Index
I started investing in property in February 2007. Before that I bought my own property in 2006. I found it to be relatively straightforward and thought that I could make a living out of buying and selling property. Because I didn't know about the property market, I went on number of courses most of which were free but 2 of them were paid for. I felt that the free ones didn't give me enough information to turn it into a business. I was disappointed when the paid for ones were similar - the only difference is you get more information. In other words, it's still a hard graft.
In September 2006, on one of the free courses, the presenter offered one piece of advice - if you're a first time investor, then buy one property, let it out and manage it for 12 months then buy further properties otherwise you'll struggle and you could lose a lot of money. My wife was with me and she took it to heart.
We looked all over the place for suitable properties but couldn't find any - they were beyond our means. Then a development of new apartments were being built a hundred yards from our house, but we've missed it. However, the builders got permission to build another wave of apartments and houses but, again, their prices were through the roof and it looked like we were going to miss out again.
Fortunately, in December, we found a property club who were offering 2-bed apartments in this phase II of the development for a mere £4256 plus costs. The costs were to be paid directly to the property professional: Solicitors (£975), Mortgage Brokers (£495), and Surveyors(£270). With the exception of the survey fee, the others were to be paid on completion.
We jumped at it and asked for more information. When we noticed that the developer's valuation was £145,000 and the mortgage was going to be £123,000, we changed our minds. Then, in February 2007 we thought about the whole thing and decided to jump in with our eyes closed. Besides, we'll only be paying under £6000 and the mortgage will be paid from the rent estimated to be £600 to £650 pcm.
I borrowed £4000 as a personal loan from Northern Rock and signed the dotted line and paid my deposit (£4256). Then in April, the mortgage broker arrived, did some calculations and concluded that a rent of £600 won't cover the mortgage of £123,000. He asked me to pay an extra £7000. Now I have a disposable income of £1000 a month and, since September I had already accumulated £6000 after paying the installments on the personal loan. So I said OK because the money will be paid on completion, I just have to agree to it on exchange. However, I had to pay the survey fee there and then. I actually sent it by cheque to the surveyor's office, the one he gave me.
In July 2010, my solicitor called for the extra £7000 to be paid into the escrow account and I sent her a cheque for that amount. Two weeks later, my solicitor informed me that the lender is exercising his right to survey the property in its finished state. I said that I don't mind. A week later, the solicitor told me that the apartment was valued at £135,000 not £145,000. That made me over £8,000 in negative equity from day 1, that's on top of the extra £7,000 I had already paid.
Fortunately, the developer phoned me and told me about the discrepancy and asked me to pay extra. I thought hang on, they don't know that I had already paid the extra. So, I refused to pay it. Now I remember exchanging contracts after agreeing to pay the extra. It seems that their solicitor omitted to put that agreement in the contract and I've already paid it into the escrow account. Two weeks later, my solicitor called me with excitement in her tone of voice. She said that the developer accepted the lower valuation and that now the lower mortgage can be supported by the rental valuation. So, she was going to send the £7000 back to me.
When I tried to put it on the market, my letting agent refused to put it at more than £550, so I had to subsidize the mortgage (£563) as I had to pay a service charge (£80pcm). My account in September 2010 was over £10,000 and I thought I'm going to buy another one. My wife remembered the advice that presenter gave us about first timers should buy one property and manage it for 12 months then buy some more. So she successfully, persuaded me against it and I didn't need much persuading as we've been waiting for over a month and no tenants.
Seven weeks later, still no tenant. While we were shopping in Cape Hill, West Midlands, we came across another letting agent and we went in and asked about his track record. We had to wait about 15 minutes as he served 2 tenants before us. I was convinced he was the right agent for us that I signed a contract and gave him the 2nd set of keys. When I told him that I had ordered furniture earlier, he became angry and said that I'm limiting his market hence his success. We went back to the furniture store and canceled our order. The agent had just saved us over £1000.
A few days later, he called me that he had a male tenant who was willing to pay £525 but he needs a sofa and 2 beds as a minimum. I said OK because I was desperate for a tenant. He said don't rush into this, there are plenty of tenants out there. A few days after that, the agent found a female tenant who has her own furniture for £510. He recommended this one as the furniture would've cost me around £600 and that cannot be reclaimed from the extra £15 pcm.
Six months later, the tenant didn't renew her tenancy. I asked the agent about it and he advised me not to say anything as she has automatically moved into a rolling contract on a month by month basis - each party has to give the other one month's notice before moving. Five months after that, she renewed her tenancy for 12 months at £525pcm. She probably thought she was signing a 12-month contract.
She has been in the apartment for almost 3 years and, it turned out that she's a student. Now most university courses are 3 years duration and she could leave on the 1st October 2010. I hope she's a medical student so that she'll stay for another 3 years. Because developers continued to build apartments and houses in the same area, she only agreed to a rise of £5pcm in the 3rd year.
If she does go, I'll miss her as she got her polish friends to repair the apartment free of charge as well being clean and tidy. After a grueling 2 months after I bought the apartment, the next 3 years were trouble free.
In December 2007, there was talk of a credit crunch which ended the house price inflation and the slow fall in prices started. It looked like I bought the apartment at the height of the property and I will lose the deposit that the developer paid or rather did without.
After the Lehman Brothers collapse in September 2008, the Bank of England started to aggressively reduce base rate. But that wasn't good for me as I was locked into a 2 year rate fixed at 5.79%. That meant that I had to pay over the odds for another 12 months. When my mortgage reverted to a Standard Variable Rate, my payments were reduced from £563 to £305. Even if you add the service charge of £80, The apartment is now cashflow positive even if it's in negative equity. The apartment was estimated to be around £100K but now it has slowly clawed its way to £104K still £13K below the mortgage of £117K.
Naturally, my wife and the presenter were vindicated for different reasons. This experience has proved to me that there are risks with property investments. My minimum paper loss is around £24K made up of £6K initial costs and £5K subsidies. If I were to sell now, I'll be lucky to get £100K. It looks like that I could crystallize a net loss of over £30K.
My other experiences were less worrying...
