Introduction to Property Pickle

Michelle Cairns (0:11)

It's our first property pickle. John, I'm quite excited about this idea of a property pickle. Are you?

John Howard (0:18)

So am I, and um I'm really excited about it because you know it's all about sharing knowledge, helping people, and at the end of the day, all of us, I don't care who who you are, how long you've been doing it or not, you've probably had a property pickle that needs sorting out. And property is all about um it's like a jigsaw. Even when things aren't going wrong, it's still a jigsaw to piece it all together, and it's all about um you know solving puzzles, really, isn't it?

Michelle Cairns (0:49)

It is, and the you know, best laid plans, everyone thinks, right, you've got a plan there, they know exactly what they're doing, but then nothing ever goes to plan.

John Howard (1:00)

So much can go wrong, and I don't want to sound depressing. We don't want to we don't want to make it a depressing show, do we, John? Because you know, at the end of the day, there's huge there's some wonderful stories of people who have who've been hugely successful in property uh and all the rest of it. Um, but you know, you've just got to be careful. And I always say this you need an out before you have an in. You need to know what to do if your first idea doesn't work. Well, how can you get out of that that the deal, or how can you, you know, change it? And property is about de-risking, is it as it is much about doing the deal, in my view.

Michelle Cairns (1:34)

Yeah, and you know, it's not always straightforward, and that's fine, that's how we make our money, right? So uh, I think just by going into any investing with the knowledge that things are gonna go wrong, and that doesn't mean it's necessarily bad, it just means you know something happens, it doesn't go to plan, and you need a you need that resilience, you need to be able to figure out how you're gonna get yourself out of that, find a solution, and it's gonna be a lot of pivoting along the way, just you know, something we need to do.

John Howard (2:04)

If it's any help to anyone, any comfort to anyone, we've all been in a pickle at some point or another.

Michelle Cairns (2:10)

Well, absolutely, and that's what this is all about, it's just that.

John Howard (2:14)

We're all in the same boat. There may be an extra naught or two at the

Navigating Common Property Challenges

John Howard (2:18)

end, unfortunately, sometimes, but we're all in the same pickle. And I and I know some hugely successful uh property people who have been in a similar pickle to everyone listening, I'm sure, you know. And if they haven't been in a pickle, congratulations. Yeah, it's likely to some point. Yeah, exactly. Yeah.

Michelle Cairns (2:37)

Great. Okay, well, let's dive into our first pickle. And the aim of this is just to look through different scenarios, really common ones. We're gonna have lots of stories as well. And uh let's dive into the first one.

John Howard (2:50)

And and what I would say, we're not here to embarrass anyone or anything like that. This is all positive. Uh, whatever we say is really to be supportive and positive, not negative.

Michelle Cairns (3:02)

Absolutely, and inspire people, right? So whether you're in a pickle, they're all in the same boat. Yeah, if you're in a pickle, don't worry. You know, you can get out of it with the right support, the right contacts, um, and you know, just knowing that it's possible. We're here to help, right? So, first of all, let's dive in to our first pickle. So, you've teamed up with a mate to flip a your first house until that mate disappears halfway through and the builders stop turning up. What do you do now? So, um, common scenario for people at the early stages and they are you know um working with friends on deals and they haven't really got any agreements as such.

John Howard (3:49)

Um, that's the that's the first thing, isn't it, John? First thing comes to my mind, you know, with these agreements, I always say get the agreement done because you you know it's professional. And the other thing is if you have to look at the agreement, you're in trouble. You don't it goes into the top drawer or bottom drawer. If you have to get it out, you've got a problem. So, what in a way, whatever that agreement says, you've got to find a solution to that agreement. And I'm I'm helping someone at the moment who's come to me uh with a similar problem with a few naughts on the end, probably, but um that they've got a backer who who put the money in now wants to get super involved with everything, um, and and in a not in a good way, and um they want to raise money to get rid of the backer, you know, and start again. And and that's probably quite a sensible thing to do. So, you know, in a scenario like this, depending if it's one home, you know, hopefully um the reason you got the backer, presumably, is because you haven't got the money to do it all yourself. So I it's a case of talking to that backer or joint venture partner, try not to fall out, try to find some common ground in some shape or form. It's cheaper to be able to carry on with them, even if they've done a runner. Um, they've got their money in, presumably. So that's something, at least, isn't it? Um if they've got to put more money in, they can't, then obviously you need to try and change the rules of the game. And no doubt if it's a JV, it might be 50-50. You might want to try and do what, you know, um 65, 35 or something. But changing horses halfway through, it's like changing a builder halfway through, can be very expensive. And if you can try and patch up the relationship and get it, get that one finished and go your separate ways, I would always try and do that rather than have a full argument, go to court and have all that nonsense. What do you think, John?

Michelle Cairns (5:47)

Yeah, absolutely. It's sometimes you've got to meet them where they're at, and that might be a dark place, it might be you know, a place that you don't want to go because it's embarrassing, it's awkward, but you've got to have like real conversations with people, and um, and there's no point in getting you know all wound up. Best to just deal with things as soon as they happen, reach out, be you know as reasonable as possible because you've got to remember like the outcome that you want, the outcome that you want is you just want to get this deal over the line, get out of it, and move on, right? And then you can deal with the emotions after it, but you have to put the um the legitimate.

John Howard (6:25)

You have to put emotions to one side and and ego to one side. If you you know everyone's got a bit of an ego, you've got to put that to one side as well. The other thing I would say is you need to contact the builder uh and and see how you can get them back on site, because getting the build, you know, while it's sat there halfway, half finished, is your worst scenario because you know, if if you have an argument before you actually start the build work, then your interest payment is at its lowest point. The more work you do, and if you're borrowing the money off a bridge or whatever, the you know, and then have to stop three-quarters of way through because there's a big argument, that interest really ticks up because you're borrowing a lot more money. So, you know, try and nip it in the bud as soon as possible. Uh, and if you've got to eat some humble pie, or I always say to get a deal done, I live in Suffolk, rural Suffolk. If I have to walk to London to get a deal done or get a problem solved, I would do so. You know, simple as that. Do whatever you've got to do to try and get it solved. If you can't get it solved, what do you do, John? Because that's the other question we're gonna be asked, aren't we?

Michelle Cairns (7:29)

And in this in this particular scenario where the first investors put more than their share in, now they're facing the project alone. But the problem is that the title, the mortgage, the costs are all in junk names. So how do they deal with that?

John Howard (7:45)

Well, I think it's very difficult. I mean, obviously, the ideal thing, well not ideal, but one of the ways um is to find another investor to replace the one you've got. Um, and maybe, you know, it might be that the the current investor will take what we call a haircut. Do you know what haircut is? You know what haircut is, John. That's you know, they owed they owed 150 grand on it, they might take 120 to get out now. Um, and it might be the best deal they can do because there may not be any profit in it. So I'm not saying they will do that. Um, but certainly you need to try if you really can't work with the person and they're the ones putting the money in, then you need to find a replacement pretty quick. Uh, and sometimes, John, you can help that situation. I'm sure sometimes I can help. You know, I've got a number of uh high net worth people I work with that now and again put money in the odd deal, so it's possible, um, depending on what they want and how you know how much the deal is. But it is very, very difficult. Ultimately, of course, the ultimate thing to do is put it on the market, sell it as it is, and if it's part finished or whatever, bang it in an auction, take and take your take your chance. I would thought, you know. Yeah, it's all about options and that's my final threat, really, isn't it? With showing away to the person, yeah.

Michelle Cairns (9:03)

It's all about having options and having as many exits as possible, and sometimes just for your own sanity and the stress of the situation, it might just be worth getting rid of it, you know, taking cutting your losses and then moving on to the next thing. So let's recap a couple of different options then.

John Howard (9:18)

So yeah, absolutely.

Michelle Cairns (9:20)

Refinancing potentially, buying the partner out, bringing another investor in.

John Howard (9:25)

That's the most obvious

Strategies for Resolving Partnership Issues

John Howard (9:26)

one, isn't it? Probably.

Michelle Cairns (9:27)

Definitely. Uh and you know, when you're going to the next partner, you be up front and say, listen, yeah, this didn't work out.

John Howard (9:35)

And and and John, part of that is defining the rule defining the rules of the game, really. Because I've had backers I've had for 35, 40 years. Um, but they all know the rules. The rules are I get out there with those ones, I get out and find the deals, I do the deals, they supply the funds. You know, they deal with the bank, they don't interfere on a day-to-day basis. And I've obviously others I I do the whole thing, I do a lot myself as well. So that's slightly different. But obviously, you need to define the rules before you start. There's no point having a partner identical to you. You need a partner that's different to you. It might be that they're, you know, they're they're good on the financial side and you've got on hands-on or whatever it might be. There's no point having two people doing the identical thing because if you're both if you're both doing the dishes and washing up and drying, then you're going to fall out. You know, you need to be doing different things. Very important, that is.

Michelle Cairns (10:34)

Absolutely. So essentially, we can just sum it up by damage limitation right now.

John Howard (10:39)

Absolutely.

Michelle Cairns (10:40)

And the big win is just learning to protect yourself next time and do things differently next time.

John Howard (10:45)

I think so. And remember, the longer it goes on, the more it's costing you. So you might go, Well, I'm not taking that, I'm not doing that. Well, three months' time, if the situation's the same, the money, the money that you know, you've spent all that extra money on interest, so you might as well done the deal in the first place. So don't be proud. If it's a problem, get out of it and go again, if you can, one way or the other.

Michelle Cairns (11:09)

Okay, and some golden nuggets for people to take away with them to stop at people getting themselves into that pickle. Talk to us about JV agreements and you know that the problem of the handshake agreement is that it's you know, it's it's never it is literally a handshake.

John Howard (11:27)

I mean, what I would say, what I would say, and and you get people who have worked together for 30 odd years and never had a problem. So I you know, any partner has to appreciate that you are going to lose money from time to time in property. It's gonna happen. It's gonna happen. And it's how people react to that and deal with that. Um it's you know, sorts out a good partner from a bad partner, probably. But what I would certainly do is spell it out early on. Get a you don't, you know, um, I mean, I don't think you need a 30-page agreement, but you certainly need a two or three-page agreement. Now, a two or three-page agreement will not be watertight legally, it won't be watertight, but it is the principle that you're really trying to do, and the fact that you both signed it is a commitment that you know, in principle, this is what would if it goes wrong, this is what we'll do. And there's a c there's a clause called the chicken clause, John. Do you know what that what that is? I've never heard of a chicken clause. Right. Well, a chicken clause is this it says that say say you want to buy the person out of the deal, so you offer them a certain amount of money to buy them out, and if they don't want to, you have to you have to accept the same amount so they buy you out. It's a very, very fair clause. And in many agreements, and if you're having a lawyer do the agreement, just mention the chicken clause to them because they'll know what that means, and on the whole, should do. And um, it can save a lot of argument. A lot of argument. Yeah.

Michelle Cairns (13:00)

Well, uh, yeah, as we said, you know, it handshakes agrees, but um it doesn't write it doesn't replace due diligence, it doesn't replace that contract. So if it's not in writing, guys, it is not agreed.

John Howard (13:12)

Um and also just check out finally, sorry to butt in John, but just check them out online, you know, these people. What's their credit? What's their credit like? What's their this, you know, you can check people out so well now. Someone I had the other month, someone well not someone, 28 people checked out my net worth online the other month. I mean, they're nosy buggers, aren't they? What's that? Why would you bother doing that? But anyway, there you go. So just you know, do your due diligence like you said, John, you're absolutely right. Absolutely right.

Michelle Cairns (13:42)

Yeah, well, you can lose a friend or lose your money, but make sure it's not both.

John Howard (13:47)

Yeah, make sure it's make sure it's not the money in my view.

Michelle Cairns (13:50)

Exactly. Exactly. Um, any other any other you know, stories on that one with um, you know, JV agreements and oh oh John, I over the years, over the last few years since I've been doing some consultancy and stuff, I've had, you know, I've had a guy, you know, who's who's had you know two and a half million out with someone and wants it back, can't get it back.

John Howard (14:13)

We've we've probably got about 1.6, 1.7 back, you know, working with the lawyers and myself and so on. We've had other people with you know much more modest sums, but of course, money's the the amount of money people have it is relevant. It's relative, I should say. So, you know, the person that's that's can't get 100 grand back, in some cases, it's worth that that's more important to them than someone who's got a million pounds out of someone. So it's really important that you don't get yourself in that situation in the first place. Really important, and it and it does happen, and if it happens, don't beat yourself up about it, you know. And you hear it quite a lot in the property world at the moment, unfortunately. But if it happens and you fall out, sort it out is the answer. Sort it out and nip it in the bud immediately, don't let it linger and this, that, and the other. Deal with it there and then, don't put your head in the sand.

Michelle Cairns (15:04)

And would you say for people who are mid-project and everything's going okay, but they suddenly kind of realize they're listening

The Importance of Agreements in Property Deals

Michelle Cairns (15:11)

to this and they're thinking, Yeah, I don't have an agreement. Do you think um, you know, it should they just uh go and you know speak to the other partner and say, Listen, we didn't do this right at the beginning. I'd like to put an agreement in place halfway through.

John Howard (15:29)

Hang on a second, can I can see my stables from here? Has a horse bolted? Let me just look. No, they haven't touched wood. It's happened before. The stable door's been left open and someone and the horse has gone off somewhere. The answer is I will I can't say you can do that, John, because I think you're you're you're you're putting the alarm signals out, you don't trust them, you don't want to work with them anymore. Yeah, I think that's too late. I think you do need to, if you're in that situation, you just need to you know nurse the nurse the deal through to the end. If there's not a problem, you know, at the end of the day, I wouldn't panic if if if you know if it's not broken, it doesn't need fixing, just don't do it next time. Or if you do it next time, make sure you have an agreement.

Michelle Cairns (16:09)

Okay, and talk to us about agreements because the people are you know a bit funny about agreements and they just might do aheads of terms and think that that's enough. But what can people expect to pay for a substantial agreement? Nothing too, you know, just enough.

John Howard (16:24)

Unless it's 30 odd pages, it's probably not worth the papers written on. Um really, that's the truth, because there'll be a good barrister, good lawyer that can unravel it. Um, so it is a gesture. I always I really it's not this signing these, you know, these documents so you can get someone to send you a send you a deal, you know. Uh you know, just be careful signing. Might say you've got, yeah, it might say you've got to pay 2% fee on receiving it or something, some nonsense. So be very careful with those. I'm not saying don't don't sign it, but just read it carefully first. I you know, I would say it like I said earlier, it's more of a gesture of goodwill that you're both signing it. Um and and and and they're the broad rules, you know. Um, but of course, most good lawyers will drive a coach uh horse and cart or horse and coach through it, or whatever it is, if they really want to. But that's expensive. Start getting into lawyers, you've got a big problem anyway. So I I would say have a relatively simple agreement. Hopefully it's watertight enough. You know, I'm sure AI now will be printing these off rather than lawyers, which I'm not sure it's a good idea, but you know, I think it's a gesture, it's the gesture of good faith more than anything else that you're both prepared to sign it. If someone's not prepared to sign it, then it it should ring alarm bells, and it really should ring alarm bells.

Michelle Cairns (17:45)

So for people who are starting out, let's say they've just got a simple flip project they're doing with JV. Uh they can go to a reputable solicitor.

John Howard (17:55)

Absolutely. Joint venture agreement, £1,000, I'm guessing. Would you?

Michelle Cairns (17:59)

Yeah.

John Howard (18:00)

Do you think about that? About a thousand pounds, you know, and and and like you said, you it it's watertight-ish, I'm sure.

Michelle Cairns (18:08)

But and hopefully you'll never need to use it. But just very much like insurance, you're paying for peace of mind.

John Howard (18:14)

Yeah, put it in the bottom drawer. Hopefully, you'll never have to get it out. If you've got to get it out, you've got a problem.

Michelle Cairns (18:20)

Great. Okay, well, that is our first property pickle. And if you have found yourself in a property pickle, uh ideally one that you've got yourself out of, or now that you can laugh about looking back, uh, or certainly you've got a uh considerable learning from, even if it's not earning, uh, then do send us in at the key club. You can find it in the show notes, uh contact us in social media, and uh we will share your pickle. Okay, next time we're gonna be talking about investors who grew too fast and the nightmare attacks that followed. So stay tuned and see you next time.

John Howard (18:57)

See you next time.