My first buy to let property investmentMake Text Bigger
The story began in 1989 when I purchased a property which I soon realised I couldn’t afford to live in. I suppose that was my first buy to let property investment and many landlords get started that way. I rented that property out when interest rates shot up and property values crashed leaving me in negative equity. I muddled through and I still have that property now. With that baptism of fire into property investment I’d probably have been forgiven for never wanting to buy another one but that’s not how life worked out.
If only I had waited a few years I thought, I could have purchased the same property for 40% less than I paid for it. Then it dawned on me, properties would go back up in value at some point, that was one of the reasons I didn’t want to sell. I wished I could have purchased some more property at that time but I had no money so there was only one choice.
Step one – saving up the deposit
I had to work smart and save hard so that I could buy another property before they started going up in value again. I remember watching my bank balance grow, my target was to save £10,000. It seemed like a fortune at the time, when I set the goal I could barely make ends meet, never mind save any money. Nevertheless, I took an hour out every Saturday morning to document my goals and my progress. In April 1996 I had the magic £10,000. Having saved all that money I can tell you it still took a lot of courage to take it out of the safe hands of the building society and invest it into a property, despite the fact that’s exactly what I’d been planning for several years. Remember, properties didn’t really start to recover from the late 80’s / early 90’s crash until the middle of 1996. I only had a gut feeling at the time that they would go back up in value, I just didn’t know when and I didn’t really know why either. I just thought it was likely that history would repeat itself.
Step two – overcoming my fears
My biggest worry was that, in the short term, interest rates could go back up again and property values could go down even further. There was no way that I could afford to pay two big mortgages if everything went wrong. It wasn’t just interest rates that were worrying me either, what if I couldn’t rent the property, what if my tenants didn’t pay, what if I got an unexpected maintenance bill? I realised that I just couldn’t take the risk of investing 100% of my savings, I needed to keep some money aside for the unexpected, but how much?
Step three – what to buy and how to stay safe
The cheapest properties at the time were around £15,000 in my area. They were in grotty locations and the letting agents I spoke to said they would be hard to let and even if I did I wouldn’t be dealing with a particularly friendly demographic of people. I realised that I couldn’t really afford a house, not a modern one anyway, and not being much of a handyman the thought on ongoing maintenance of an old terraced property was very off-putting. Therefore, flat’s were my target. Would I go for an upstairs flat or a downstairs flat though? There were advantages to both. Old people would be more likely to rent a downstairs flat, so too would people with babies. Flat’s with lifts were not common place back in 1996 and any that had them were way outside my budget. However, when I started looking at ground floor flats and talking to other landlords I realised that damp was often an issue, so was security. The reason for this was that people don’t leave windows open in ground floor flats. Therefore, I decided to go for a first floor flat.
Step four – location and price
Having decided to go for a first floor flat I realised that I was probably targeting young working couple as my tenants. I’d also worked out that my budget was around £20,000 based on the fact that I needed a 25% deposit (£5,000) and could borrow the other 75% (£15,000). That left me with £5,000 of which I budgeted £1,500 to decorate and to pay all the fees associated with buying. I knew that I needed to buy on a decent bus route into the city and the industrial estates and having visited every estate agent in town (there was no Rightmove to check in those days) I narrowed it down to three properties. All of them were above my budget but only by a few thousand. I put in an offer on all three for £19,000 and they were all refused. I was gutted and resigned myself to search again in a few months time when hopefully I’d saved a bit more. I could have gone ahead and left myself with a smaller liquidity fund but I didn’t dare. Then, after a few days one of the estate agents called me back. Their vendors had had a re-think, they would accept an offer of £19,500. I was so tempted but I stuck to my guns and I’m glad I did. I was a property investor, no chain, I could move as quickly or as slowly as they wanted. I got lucky, they accepted, I was in business! I was well on my way to owning my first intentional property investment.
Tips on becoming a buy to let property investor
Having agreed to buy my first buy to let property investment I soon realised that it’s a bit like a visit to the loo, paperwork is important!
I’d purchased my first home a few years before but I’d forgotten about all the paperwork I’d done at that time. All of a sudden it all came flooding back to me. I wonder if women go through something similar when they give birth to their second child? Never say never again!!!
The first load of paperwork was the mortgage application, for me that was second nature, I worked as a financial consultant at the time. If you’re not a mortgage broker yourself though you may need a bit of help to source the right mortgage and to find somebody to help you complete the paperwork. The estate agent took all of my details and advised my solicitor of the agreed purchase and that started another chain of events. Soon I was being bombarded with mortgage offers, a copy of the valuation, a wedge of papers from the solicitor with details of what was going to be left in the property, who the utility suppliers were, a copy of the lease, copies of covenants, a contract, land registry forms and so the list goes on. My chosen letting agent also wanted a whole load of forms to be completed too. If you’d have told me then that I’d put myself through this more than another 100 times over the next few decades I’d have said it was impossible. When I look back though it was so easy then, there’s even more paperwork now with Gas Safety Checks, Tenancy Deposit Protection, Inventories, I didn’t know what an inventory was until 10 years later!
I really pity the people who think they can just buy a property, let it out themselves and enjoy a passive investment. These so called property gurus have a lot to answer for!
Financial due diligence
When I purchased this little flat I got lucky, well sort of anyway. I had a £14,500 mortgage at an interest rate of 9% on a 15 year repayment basis. That was the best deal I could get at the time, if I wanted interest only I had to buy an endowment policy!!! I rented it out for £325 a month which, as it turned out made me a nice little profit, even though I’d not properly budgeted for management fees, maintenance, rental voids, ground rent etc. We live and learn I suppose. Thank goodness I used a letting agency who knew what they were doing. That was a bit of luck too, it never occurred to me that some of them could be rogues so I never even thought to check them out.
Joining a Landlords Association
That was probably the best move I made. I didn’t join with any intention of learning anything tough. What was there to learn? I knew it all, or so I thought. I was selling mortgages and life insurance at the time so my reason for joining a landlords association was that a group of landlords would be rich pickings – right? WRONG! I’d never met such a cynical bunch in my whole life. They were all old, they wore tweed jackets and met monthly to drink G&T and talk about how awful the local councils were and about all the rogue agents in their area. They spoke a new language to me, full of abbreviations I’d never heard of HMO, AST, section 8’s and section 21’s? I can even remember watching a Betamax video of why it was so important to pay your £1 Stamp Duty on an AST. I never did understand that but the law subsequently changed and that was no longer necessary.
The landlords association members were tight as anything and there was no chance I was ever going to sell them life insurance or a pension. Were they immortal or something? Apparently not, they knew that but they also knew that their properties would be around earning money well after the’d fallen off their perches. They taught me so much and I’ll whisper this, I didn’t like them very much at first, I thought they were a whining group of old farts. However, I soon realised that between them they had hundreds of years of experience of being landlords. I also realised that for the price of a few G&T’s I had a resource where I could go once a month with a whole list of naive questions.
Just two years after buying my first property investment I owned 9 more. Buying that first one was like finding a magic lantern for my buy to let mortgage business. The Genie that popped out to grant me my wish gave me the confidence I needed to share with other prospective landlords how I got into the business and how I had overcome my nagging doubts. I was still relatively wet behind the ears but I knew more than most, especially the newbies who were starting to get interested in this new “buy to let” phenomenon. You see, when I purchased my little flat nobody had heard of the phrase “buy to let” as it hadn’t been invented. When ARLA created that phrase in late 1996 the media really grasped onto it and buy to let was in pretty much every newspaper every day.
Buy to Let Maintenance Budgets
By 1999 I had realised that I needed to put money aside for maintenance. Tenants were moving in and out all the time and I was bleeding money on professional cleaning, magnolia paint and replacement carpets at an unbelievable rate. I’d started investing into bigger houses and renting them to people with children and groups of professionals so the wear and tear was much higher. I’d also been furnishing my properties with cream carpets. When they got shabby it was difficult to find new tenants without replacing the carpets.
I remember going into an independent carpet retailer in Kings Lynn and talking to the owner about my dilemma. It turns out that he was a landlord too. He explained that top quality carpets are great for your own home but not for rentals. He agreed with what I’d learned about colours and also introduced me to a new colour “cappucino” and felt back bleach cleanable polypropelene carpets with quality underlay. I’ve not used anything else ever since.
So I learned to create maintenance budgets for my investment properties. My income is from rentals but the mortgage is not my only outgoing. It’s so easy to forget that. Just take a look at the emails and adverts you see from people selling investment properties. They all do the same calculation, rent minus mortgage = profit. GET REAL chaps!!!
My vintage year was 2003. I was followed for 24 hours by a camera crew to make a TV program about young entrepreneurs. By then I had 100 people working for me selling buy to let mortgages and turnover from mortgage sales was £7 million a year. In 2003 I also purchased my first built to order super-car, a Ferrari 360 Spider. I visited the worlds best hotel and had a suite with a butler at the Burj al-Arab in Dubai. In 2003 my property portfolio made me an extra £1 million in 2003 without lifting a finger. It was a bitter sweet year though as I also lost one of my dearest friends in a car crash at the end of 2002. My friend David was one of the first people to start working with us, he lived with my wife and I for three days every other week and the same with my business partner on the alternate weeks for several years. That all started whilst he was going through a messy divorce. He continued commuting between Norwich and Halifax for work even after getting re-married until the saddest day of my life. I received a call telling me that David’s car had left the road and flipped several times killing him instantly. He’d left our office only a few hours before and was on the way home to see his new wife and new born baby. It was that which changed my outlook on life forever and was also the reason I started to enjoy my wealth. We never know how long we’ve got left. As they say, there are no rehearsals in life.
At the end of 2002 my property portfolio had grown to be worth £4 million. Plenty of this had come about by capital appreciation and remortgaging to release deposits to buy more properties. Nothing has compared since to the growth I witnessed in 2003. OK I was splashing out a bit (some said I was just being flash) but I kept the balance of having the equivalent of 20% of the value of my mortgages in cash too. I had my reasons for doing both.
How I made a million in 2003 without lifting a finger
It’s hardly fair to say that I made a million, I didn’t really, the property market made it for me. During 2003 the value of my property portfolio increased by 25%. At the start of the year my portfolio was valued at £4 million, at the end of the year the valuers said £5 million. I didn’t buy many properties in that year, I was too busy enjoying other things, but nevertheless, my portfolio was worth a million more by the end of the year than at the beginning. Lenders had also stretched their lending criteria to 80% LTV and there were some cracking fixed rates around so I took the opportunity to remortgage my whole portfolio. I released a net £1 million. I recruited a full time property manager to look after my portfolio and started making my plans to build my dream home in Central Florida, on a hill (there aren’t many in Florida), overlooking a lake. It was to be my place to escape the British Winter weather, I had fallen in love with Florida.
I had religiously kept to a one hour goal planning session every Saturday morning. I kept a book of goals. Each goal started with a heading and a page or two of space to add detail. Every Saturday I would add new goals, add details to existing goals and write how I felt about attaining goals I’d previously set. If you are wondering why some of the words above are written in red let me explain. I genuinely believe that the goals you write down and regularly review are the goals you achieve. The words in red were all on the page I wrote about my dream holiday home. The address of my dream home was Hart Lake Hills, Winter Haven, Florida. I hired a realtor and told him what I wanted and this was the first plot he found for me – spooky or what? When I first met the builder he asked whether I had any ideas of what I wanted the house to look like. I showed him my book of goals and all the details I had written and he was gobsmacked as I’d also dated them as I’d written them.
Am I just lucky?
I’ve had more than my fair share of luck, both good and bad. Somebody once told me that L.U.C.K. stands for Labour Under Constructive Knowledge. Was I just in the right place at the right time? Well yes I was, but so were millions of others were they not? I’m sharing these stories in the knowledge that some will be inspired and others will resent me. I know that I’ll never be able to please all the people all the time but if I can inspire other people and they can learn from my trials and tribulations then that makes me happy.
It wasn’t all plain sailing
My first tenants from hell came along in 2003 although I wasn’t to know that until six years later. They already had a daughter and later gave birth to a second. She was an accountant, I forget now what he did. They were model tenants but in 2008 I received a call to tell me that he’d left her for another woman. These things happen and as she had been such a wonderful tenant I had no issues whatsoever in granting a new tenancy in her name, no guarantor! Seriously, would you ask for a guarantor under these circumstances?
A few months went by without problems but then a rent payment was missed. I followed my procedures and wasn’t too concerned at first. After three weeks I called her at work and I was told she was off sick. I eventually tracked her down at home and she explained she’d been off for a few months and was really sorry about the rent. Apparently the stress of the separation was getting to her. Under the circumstances I agreed that she could miss another months rent payment (due at the end of the following week) and then catch up over the next 12 months when she got back to work and full income. She didn’t go back though, not for long anyway, unbeknown to me she’d been hitting the bottle and got fired for being drunk at work. I tried to help her but she ignored my calls and left me with no choice other than to serve a section 21 notice giving her two months to vacate. I had not developed my strategy fully at that point. She was already four months in arrears so I could have served a section 8 giving her two weeks notice but I guess I’m just a softie. She’d been a good tenant for years so two months notice wasn’t too bad and I thought she’d get better and being an accountant she wouldn’t want debts hanging over her. I was wrong 🙁
No rent was paid and the notice period had expired but she was still there. I’d never been in this position before. What would I do? At this point I also found out that the children had been taken into care. This was getting nasty.
It turns out that she had also got into drugs, heroin to be exact, and was funding her habit through prostitution.
To cut a long story short we had to go all the way through the court process. It was my first time. It was only on the third attempt that the baliffs actually managed to get her out of the property. There were a ton of excuses for the first two times which I will not go into. The police arrested her as soon as the baliffs forceably removed her.
She knew she was going to be evicted and had completely trashed the property. My suspicion is that she got all the local druggies to collect all the bin bags off the estate and tip the rubbish in the house. The stench was over-whelming, three of the clean up team literally threw up, one refused to go back into the house. 23 skips were filled in all and I was down 18 months on rent. OK, I might have got away with a few less if I’d have been a bit tougher but seriously, would you have done anything different than I did as these events unfolded?
I learned four valuable lessons from this:-
- You can never be 100% sure about any tenant
- Tough love is best
- A more robust letting strategy was necessary
- You need a rainy day fund as you never know when a scenario like this could befall you. I’d been a landlord for 17 years and owned a massive portfolio before this happened to me but it could just as easily have been my first tenant in my first property.
UPDATE FEB 2017
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