Lee Jones, founder of The Lettings Room and The Investment Room, in conversation with The Property Chronicle
Lee Jones is the owner and director of The Lettings Room and The Investment Room based in Stocksbridge, Sheffield. Specialising in the North he manages 4,000 properties and currently has 1,000 units under construction. (In 2018 The Lettings Room won agent of the year at the South Yorkshire awards).
How did you get into property?
“While studying for a PhD in Chemistry at Leeds University I bought a house, divided it into flats and rented them out to students. I quickly saw the potential for development and the opportunities that a captive rental audience offered. While working as a sales assistant at a high-end retailer selling to Premier League football teams, I went into partnership with several players. They financed my property developments and I split the profits with them on exit. This taught me a valuable lesson about the power cash can give you in a market that can present liquidity problems.”
Where do you source your stock?
“After the crash of 2008 many of my purchases were from bank repossessions. I realised I had to offer clients something different – selling discounted property in a distressed market was attractive to only a few. As my letting agency grew I realised the rental demand could be channeled into my portfolio. I started offering clients two-year rental guarantees (typically 8– 9% pa) which provided a more passive approach for those who wished to ride out the slowing market. Two years guaranteed rental and an initial discount proved popular at a time of QE and low interest rates. It is fair to say that these are still big factors in our clients’ decision to invest.
“In the last few years, as the banks’ bad debt portfolios have been cleared, we have moved away from buying individual units to converting office blocks, mills and buildings out of the ground.”
Describe your building operations.
“I have worked with four sub-contractors for over ten years who operate with full knowledge of our business MO. Turnarounds and lead times are among the fastest going and provided without compromising quality. The Investment Room employs 42 people over four offices around the North. Our developments range from five units to up to 1,000 (the latter is an old brewery with houses and a museum that will regenerate the entire area).”
Who is your client base?
“We have many high-net-worth clients in the City and abroad, all of whom are cash buyers. Some buy and hold for the next generation, some buy off-plan and look to sell on when the development is completed, typically to property funds who buy in bulk but will not pre-commit. Their cash is then freed up for the next development and a repeat of the same process. Competitive pricing is key to this process, as securing returning investors generates cash flow to acquire new sites.
“Our clients are increasingly buying whole sites and this has smoothed the administrative trail and improved the speed of decision-making.”
What is the appeal of the North to clients unfamiliar with the region?
“It is hard to answer this without using clichés, but the Northern Powerhouse, improved infrastructure, HS2, devolution of power to regional bodies, low unit costs and strong employment numbers all add to a sense of value. I also believe a change in the way people work and the kinds of work they do is encouraging them to move out of traditional urban centres down South.
“The perception of an overpriced South East sector in England – and subsequent struggling yields – has caused many to look for value in a country that is still thought of in property terms as a good bet. The government’s inability to tackle the housing crisis underpins investors’ belief that property remains a shrewd long-term bet, particularly in areas where property can stillbe bought at a discount to pre-crash levels.
“In addition, the North outperforms the South significantly when considering rental yields.”
What risks do you point out to investors?
“Property is an inexact science – the risk this involves is the reason that healthy margins are available. Every transaction our investors make is with cash and we in turn do not borrow against any of our operations. We stress that sometimes transactions take longer (and sometimes are quicker) than planned. All property markets periodically present liquidity challenges.
“When we have this conversation we are not really telling our clients anything they do not already know. All have had a lifetime of involvement in housing – for example, simply balancing mortgage requirements against income with the decision of when and where to buy a home.”
What kinds of returns do investors see?
“Our clients on average achieve an annual return of circa 20% on short-term strategies.”
What advice would you give to those considering buying in the North?
“Find a partner you trust. Concentrate on areas close to hospitals, universities or town halls where rental demand is likely to be robust.”
How do you see your business growing?
“The healthier micro effect of the North, as discussed, is drawing in large investments from macro players looking to exploit those trends. Our client base is moving towards HNW individuals growing large portfolios, who – if they do decide to sell – look to exit to property funds. The marrying of these two sides is crucial to growing the business.”
What is it that draws you to property?
“Property is my passion. I love waking up and trying to secure a deal. Property satisfies and touches so many people’s lives, from the construction workers that create the properties to the tenants that move in and call a property their home. The satisfaction of bringing a building back to life is second only to being a family man with two young kids.”
