Cracking the Code: 5 Stories that Simplify Complex Principles of Rented Commercial Property

The Potato

This concept illustrates how the same raw material, in this case, a potato, can be transformed into different products with varying values through preparation and processing. 

450g of potato may have a relatively low value, such as 78p. However, when the same weight of potatoes are cut into chips and cooked, their value increases significantly to £6.17p, that's a 791% increase. 

Furthermore, if these potatoes are sliced thinly and deep-fried to become crisps, then put into 30g bags and sold for £1.00, their value will increase even further to £13.39p. That's a 1,700% increase.

This emphasises the importance of adding value to raw materials through innovation and creativity, resulting in products that can be sold at much higher prices.

Do you have time to read one more story about a property deal?

Mechelle's (my daughter) story of binoculars 

One sunny afternoon, Mechelle stumbled upon a dusty old pair of binoculars, sparking a journey of transformation and clarity. The lenses, initially out of focus, mirrored Mechelle's struggle to comprehend five little-known principles shared by her dad, John, promising to shape her life and financial future.

The first principle, highlighting the potential of the "3 month method" for 85% of high street shops, left Mechelle puzzled, akin to viewing an unclear world through unfocused binoculars.

The 2nd principle, discussing decreasing investment yields with each year in business, left Mechelle perplexed, the connection between time and diminishing returns elusive.

The 3rd principle, emphasising desire for high ROI but low investment yields in rented commercial property, created a swirl of confusion, conflicting notions clouding Mechelle's understanding.

The 4th principle, involving banks financing both lease and building, seemed distant and unattainable, much like a foggy object through unclear lenses.

The 5th principle, advocating for personal name capital allowances, remained an unreadable sign in the distance, leaving Mechelle squinting in uncertainty. Seeking clarity, Mechelle turned to 3MM, a consultancy known for unravelling complexity. Like skilled opticians, they patiently explained each principle, adjusting the focus of Mechelle's understanding.

With their guidance, the blurry principles came into sharp focus. Mechelle embraced the potential hidden within, applying them to her business and unlocking growth. Just as the binoculars transformed from blurry to clear, Mechelle's path illuminated with newfound knowledge, turning those principles into actionable strategies. Mechelle's journey reminds us that when faced with uncertainty, seeking guidance and adjusting our perspective can bring clarity and understanding. With a little adjustment, the world becomes understandable, and possibilities become endless.

Mr Thompson's property story

Once upon a time, in a bustling town, there was a landlord named Mr Thompson who had a keen eye for investment opportunities. Attending a local property auction, he came across an empty shop that caught his attention. With a winning bid of £150,000, he became the proud owner of this promising property. 

Eager to maximise his investment, Mr Thompson set out to find a suitable business to rent the shop. After careful consideration, he found a thriving venture willing to pay £15,000 per year in rent. With a return on investment (ROI) of 10%, Mr Thompson was content with his decision and looked forward to a steady income stream. However, fate had more in store for Mr Thompson. 

Enter John, a knowledgeable individual well-versed in lesser-known financing methods. John approached Mr Thompson, sharing insights on how to further increase the value of the property as taught by 3MM.

John explained that the risk yield of an investment affects the amount that can be borrowed from banks. In this case, the lease had a low 5% risk yield, indicating a stable and secure investment. This made the lease value soar to an impressive £300,000.

With this newfound knowledge, Mr Thompson saw an opportunity to leverage the increased value of the lease. He approached the bank, armed with the lease's value. The bank agreed to lend him £180,000 after holding £120,000 of the equity release for the deposit, leaving him with £30,000 in cash after paying the £150,000 for the building.

Mr Thompson couldn't believe his luck. Not only did he secure a valuable property for a modest price, but he also managed to increase its value significantly through strategic financing. With the additional cash in his pocket, he felt a renewed sense of excitement and potential.

As time went on, the shop thrived under the new tenant's business, generating a steady income for Mr Thompson. The property's value continued to appreciate, solidifying his wise investment decision.

Mr Thompson's story became a story to the power of knowledge, seizing opportunities, and thinking outside the box. With John's guidance, he transformed a simple purchase into a lucrative venture, reaping the rewards of his astute investment choices. And so, Mr Thompson's journey as a landlord continued, filled with newfound confidence and a passion for seeking out hidden gems in the world of property investment.

Story by Mrs Anderson and her shop deal

Once upon a time, in a vibrant city, there was a landlady named Mrs Anderson who had a knack for spotting lucrative opportunities. She came across a prime shop available for purchase, with a price tag of £500,000. Recognising its potential, she decided to make a bold move.

With a deposit of £125,000 from her pocket, Mrs Anderson secured the property and eagerly sought a tenant. Soon enough, she found a thriving business willing to pay an impressive annual rent of £55,000. This translated to a solid investment risk yield of 5%, promising a stable and profitable venture.

Little did Mrs Anderson know, her journey was about to take an unexpected turn. Along came a financial expert named John, who shared a ground breaking financing strategy. He explained that the increased lease value could eliminate the need for a deposit and allow for a more favourable loan-to-value (LTV) ratio.

Excited by the possibilities, Mrs Anderson explored this new avenue. Armed with the knowledge that the lease value was £2,000,000, she approached the bank. Astonishingly, the bank agreed to provide a loan without requiring a deposit in cash, thanks to the increased lease value. With the loan secured, after the deposit was taken out, Mrs Anderson found herself with £1,200,000 to pay for the building, costing £500,000, leaving her with a staggering £700,000 in her pocket tax free. 

Cash amounting to 40% of the purchase price was claimed as capital allowances, provided her with a significant financial advantage as she choose to use them to pay her personal income tax obligations. To top it off, this deal came with an additional benefit. Thanks to the structure of the transaction, Mrs Anderson was exempt from capital gains tax, further enhancing her financial gains.

Mrs Anderson's story became a testament to the power of strategic financing and seizing opportunities. Through her astute decision-making and the guidance of John she not only acquired a valuable property but also maximised her returns and minimised her financial commitments.

As time went on, Mrs Anderson's shop thrived, generating a steady income stream and solidifying her position as a successful landlady. Her story served as inspiration for others, showcasing the potential for financial success through innovative financing and smart investment choices.

And so, Mrs Anderson continued her journey as a savvy landlady, armed with newfound knowledge and a passion for seeking out deals that would bring both financial prosperity and peace of mind