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Trading Company or Property Investment Company?

  • Date: Monday 26th September 2016
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SRA Ventures Limited is a very successful commercial property investment company. I attribute that success to the fact that we don’t run it as a commercial property investment company; instead, we run it as an entrepreneur-driven trading company.

A trading company is a business that works with different kinds of products which are then sold to consumers or businesses. Trading companies buy a specialised range of products, maintain a stock, and deliver products to customers.

So how on earth can we run a property company in that way? Property doesn’t appear to obviously fall into that kind of category, so let me explain.

 

Dominating a niche:  What do ties.com, Volvo Trucks and Apple - credited as the world’s most profitable company just a few months ago - have in common? They are trading companies that locate and then dominate a niche. Rather than having a shotgun approach to business, their companies have a laser-guided focus on a certain segment of the market. In other words, they all extract extraordinary profits from the very specific areas in which they operate.

SRA Ventures started off as a plain vanilla property management company but very quickly it found its own niche. It focuses on under-performing commercial assets, including properties with recent voids, poor management teams, or problematic tenants.  Essentially, we purchase Scottish assets that traditional investment companies turn their nose up at, and then prosper where others assume they cannot.

Tip from Shaf: The messier an asset is, the cheaper it will be priced – and therefore the higher your potential return is once you have managed the asset effectively.

 

Cash is king: For a trading company, cash is king. By paying cash for stock, you are guaranteed the best prices – and in times of shortage of stock, you will be given first bite at the cherry. As a result of this, we have managed to run some of the most successful and profitable trading business in the UK. We have taken this philosophy and firmly transplanted it into property investment.

Naturally, we don’t have millions of pounds sitting in a deposit account, and we use all spare cash flow to aggressively amortise debt. What we do have, however, is pre-arranged funding for asset purchase deals from £100k up to £10M, and we can provide a potential vendor of a transaction with a proof of funding letter from our bankers within a matter of hours.

Tip from Shaf: A vendor of a property will almost certainly settle for a lower price from a purchaser who is able to demonstrate that they have the funds and can pay for the asset in a timeous manner.

 

Lock in the purchasing profits: Any wise trader will tell you that the amount of profit you make on a transaction is determined more by the purchasing price and not the selling price of the product. In a trading business, this is easy. You have a team of purchasers who are experts in their product categories and they will source the product.

How can you possibly replicate this in a property investment company? The answer is quite simple - as well as having our retained agents Graham and Sibbald looking for deals for us, we have opened up the market to any agent that can offer us potential opportunities.

So, for commercial property acquisition, we offer a minimum fee of £10,000. We pay anyone who introduces a deal to us. Indeed, our typical fee to brokers or introducers is between one and three per cent.

We paid out a significant sum only recently in fact. In a deal that we are currently negotiating, an agent called to tell us about a former client who might be looking to sell his portfolio as he was ready to retire. For that snippet of information and a telephone number, the agent earned a fee of £30,000 - not bad work if you can get it!

Tip from Shaf: Do you know of an asset which may fall within our purchasing criteria? If you do, drop us a line and earn yourself a substantial fee – more information can be found here

 

The best sales team: If you are a trading business, then the better, more hungry and incentivised your sales team are, the more your topline will grow.

How do you transplant a sales team into a property investment company? Well, to be honest, you can’t really. You can of course ensure you have the best people marketing your properties to let, but we have tried to incentivise our sales pipeline further by opening up certain transactions to all agents.

In 2012, we had a 67,000 square foot warehouse that we were struggling to shift. As well as paying our current agents, we decided to open it up to anyone to find us a tenant and offered a £25,000 finder’s fee to anyone who recommended a suitable tenant. Interest in the building spiked and we ended up doing a deal with Glasgow-based United Wholesale (Scotland). The accountant who introduced the deal to United ended up with a fee note for £25,000.

Tip from Shaf: We are currently offering an introducer’s fee of £12,000 for the introduction of a suitable tenant for the warehouse below. If you know someone that might be interested, then give us a call. More information can be found here

 

Don’t fall in love with the stock

Napoleon is attributed as describing Britain as a nation of shopkeepers; he wasn’t wrong. Our property investment company is essentially a shop, and like a shopkeeper, we believe in good stock rotation. Every asset we own and manage is for sale on the virtual shelves of our storefront.

This is quite a statement for a property investment company. Most property investment companies buy assets to produce long-term income. However, our view is that if we can make a reasonable profit, then we are happy to sell the asset and buy another one. We don’t regard any of our assets as trophy assets. In fact, we actively encourage our tenants to purchase the buildings that they rent from us. 

Tip from Shaf: When pricing an asset for sale, make sure it is priced so that the purchaser can extract a reasonable profit from it.

 

 

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Member's Comments

  • Report John Fox: 808 days ago

    Great to hear of continued success Shaf. Some real business gems in the article.

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