Case Study 4: Balance Sheet Hacking

This is one of my favourite deals, and one of the most complex. It’s a layered one with a few moving parts, but if you can follow it, you’ll see how powerful lease arbitrage, company purchases, and balance sheet hacking can be.

We’re in Chester, on Watergate Street, 100 metres from the racecourse. The property? A commercial unit on the ground floor (currently Diva Hairdressers), with five flats above. Urban goldmine.

Phase 1: Lease First, Then Sublease for Cashflow

Back in 2015, this came to me through a commercial broker I was building a relationship with. He was managing the commercial unit (the hairdresser), but told me the five flats upstairs were coming off a 20-year housing association lease, paying just £500/month in total.

Yes, you read that right: £500/month total, in the centre of Chester.

The landlords were elderly, didn’t want to manage it, just wanted hands-off income. I agreed a deal:

• I’d lease all five flats for £1,100/month on a 10-year term

• I’d do a light refurb at my own cost (~£20k, which I funded with an unsecured loan)

• And I’d try to rent or operate the flats myself
  
  

My Original Plan: Rent-to-SA

At the time, I was building a small rent-to-rent serviced accommodation business. SA wasn’t a “thing” yet—it was early days—but I could see the potential in this location.

Then… a new player showed up. rooms.com opened a 70-room apart-hotel on the same street. I panicked. I didn’t want to compete with a multimillion-pound operation, so I pivoted.

Phase 2: The Pivot to Supported Living

Instead of SA, I sublet the whole block to a supported living company on a 10-year lease at £2,600/month.

• Their lease mirrored my own

• They upgraded the fire alarms and glazing themselves

• It’s a fully repairing & insuring (FRI) lease, so they cover all costs

• Zero voids, zero maintenance, zero management
  
  

💰 Margin: £1,500/month

💸 Loan repayments: ~£400/month

📈 Net cashflow: £1,100/month

📍 With no money of my own in the deal

This was my first taste of passive income with none of my own capital. The loan paid itself off, the tenants paid every month, and I never had to lift a finger.

Phase 3: Buying the Freehold

Fast forward to 2021. One of the shareholders in the company that owned the building sadly passed away. The others decided to sell up.

Because I had first refusal written into my lease, they came to me first.

They offered me the freehold for £340,000—which honestly surprised me. I thought they’d ask for more, and I was prepared to pay more.

But here’s where things got interesting.

Balance Sheet Hacking: Buying the Company, Not the Property

Their accountant advised them not to sell the property directly—for tax reasons. Instead, they offered to sell me the company that owned the property.

And here’s the kicker:

On the balance sheet, I spotted a £60,000 deferred corporation tax liability—which my solicitor completely missed, by the way.

That liability would’ve triggered if they sold the property, but by selling the company instead, it stayed on the books.

So I said:

🧠 “If I’m taking on the company, I’m also taking on your tax bill. I’m not paying full price and your tax.”

They agreed to knock £60k off the price.

The Final Numbers

Line Item Amount

Company Purchase Price £280,000

Deferred Corp Tax Liability £60,000 (on paper)

Total Property Value ~£340,000

Revaluation (Post-Lease Rewrite) £435,000

Refinance Pulled Out £250,000

My Money Left In £30,000

Cashflow (after refi) £2,000/month

And that £30k “left in”? It’s structured as a director’s loan to the company I bought, so I can withdraw it tax-free whenever I want.

Why This Strategy Worked

1. Started with control, not ownership
   
   → I leased first, de-risked the whole thing
   

2. Sublet to a stronger tenant
   
   → Supported living provider covered all maintenance
   

3. Secured right of first refusal
   
   → So I had dibs when they chose to sell
   

4. Bought the company, not the asset
   
   → Reduced stamp, reduced tax, and created value on day one
   

5. Rewrote the leases
   
   → Increased rent, increased valuation
   

6. Refinanced with lender pre-agreed
   
   → So I pulled £250k straight out after purchase
   
   

Even With Interest Rate Rises…

Yes, interest rates went up.

• My mortgage: now £1,800/month

• Rent: £3,800/month

• Net cashflow: still £2,000/month, with zero management
  

This building prints money. I haven’t been there since 2015. The lease handles everything. The rent lands every single month, like clockwork.

Final Thoughts: This Is a Textbook Unicorn Deal

If you’re building a long-term portfolio, you have to understand strategies like:

• Lease arbitrage

• Corporate acquisitions

• Deferred tax liabilities

• FRI leases

• Passive income via supported living
  

This is where the real money in property is made—not in flipping kitchen tiles.

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✅ How to value property companies and reduce tax

✅ How to structure cashflow deals with zero management

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