How to be a residential property landlord and avoid the mistakes I made – Part one

A disclaimer here. There are many ways to buy property, to rent property and to make money from property. The story following is MY story of how I started and continue to buy property for income, asset growth and ultimately freedom.

A huge volume of traffic on the Internet is all about how to make money. Questions and blogs with these sorts of topics are everywhere.

how-to-make-money-questions-life-style-design-hub

One of the best ways I’ve discovered is by buying and renting property. I’ve been doing this for quite a few years now and rather than just tell you a “How to”, I thought you might find it useful (and maybe entertaining!) if I share with you the huge number of mistakes I’ve made. Clearly, if you’re considering getting into a property yourself it’s a great way to learn from the mistakes that someone else has made so you don’t make them yourself.

There’s lot to tell, so I’m going to make this post in two parts, this first part is how I started in property…. In the second part of this blog post which is available here, you will find the strategy that I’m adopting right now to acquire property quicker, better, safer, than I did in the past. All of it is based on the mistakes that I used to make. So, let’s dive straight then and look at when I bought my first few properties.

Let’s start by making sure we understand the basic idea of buy to let. For me, there had long been the idea that if I could buy a house and have the repayments covered by the tenants rental then it was a simple way to acquire a property using someone else’s money. And if it works for one property, it would work for more.

In addition I would have the opportunity to make some ongoing income. As an example, if the mortgage repayments were three hundred pounds a month and the rental was five hundred pounds a month, then, in round figures there is two hundred pounds a month which I would be able to have as income. Of course it would never be that much because at times the property is empty, there is a repair once in a while, but you get the basic idea – you own a property with someone else paying for it. As long as you have a tenant, you have income – true passive income.

So in 2004 when I was talking with a colleague of mine and he said he had just started buying property I was fascinated and excited and got some details from him immediately. I contacted the person that had been putting deals together for my colleague (we’ll call him Dave) a deal packager is what they tend to call these people these days. These are people who get to know a specific area where property is being sold for investments, they find the houses, they put together a deal, and of course they take commission.

I went up to see a handful of properties and decided this was a great idea. In fact, one of the properties I saw, which we’ll call number 19, was up for sale at thirty thousand pounds. This is of course a very low price. So I agreed.

A week after I had met Dave and agreed to buy this thirty-thousand-pound house, he called me up to say he had two more just the same and they were each also thirty thousand pounds. So I could buy three houses for ninety thousand pounds. Fantastic!

I said to Dave, “Great I’ll come and see the two houses”.

“Why bother?”, He said, “They’re identical to the first one to number nineteen, they’re really the same”.

I then made one of my first mistakes.

Well I thought Dave’s obviously looking to help me out, he is packaging these deals for me.

“OK”, I said “Lets buy all three.”

Christmas eve 2004, I got a confirmation that I had bought my first three properties. Wow, I was an actual landlord! I had really done it. It certainly felt amazing.

The next task of course, was to find an agent. So I asked the Dave.

“Yes” he said “we’ve got a great agency, leave it to me”.

Turns out that as well as “Dave Properties” and “Dave Housing Agents” there was also “Dave Refurbishments”, “Dave Finance” and “Dave Steal your Shoes While you Sleep” (Ok, I made the last one up…)

Now, over the next year or two, I bought several more properties. The market at the time in 2004 was what is called “Rising” – in other words property prices were going up very fast. It meant that within six months I could remortgage my original three houses, raise more funds on them, and use those funds to buy another property and so on. I could then remortgage again and each time use the money to refurbish the houses. After a couple of years, I had a number of properties and I really felt that this was succeeding and I was doing ever so well.

But and there’s always a few isn’t it? I was soon to realize that all was not as well as I thought. I started to understand quite how Dave was making his money. Those houses … remember number nineteen that I’d bought for thirty thousand pounds which was such a bargain … turned out he had bought himself only six weeks earlier for just fifteen thousand pounds!!!

Now of course, there’s no way the property had doubled in value in six weeks. He was just marking the property up. I had got so excited and rushed in, this meant I had paid way higher than I really should have been. Plus of course I bought three in one go. So I’d overpaid forty-five thousand pounds!!! It might sound incredible reading it in the calm methodical way you are reading this blog now, but in 2004-2007 people were insanely rushing to buy anything, at almost any price.

Now to a certain extent, it doesn’t matter. I’m not beating myself up over this because each of those three properties increased several times in the following couple of years. In fact, one of the three properties was compulsorily purchased by the government for fifty-five thousand pounds. In other words, in two years it had gone from fifteen thousand to fifty-five thousand! Dave had made his money, I had made my money, so what mattered? It felt like we were all going to make money forever ….

… Which of course, we weren’t! 2007 – 2008 was when everything crashed. That was when all of us in this property game realized how much we had overpaid for some of our houses. Still to this date, my worst performing property is actually worth about thirty-thousand pounds, but my loan on it is about 52,000 pounds.

So let’s look at some of these mistakes, so you can avoid them yourself. The first big mistake was I used a property packager (Dave) and absolutely trusted him. Let me be clear, using a property packager is a fantastic idea but you need to know a bit about the properties yourself. Let’s be honest, paying a £3-5000 premium for somebody to put together a whole deal for you and bring you a brilliant house is a very strong idea. It’s worth doing, it’s worth the money but I didn’t do my initial research in the area and I trusted everything Dave said, forgetting that he was putting his own deal together.

dont-buy-here

I didn’t know anything about the area either so I started to realize that this was an area where problems were always going to be part of owning property – high crime and low income. There are always areas that even a basic research will throw up “don’t buy here”… I didn’t do basic research so I didn’t know that some of the areas I bought in were absolutely AVOID areas for local agents.

I also trusted “Dodgy Dave” far too much. So when he said to me “here’s our agent”, I didn’t even meet them – we agreed terms on a five minute phone call. Finding an agent is one of the most important things you will do and it turned out that Dave’s agent plus several after that were appallingly bad at their work. In fact, I’ve perhaps gone through 20 different agents to find decent ones. I’ll explain in part two of this blog how you find agents that work for you.

What else did I get wrong? I didn’t check the demands for rental property in those areas. So still now, I have one property which is virtually impossible to rent out. In fact, in seven years, it has had a tenant once, for about two years. It’s been empty for the last 4 or 5 years. I’m trying everything I can to get a tenant, find someone who wants even to rent for reduced terms, just to move the liability away from me.

So with all of that taken into account, why am I still so passionate about building a property portfolio? Because, when it works it’s a fantastic way to build a residual income providing money that comes in, whether you work or not. When you have good agents, problems are dealt with, tenants are looked after, they’re happy, they pay their rents, the rent pays the mortgage and I make a bit of profit on top. And although it won’t be in a year or two, perhaps in 10, 15, 20, 30 years, those properties will increase in value. This is pretty much always the way with property, there isn’t enough property around. So as long as you’re buying in the right area at the right price, it’s likely to always be a reasonably safe bet.

So that’s the story of how I got involved in property and I hope you enjoyed reading about some of the mistakes I made when I started to become a landlord. If you want to learn some of the strategies I’m using now read part two here.

(Visited 133 times, 1 visits today)