INVESTOR INTERVIEW: SUSAN AND RICHARD PUCHNER

Dodgy agents, bodge-it builders, deals that don’t stack, being new to the country, Covid and downturns. Susan and Richard could have easily jacked it in long ago. They didn’t. And now they are building the life of their dreams for them and their kids.

OTH: Thanks very much for taking the time to talk to ON THE HOUSE Magazine. We’ve been awe of the pictures of your finished HMO rentals but when did you first become interested in property?

Richard: We moved over [from South Africa] at the end of 2015 and I managed to secure a job here in the UK, transferred my skills, I’m an engineering geologist. Susan was going to be a full-time mum because we had a two-year-old. We moved over with a two-year-old and Susan was pregnant at the time with our second child. So, we didn’t make things easy for ourselves.

OTH: Were you investing in property back in South Africa?

Richard: Not really, no. South Africa was a different market at the time. There were property investors, but for us it never seemed like an option. It seemed too risky, a completely different tenant profile and demographic.

We’d never really got into property investing, but we did realize the benefit of adding value to property. So, the first property I bought was a townhouse in South Africa which doubled in value over four years. You know, that was fantastic. So, I thought I’ll do this again with a larger house but when I brought my second property, it was the peak of the property cycle in 2008 and it just flatlined. I didn’t realize any

loss because I didn’t sell it, but I just had to hang onto it for the next seven years and nothing happened.

Susan: Once we moved over to the UK, I think like most people [who are interested in property] we went to one of those two-day events. Richard went because I was obviously looking after the babies and he came back and he was super excited.

Richard: And we talked about it and we thought, you know, as much as we want to work and we loved our jobs, we just really wanted to do something on our own. I’ve always had this dream of, you know, being an entrepreneur and working for myself and then knowing what we have been able to do with property with our own home and then we realised we could actually make this into a proper family business.

OTH: How did you make sure the training was correct for you?

Richard: There’s some trainers where you look at that person and you just instantly don’t like the look of their face and you think, you know, they’re up to stuff. And you know you look at somebody else, you’re like, I kind of like that guy. I think he knows what he’s talking about. But you know, you have to ask, is he a professional bullshitter? You know, you don’t really know. But we saw this a free seminar and we thought we’ve got nothing to lose. It looked and felt genuine. Yes, the proposed model of passive income, like an ATM spitting out money while you sleep type of thing gets you all excited. The reality is somewhat different. But it just presented this business model that we’d never realised was possible before. And that was to purchase a property at a low value, add value to it, refinance, pull your money out, buy another one. Whereas everybody, you speak to like friends and family, it’s save up a deposit and then if you’re lucky, you buy a property and then you’ve got to save up 10 years for the next deposit.

Susan: We learned so much. It was really eye-opening - we didn’t

understand that we could buy a house with other people’s money. I mean, this was amazing.

OTH: So where did it go from there?

Susan: We were battling to make the numbers work for buy to lets. We probably viewed up to 100 properties, put in maybe 80 offers, none accepted. So, your motivation then starts wearing thin.

Richard: I think that’s where a lot of people that do these trainings, I mean, thousands of people probably do these trainings and of the big group that we were involved in, we only know a handful that had actually gone through with it. I think a lot of people do get disheartened and fall by the wayside. We were 100% committed to this, you know, we’d made this move to the UK we had to make it work. There was no other option.

OTH: So how did it go after that?

Richard: So, we were in Milton Keynes… but we kind of [narrowed] it down to Nottingham and that was our first focus. It’s an hour and a half drive up to Nottingham. I was happy to do that. I don’t mind driving. So, during the week Susan would do the Rightmove hunting, phoning up the agents book the viewings for the Saturday. I’d go on the Saturday, do the viewings, do the numbers on the Sunday, put the offer in on the Monday every week for months on end viewing 70+ properties. Then eventually we got our first flip in Nottingham. But all the while we were looking for buy to lets and those numbers weren’t quite working.

Richard: So, we had to sort of branch out and see what other opportunities are there. And that’s when we decided we’d look at HMOs and HMO training as well… and realised Nottingham is article four. We then turned our attention to Derby, which is the same distance. Now we solely focused on Derby, and that’s where all our HMOs are.

OTH: So, the numbers looked better on HMOs did that mean you were able to put in more competitive offers?

Richard: Exactly. Yeah. It’s a completely different model to buy to let. There’s a lot more fat on the bone in it in terms of what you can offer. Yes. The build costs are more, but the refinance at the end that makes the difference in terms of uplifting the value that you can do. You can add so much more value in creating an HMO than you could with a buy to let so it’s a bit more forgiving on the numbers. Of course, you have got to make sure your numbers are correct, because you could be in for a bigger downfall if you get it wrong.

Susan: So, we’ve done the theory, but in practice it requires a lot of assistance. We had the theory but wow we needed the sort of mastermind group learning from other people, which made a big difference. We joined a group of investors doing a lot of HMO in Derby projects. So, we were now immersed in this group that have been there, done that, we could ask questions every week. We had a coach to help us with the mental blocks that you have where you’re like, ‘Wow, this isn’t working. What’s the point of carrying on?’ You know and kind of working through that process and making sure you’re clear on your goals and your milestones.

OTH: So, give me an idea of your current portfolio. And you talked about mistakes, let’s call them lessons along the way?

Richard: Well, the first one that comes to mind is you always just assume that everyone is as nice and as kind as you hope they would be. Property is a people business and having to deal with people in general, you think everyone should be on the same page. But everyone is obviously there to look after themselves. Our first property we got was through a very dodgy agent who literally wanted an extra £1,000 to secure the deal.

And he was playing us off against somebody else, another buyer who as it happened was someone in our mastermind group… It all came to light and we actually spoke to that person. We said, sorry, we didn’t actually realise who we were up against, but did you realize this guy was actually trying to get blackmail money out of us and said, no. But she actually did pay the guy.

OTH: Oh, but you guys got the deal?

Susan: In the end. We did because the vendor learnt about all of this. She was extremely upset about what was going on and fired the agent and said, well, she’d rather sell direct to us. So, the lesson there was try and get to the vendor if you can.

Richard: We’re currently busy with our sixth project – all have been HMOs… The project that we are busy with at the moment is a 12 bedroom. That one’s all studios. And so, with a commercial valuation based on the expected rental income, yeah, we should get a valuation of £1.1 million. So, that’ll then take us to about £2.7 million gross development value (GDV).

OTH: So, are they self-contained studio flats within the property? I wouldn’t call them flats, they are maisonette type things, what’s the word? They like to call it bedsits. Well, this is how you should talk to the council because as soon as you start talking flats and studios, they want to start edging towards single banding. But for the purposes of marketing to tenants we call them studios because it’s got the kitchenette, an ensuite and it gives them a bit more privacy. We found that those are in high demand.

OTH: Looking back from your first renovation to now, any other key learning points about the process?

Richard: I think that, a big part is the builders, working with and getting the right builder and the right price. The key lesson there was making sure that our scope of work is clear from the beginning. I mean, for a lot of people starting out you don’t know what you need to allow for in an HMO. We’ve seen a lot of investors, they’ve got a six-bedroom HMO and they’ll just ask the builder, ‘What do you think it’s going cost?’ And the builder’s going to go, ‘Well, I don’t know what your spec is. I don’t know what you’re expecting, but you know what - it’ll cost £80,000’. ‘Great, let’s do it’. And then when they start building, they’re like, ‘Well, I was expecting that’. And the builders were like, ‘Well, you didn’t tell me that, that’s going to be an extra £10k’. And so on and there’s scope creep. It’s going to be a massive difference. Richard: we’ve been through about four different builders over our five different projects… We’ve had some that started out well and, then towards the end, you could see they were sort of taking us for a ride in terms of what they were claiming.

Then you get another builder who from the get-go was completely rude and obnoxious and I’m like, we’ve got to work together for the next three months and it really became sour towards the end. Another builder was really great, talkative and friendly now, but then too talkative, didn’t really focus on his work and in fact cocked up probably three or four other investor’s projects together with ours. And just basically did a runner on all the projects. So, we were left high and dry. He just disappeared and he took our money basically £30,000, you know, we had paid him and he disappeared. Susan: Not only that he took so long that it’s actually eaten into the

profits that we would’ve actually made had we finished the project on time.

Richard: So, we are now on our fourth builder.

OTH: Oh no, well moving on then… you were sure that you had clear high-end HMO product in mind…

Susan: I lived in an HMO in London and it was horrible. I had these terrible memories of me standing on a bed too scared to like step out onto the floor because there were rats in the corner. Literally, so I phoned the landlord and he’s like, yes, I’ll get there. But it took a couple of days before he even came in and I literally taped the kitchen door with masking tape and just was so scared to even sleep. And those days haunt me. So for me our HMOs, we want them to be of the highest level that no one ever has to feel that way ever. We are targeting aspirational tenants who want to stay in a place where it’s beautiful, homely and comfortable. We want to entice them to stay for as long as possible until, you know, one day they want to create a family.

OTH: Have there been any dark times during your portfolio building?

So, going right back to the beginning… [there was a] dry spell of trying to find the next HMO deal, and I was completely focusing on that. It’s taken me away from family, you know, Susan’s with two young kids. I’m up to Derby every weekend and then I’m busy with the numbers in the evening. That was tough on us as a family unit. And the girls were like, ‘Daddy, are you working again?’ And that’s sort of heart-breaking.’

Susan: Well, one time for me is when the deal is snatched away. I mean, it was devastating. They always say don’t get emotional in property, which I think is really difficult, especially being a female. I’m highly emotional so I really get attached to these deals and I’m learning, trying to step away from that.

OTH: What have been the best moments though when it has all felt like it is worth it?

Richard: I think for me there have been a lot, but when we got our first HMO offer accepted, the big one. I mean, that’s when we felt like rock stars were like, ‘Yes! We’ve got this in the bag! Plain sailing from here.’ Which it wasn’t really.

Then I think the next eureka moment is when you’ve completed the full design, the build and you get that valuation at the end you’ve got to reward yourself or acknowledge that what you’ve done is a massive task!

Susan: When we do the final staging, that’s my favourite part. And just to see it all coming together that’s really awesome. Plus, when you hear the feedback from our tenants who want to stay in our HMOs and request them [with agents]. That’s quite rewarding. We want happy tenants at the end of the day. Then obviously when the rent does come in, that’s also amazing too!

For a closer look inside Susan and Richard’s HMOs check out the April edition of ON THE HOUSE Magazine, the property ‘Glow Up’ on p44.