experience in building and construction, and in today’s episode he shares a wealth of knowledge that will help you to follow a process and mitigate your risk. And as always, Kevin and Christian are on hand to pull out the wealth lessons – of which there are many!
Resources Mentioned In This Episode:
WT006: Using Wealth Dynamics To Find Your Personal Flow
‘Who Not How’ by Dan Sullivan [Book]
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Unknown Speaker 0:01
The purpose of wealth talk is to educate, inform and hopefully entertain you on the subject of building your wealth. Wealth builders recommends you should always take independent financial tax or legal advice before making any decisions around your finances.
Unknown Speaker 0:18
Welcome to Episode 129 of wealth talk. My name is Christian Rodwell, the membership director of wealth builders. And I'm joined today by our founder and my co host, Mr. Kevin Whalen. Hello, Kevin.
Unknown Speaker 0:29
Hi, Chris. Good morning to you. Nice to talk to you again.
Unknown Speaker 0:32
Yes. So today, we are focusing on risk, and specifically risk mitigation within a property strategy. And that strategy is Commercial to Residential and our guest today, Mr. Martin Rapley, who has many, many years of experience working in this area.
Unknown Speaker 0:50
Well, Martin, and his wife, Sarah are just great people. And you can tell he's an incredibly sharing guy. And we're both proud and pleased that he's a client of wealth builders as well. So we're very happy with that. And he's got some great lessons to share. And what I'd say about this particular podcast actually, is although, you know, you just set it up there, almost like you know, set it up by ready to be knocked out of the property Park. Actually, you know, I found seven lessons in there that have got nothing to do with property. So this is the thing you know, whenever you're, when you start to become a wealth builder, you you're looking to make distinctions, tiny, tiny distinctions that are almost like chipping away at a rock, that when you make and shine and hone those distinctions, you become smarter. And I think in truth, Chris, that's, you know, in this what's happened with Martin, he's become a very, you know, accomplished man in his field. And I think as a wealth builder, we become accomplished in our field and my ability to see and take lessons from other people, and turn them into distinctions that you can use in your life, even if you never did a Commercial to Residential Property conversion. So don't listen. Because it's property. If you're interested in property, it's going to be a great lesson. But if you're not interested in property, don't hit the snooze button. Don't move on to the next one. Because there are seven little lessons in there, embedded, which I'll pull out at the end, but maybe there's a little challenge. You know, as you're listening to it, see if you can note any things that you think are fundamental lessons, if you've been following us for a while. We're very grateful. We've got a good following. Now, Chris, if you've been following us for a while, see if you can pick out at least one or two of the lessons. Because then it means you're listening with an intention, rather than just listening to the content. How about that?
Unknown Speaker 2:49
Okay. All right, no pads that they're ready. Then let's head on to our conversation today with Martin Rapley. Martin, welcome to wealth talk today.
Unknown Speaker 2:57
Hello, Christian. It's really good to be here. Thanks very much for getting in touch with me.
Unknown Speaker 3:01
Yeah, no, very welcome. And, you know, we've known each other for for several years out on the property circuit. And, you know, really nice to have you on the show today, Martin, and we're talking today about managing risk in Commercial to Residential conversions. So, you know, risk, obviously, very important area, you know, we have due diligence as a piece of our wheel of wealth. But I know in your opinion, there's too many investors that don't spend enough time considering the risks. And as a result of that, when things come up, they're a surprise and go into panic mode, and they have to deal with it as an emergency, rather than being a potential issue that could have just been on their radar if they'd have done a little bit more preparation and planning. So we're going to dive into some of these things today. And I guess Martin, just to kick off you know, what qualifies you as an expert in this area, what's your background and experience
Unknown Speaker 3:52
so my construction experience goes back to 1985 I know I don't really look old enough for that. But that's when I left school. I worked for a building contractor initially as a quantity surveyor that's the person who looks after the finances and so worked for contractors for a number of years drifted into more project management I've got involved with some not lovely projects mostly in London where the logistics whereas as complicated as the construction of the work and you know working in listed buildings working in high security buildings, public buildings and things like that so I've got into a drifted from finance to into whole project management. I then ran my own construction business for a while. And I found actually that most of my clients were property investors and I thought well this is an interesting angle and not really understood what property investors was then although I had a flat for a number of years but hadn't it was just something we bought years ago. And and so looked into working with property investors a bit more started to realize that I had huge amounts of knowledge They didn't have. And really there was no one supporting them. There was no one that they could ask that was reasonably independent, also thinking like a property investor. And and so in 2013, I wound up my construction business and became a consultant actually went off and worked with a developer for a couple of years to learn the development side of things. I did some training in property investing, and I am now a property investor and a consultant for property investors. And everything I do is property investing early. So that's what get got me here. In a nutshell.
Unknown Speaker 5:34
Yeah, I'm the host of a property networking event, which some of our listeners, I'm sure be very familiar with, and your new wife, Sarah.
Unknown Speaker 5:42
But that's right. Yeah. So we host campaign meeting that's going back into the live room after Christmas, which is really exciting. So yeah, back out there. And that's really just about going meeting property investors, helping them and being someone local, that they can come to, to understand more about the construction and refurbishment process, rather than relying on what I see is some poor information that's out there on facebook, and be ultimately learning from other people who also learn, learn wrongly, or learn poor methods, because no one's been there to guide and support them.
Unknown Speaker 6:21
So we know there's obviously so many different aspects of the property journey. And this is why we I think we both love wealth dynamics, because it really points you in the right direction in terms of what are your natural skills and strengths? And who do you need to team up with? Who do you need in your life part of your team? Who can look out for the things that you're not so good at? Or you don't enjoy? And what's your wealth dynamic profile, Martin?
Unknown Speaker 6:45
So my profile is a lord, quite seriously load, you know, and in fact, I've got, I've got no blades in me at all. So yeah, so hence, I love a process and enzyme analytical. And if you looked at it, if you looked at it deeply, in fact, this was something that Roger Hamilton told me a long time ago that if you want to manage projects, if you want to be a project manager, whether that's in construction, or in any field, the best profile is really an accumulator. So I'm only one removed from the ideal profile. But because I'm the Quantity Surveyor, deep down with numbers, that's that kind of is what gets me over slightly onto the Lord side.
Unknown Speaker 7:26
Yeah. And, of course, we're focusing on the risk within Commercial to Residential today. But, you know, it's a process which really applies to anything, right?
Unknown Speaker 7:37
Absolutely. I've got a process that I teach my clients, whether they're, whether they're doing a small tidy up between some tenants, or they're doing something more ambitious, perhaps to HMO conversion Commercial to Residential, or indeed, it still is applicable if you've, you've got a greenfield or brownfield in your building 10 new houses, the process, it's the process that you follow, part of the process says, Bring in the right team around you. And that's when you bring in the team that know about refurbishment, or you bring in the team that know about new build, the builder that does new build isn't very good at refurbishment. Same with consultants as well. So so the process says bring in the right team, rather than look for a different process for every kind of project. So when people ask, asked me, what what, what do I need to know, for the project, it's always like, learn learn the process, and then it will cover you for any kind of project you ever do. There's only there's only cut two kinds of buildings I've never worked in. I've never worked in a prison. And I've never worked in a hotel. Otherwise, I've worked in every other kind of property I think we could ever having include police stations and banks and museums and things like that. And actually, what you realize is, it doesn't matter what you start with what you finish with, the process pretty much stays the same in the middle.
Unknown Speaker 9:05
Okay, so before we start diving into what some of that process is then Martin, for someone who's listening now who's maybe not 100% clear on what Commercial to Residential looks like. Could you just give a few examples of what that might include place?
Unknown Speaker 9:19
Yeah, I think I mean, commercial interest. tential has been the buzz words or the buzz phrase for a number of years, it started off primarily being office space converted into residential and when we converted things into residential, we are typically talking about flats, but sometimes they are standalone houses. And it isn't impossible, obviously to convert it into HMOs as well. So So it started off being offices with the opening up but the planning legislation and it's a continual moving thing at the moment. There's now opportunity to convert any kind of commercial building. So the thing we're seeing A lot of things like banks, were getting a lot of big rage shops off the main high streets that were converting now, as well as obviously offices, but it's now not quite as difficult to convert things like mechanics, and you know, depots and garages and things like that. And then of course, even industrial, industrial that's within the center of the town not necessary out on the industrial estates. But it's not impossible to convert industrial. And then on a bit of a tangent, even things like barn conversions really still, commercial use that's been converted into residential. So really, it sweeps up any other kind. Anything, isn't the house really? Yeah, it starts off and, and the difference is that every single property starts off in a different state, something that's an office that where a company is literally just moved out, you've got a building that's potentially in really good condition that needs bringing up to standards as far as residential standards go. But what isn't necessarily a massive job. Whereas if you take the extreme, perhaps an industrial unit or a barn, there's, they're clearly not buildings, you can even necessarily sit in for a few hours without big game freezing cold, they haven't got insulation, they haven't necessarily got, yeah, sometimes not even fully waterproof. So you've got a much bigger process to bring them forwards. But the process is where we bring in a consultant, normally an architect that knows the regulations that we need to comply with, to bring forwards they do some drawings for us. And from there, we then approach builders that can follow drawings, follow the schedule of works, and carry out what we need carry now. So yeah, hence, I say it's the process, the processes is pretty much the same. But it's Yeah, any building can be converted to residential subject. In fact, it's really subject to planning and subject to understanding the cost and the cost stacking up as far as, as evaluation goes.
Unknown Speaker 12:13
And in your opinion, and experience, Martin, we just say that Commercial to Residential can be something that anybody could do without any previous experience as long as they have the right team around them. Or would you say that they, you know, best starting with something more simple to begin with,
Unknown Speaker 12:30
I think if they're going to, if they're going to manage things themselves, then start fairly small and grow into it. If they're the of the of the mindset that actually, yeah, I've got this big office block that I can convert into 20 flats, I have never done it before. Therefore, I need to bring in the right team around me and literally sit on the periphery, then they can do that as well. Where I see property investors making the mistake is that they, they want to be hands on managing things. And they're leaping straight into something that sort of, of size, without the where with all in the awareness of what they should be taking on as project managers. And project management one of those, one of those businesses, one of those careers where, in many ways, people are almost saying, Well, what are you doing? If someone's saying to me, what are you doing that pretty much means that I'm making it all run smoothly? Because they're not seeing me panicking and running around? And where I see property investors going is they can't they say, Oh, well, I can manage this. Yeah, I've managed something in the past, I know how to manage. But of course, they don't understand the technicalities of managing construction projects, and what each other party brings to the table and what questions they should be asking them. So so some of the some of the best developers out there literally have said, never done it before. Don't know what I'm doing. I need someone to make it happen. And they come to people like me as a project manager, and then I help assemble the team or they bring in other people. And I think that that's it goes. So by all means go straight in at a high level, but expect to outsource the law, if you want to get involved hands on yourself, then go incrementally from the bottom.
Unknown Speaker 14:17
And what is some of the most common mistakes that you see people making when it comes to Commercial to Residential? Barton?
Unknown Speaker 14:24
Wow. So I think the first the first mistake a lot of people make is actually not doing a thorough enough appraisal in the first place. So so either not understanding enough about the property that they're building in the sorry, buying in the first place, which sometimes his lack of experience just not knowing how deep to look, but sometimes is where I didn't want to get a structural engineer to look at that structural crack in the back wall because it was going to cost me money. And then a call to that turns out to be a major problem that needs to be dealt with. Later on. He said Yes, that kind of small mentality, although so don't want to spend money in case I don't, it doesn't go ahead. So doing that appraisal thoroughly, and doing a proper due diligence, on, on what you're going to develop and being totally clear what you're going to produce, and not expecting to be able to smash the market in your area, go flat sell 150,000 pounds, don't think you're gonna sell yours for 180,000 pounds, because you that is just inflating the figures to prove a deal. And I see so many property investors that just, they just feel the thickets to prove there's a deal in it, and it will come back and bite them further down the line. And I've you know, I've seen and I've heard and I've been part of some horror stories where investors have just fiddled the numbers or got and got over excited about what they can actually achieve. As a result, they bought property at the wrong price. Yeah, ultimately, you can't really change the sale price. If flats in your area sell for 150,000, you might sell yours for 155 is brand new, but you're not going to massively distort the market there. The cost of doing the conversion is pretty much fixed, you're going to attend to that out to some builders, they're going to give you a quote for that. Therefore, the only figure that can you've really got any control on is the purchase price. Therefore work from the back end, I know what I can sell it for, I know what it's going to cost me to get it, I know what profit I want. Therefore, the figure that's left must be the purchase price. And I don't and property investors don't do that property investors. Too many property investors say what is on the market for 200 grand I've done I've knocked him down to 190. We're ready to go. Not what I'm going to sell it for this is going to cost me this. What is it? Oh, I should only be offering 150 tops. That's the figure to start from. So that's really the biggest mistake is you're actually getting the wrong property or getting the wrong property at the wrong price in the first place is the biggest mistake I see property versus making
Unknown Speaker 17:08
starting with the end in mind, which is often often what comes up.
Unknown Speaker 17:12
Yeah, that's exactly what everyone would tell you in anything that they tell you that it applies to this as well.
Unknown Speaker 17:18
Now, what about the planning situation, Martin, what are some of the things that might crop up there.
Unknown Speaker 17:23
So planning is a massive risk, we've got massive relaxation of planning legislation to a prior approval system, a lot of people will call it permitted development, it's not permitted to learn, we've got a prior approval system. And it is perfectly possible to take the salient boxes and get projects through under that prior approval system that effectively says you've got to submit a planning application. But all intents and purposes, as long as you tick the boxes, it can't be refused. Now, the biggest risk in here is that it's a little bit subjective. You've got to interpret the legislation, the planners interpret legislation, there can be some gray areas in there, there are gray areas, because this is new legislation. And so it's a moving face at the moment to some extent. But but the other risk is that what you actually want to end up creating isn't quite prior approval, because as part of the work, you really need to do an extension, or you really need to reconfigure the front facade, because the door is just not in the right place. And we've got to get rid of these windows. And it's things like that, that then start to fall outside prior approval. And as we're talking about, it adds more risk, we've got something that was reasonably low risk, suddenly now comes up and becomes a slightly higher risk, because the planners may not accept that change. Now, of course, if you can secure the property without planning it, maybe get an option on the property subject to planning or things like that, that's where you can then start to eliminate that risk again. But really, I would say to anyone until you've got that planning decision notice in front of you, you haven't massively reduced the risk. And even with a planning decision that which is you can still have some conditions on it, that still keep risk in the deal. And until you've discharged the salient ones of those particularly things relating to perhaps environmental issues, noise concerns and pollution, traffic pollution, things like that. It's only after you've eliminated those can be really taken away the risk of the planning side of the deal. So yeah, and again, this comes down this comes down to that original appraisal. Do the appraisal be clear what the risks are of getting planning and and finally So on getting rid of those biggest risks first?
Unknown Speaker 20:05
And would you recommend in terms of a contingency so things will always or most likely always crop up having some kind of contingency, some buffer? Is there some recommended way of people calculating that market?
Unknown Speaker 20:19
What so if we come to construction side of things, I would tend to say, a 10% contingency meet minimum 10%, a build cost minimum, possibly 15% on some unknown product kinds of projects, and higher if it's a listed building, the challenge is saying, what is the risk of something that we haven't even started building yet? What how do we add in additional costs for managing risk early on, where what I would say is, if you're putting in a planning application, consider every element where there is potential risk that planners may not accept that this is not a flood zone, the planners may not accept that this modification is within prior approval, the planners may not accept that this building is in an area that can be developed. So consider all of these, these risks, and then look at what is the biggest risk in there. And this comes down to how we manage risks, you're going to have risks all the way through any kind of development, you wouldn't worry about some of the risks in the early days, you would look at the big risks in front of you. But look at any risk, and you want to get rid of the biggest risk. First, to the extent that some risks until they got you wouldn't even proceed with the deal. Some of these risks, you wouldn't necessarily even put in an offer to purchase until you understand what the risk is. For instance, if the building's structurally unsound, until you've got a structural engineers report, you don't know whether you are converting it, or actually demolishing it. And so that potentially is your biggest risk, there's no point in making an offer to convert this building, when actually a structural engineer would say he can't be converted is beyond the end of its life. It needs to be needs to be pulled down. And it might be at that stage, you say, well, actually, this isn't even the deal. For me, I don't even want to do new build, I only want to conversion. So you move on. So the way I encourage anyone to consider risks is you consider every risk from two perspectives. The first is the perspective is what is the impact of this going wrong? So we've got this potentially structurally unsafe building? What is the impact on the deal? Well, the impact is if it is structured unsafe, I don't want to buy the building in first place. So that's quite high impact really. So score every impact one to five, five, high, one low. And then consider what is the if this worst case happens? What is the impact on me during the deal? What is the impact on the whole deal, and again, one low five high, so So if it needs pulling down, I don't want to do the job. So that's five times 525. Therefore, that is something we've got to eliminate straightaway. Whereas if it needs putting down five, but I don't mind either way, five times one, that's now a much lower risk. And something else might be a higher risk that needs dealing with first. And what what I see a lot of property investors, they, they don't look at risk from that basis, they look at it from all this looks a bit scary. I've talked to someone about it. Whereas actually, there's something else over here that's even more concerning. And really, they should be spending their money on first. Because, yes, you might have to spend some money getting a structural engineer to give you a report in the case I'm talking about. But for 1000 pounds, 1500 pounds, you know exactly whether you're going to go ahead and with the deal a lot. Rather than buy it, we've now bought it. And now it's someone saying we've got to put it down. So what I don't want to do this, and you've spent money buying something you don't actually want, or actually now doesn't stack up because it doesn't work. If we've got it down. It only works if we can convert it. So that's how I would encourage anyone to manage risk look for look for anything where you've got uncertainty, and then score it. If it's if that score is over 10 It wants more investigation. The higher it is the higher up your priority list he wants to be. Yeah, so
Unknown Speaker 24:33
a really good tip. Thanks for that, Martin. And I think, you know, hopefully, we're clearly showing here the importance of having the right people around you because there's simply so many different things that as you say you cannot plan for sometimes things just come up along the way and it's experiences now. I mean, only by doing this do you start to understand and realize what what could happen.
Unknown Speaker 24:54
And that's it and that goes to go back to your previous question is how big a project can you do you know, so first of all, If you've got the experience team around you, then they're going to be flagging up these risks to you. If it's all fallen on your shoulders, then it's about it comes down to experience where a lot of what I'm talking about is only experience I've seen so many projects in my career have different kinds of buildings, that I know a huge amount of the risks. Do I know all of them? Absolutely not. You know, there's things that come out of the woodwork here, there and everywhere, all the time that I've seen to some extent, but not exactly the same. I've not done a massive amount of new build an estate more than if I don't think I've ever built more than four houses in any development. So I would say if someone came to me and said, Martin, give me some support to build these 20 houses, I'd be sad, well, I can give you some guidance. But it's not my core skill, my core skill is actually refurbishment and small developments. That's what I know a lot about. And I've got some quirky little tangents I've been off on in my career. But you know, again, the process says, If you want to build 10 houses, bring in a team that have got experience of building 1020 30 houses, and they will give you the expert, the the expertise, I've got some of those skills, but not all of them. And different challenges come up at different stages.
Unknown Speaker 26:25
Yeah. And if someone doesn't really have that team, what would be your advice for finding the right people, obviously, you know, good networking events, like we, you know, we both know, but any other tips for someone to know who the right people are?
Unknown Speaker 26:38
Ultimately, you can't be starting off on social media nowadays, to get recommendations and referrals start on social media, the thing I say to anyone is, You must do your due diligence, just because someone you know, or you might be creative with social media has recommended someone doesn't necessarily mean they are the best it might be they work great for them, but your projects significantly different. So they may not be ideal. So you must do your due diligence, but there's no harm in starting with social media, because you can very quickly end up with a shortlist of six or eight consultants, six or eight architects. And then you could do some, some due diligence and research, catch up and see if they are going to be appropriate for you. But I think, yeah, I say to anyone, people ask me, How do I find builders and I say you can't be getting on social media. But just because they were a good builder for someone else, doesn't necessarily mean they're right for you. And it's the same with architects, structural engineers, project managers, quantity surveyors, use them as a shortlist, but deeply make sure that they are going to be the right people for you. Yeah,
Unknown Speaker 27:48
great. I feel like we've just scratched the surface really on things today, Marty, but I know you've got an entire project management blueprint, which has got 74 Different checklists soon to be 75, I think. But tell us briefly a little bit more about the support that you offer and how that works.
Unknown Speaker 28:05
Yeah, so So as a as a project manager, but also as a property investor, I've kind of learned and now it's over the last nine years or so, how to present what I know what you know, everything that's in my head, I've got now in a format that is easy to present to property investors that are less experienced than me. And so so I've got that in a number of different ways. I've got a lot of online training courses, where you literally subscribe to all of my training courses, and then just watch all the videos back. And I've got I do online q&a, live q&a, generally most Friday mornings for my clients. And then I've got an academy for property investors that want to be managing their own project, but actually want me holding their hands and that includes your one to one, live access to me and that kind of that kind of thing. Plus I do budgets and feasibilities. I do contract documents, I do tendering packs, I do quantity survey, Contract Administration, project management, kind of anything. The common denominator is all my clients or property investors or small developers really, and really just there. Yeah, even even for the one of the free telephone call with me, just to get a stare that's a property investor understands what they're taking on. Because it's so for me, some of the challenges I see property versus having are so easy for me to just say, just do this or just phone this person or just look at this website. And they're often running and flying. I've just got, you know, just got this knowledge that yeah, I didn't realize it was specialist knowledge until I came out of where I was in construction and realized that there's a bunch of people dying out for this specialist knowledge of God and I just want to share it with people rarely. So yeah, didn't touch with is the answer.
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