There was a flat I bought a few years ago that I think most potential buyers just drove straight past and ignored. I was able to buy it at a great price, and I think the reason a lot of people weren’t interested was the rendering, which was quite cracked and weathered. I bought the flat anyway, refurbished it, rented it out for six years and then sold it, and in all that time I never spent a penny on that rendering. It didn’t cause me any problems at all.
So if you’re worried that you’re going to buy a property, find there’s loads wrong with it and then lose all of your money, I want to tell you what I think hidden costs really are, because I don’t think they’re quite what most people imagine.
The fear, and where I disagree with it
It’s a fear I hear a lot, and I totally understand why people have it. You can’t see inside the walls. You can’t lift every floorboard. And a viewing is usually only about twenty minutes, an hour at the very most if you’re lucky, and most sellers and estate agents will be wondering what you’re up to if you’re there for an hour. So most buyers assume that whatever’s wrong with the place, they’re not going to find out until they own it. And that’s a natural thing to worry about.
Where I disagree is with the next step in the thinking, which is that it will all go horribly wrong and you’ll lose all of your money. The trouble with the phrase hidden costs is that it lumps together several quite different things, and each one needs a different response.
The flat with the cracked render
It was a purpose-built ground floor flat in a block of four, two on the ground floor and two on the first floor, and from the street it looked like a pair of semis. The two upstairs flats had their front doors on the side of the property and the two downstairs flats had theirs on the front. It looked as if it had been built in the 1930s. The ground floor was plain brick and above that the first floor was rendered up to the eaves, which is fairly standard for that kind of property of that age.
But the render was quite badly cracked. It wasn’t coming away, but it was cracked in a way that made the whole building look shabby, and nobody had ever done anything about it. It looked as if it could come away if you didn’t look closely.
When I bought it, the flat was for sale by the modern method of auction and there’d been very little interest. My presumption, though I can’t prove it, is that people drove up, saw the rendering and didn’t bother going inside. Inside it was dated, which was exactly what I wanted, because it was a tired flat that needed quite a lot of work, and I priced it as exactly that. When I was doing my sums I didn’t put a figure on doing anything with the rendering. I just priced a tired flat that needed work internally. But it’s true that to some people the rendering may have made the flat look even more tired than it actually was, and put them off buying, or even inspecting, before they’d got as far as the front door.
Why I didn’t do anything about the render
You’re probably thinking, well, why didn’t he do anything about it? The truth is that although there were a lot of hairline cracks, there were no patches where the rendering was actually coming off the wall. You could walk right around the building and there was no rendering on the ground, and no patches at the front, at the sides or at the rear. There was nowhere I could see where it had actually come away, and nothing to suggest there was no bond to the brickwork behind.
In any case, I’ve dealt with rendering before on other properties, so I had a feel for what a repair would cost if I did have to do something, and I came to the conclusion it probably wouldn’t cost that much. And on top of that, because it was one of four flats in the block, I assumed that if it ever needed doing the cost would be shared equally and I’d only pay a quarter anyway. A quarter of the risk was a risk I could live with.
Now, if there had been patches of render on the ground, or patches where I could see the brickwork underneath because the render had come away, that would have been a different matter. I may well have budgeted for it in my figures, and I may well have offered a different price.
How it turned out
So I bought it, did the refurb inside and let it for about six years, and I always had a steady supply of tenants. The strange thing was that when I came to sell it, nobody seemed put off by the rendering. In fact I had quite a few potential buyers who were interested, and I assume that because I’d done a very decent job on the inside, that more than compensated for whatever they were seeing on the outside.
Two very different flats
In an earlier video I talked about a property that cost me £40,000 in repairs. If you haven’t seen it, please do go and watch it, because in that case the property had dry rot, and it was hidden under the bathroom carpet. But in most respects that property actually looked fine.
So here we’ve got two completely different situations. A property which didn’t look very good, but cost me nothing in terms of surprise repairs, hidden defects or hidden costs. And one which looked quite good, but cost me an awful lot of money because of a hidden defect which nobody spotted. Not me, and not the mortgage valuer either.
And I think that shows that hidden costs is really three different things.
1. The cost that really is hidden
The first is a cost that really is hidden. It’s under the floor, or behind the plaster, or up in the roof void, like the dry rot that was underneath the carpet in the bathroom floor. In my experience that type of defect isn’t common, but of course they do exist, and you can do two things about them.
You can look harder at the places where they tend to turn up, although even that isn’t foolproof. And you can make sure that your numbers can absorb a surprise, which is what having a contingency in your figures is all about. Ten per cent is often quoted as a rough starting point, but it isn’t science. On some properties it’ll be plenty and on others it won’t be enough.
2. The cost that isn’t hidden at all
The second isn’t hidden at all. It just looks frightening, or it’s hidden from you in the sense that nobody has actually explained to you what it means. The cracked render was exactly that. So is a crack above a window, staining on a ceiling, or a door that won’t close.
The same thing can alarm one buyer and put them off, and yet mean absolutely nothing to another, depending on whether they know what they’re looking at. And the buyers who are put off and walk away are often the reason you can get a property like that at a really good price.
3. The cost your price already allowed for
The third is one I think people forget, and it’s probably the most important. A hidden cost is only a loss if the price you paid didn’t allow for it. A property with problems isn’t automatically a bad buy. A property with problems that you bought at the price of a property without problems, that’s the bad buy.
So what’s the answer to the fear?
When people tell me they’re afraid to buy a house in case they then find there’s loads wrong with it, I’d say the fear is partly true, partly fixable and partly priced in.
What does the damage isn’t usually a hidden cost on its own. It’s a hidden cost on top of a price that was already too high, with no contingency and no reserve, often after a viewing when nobody was really looking. And all of those things are in your hands, whether or not being able to inspect the floorboards, or the roof void, or any other hidden parts of the property is.
Here’s to successful property inspecting.
Peter Jones
Author, property investor and ex-Chartered Surveyor
PS. If you’d like a practical guide to the most common defects in residential investment property, the things most buyers walk straight past on a viewing and what each one actually means, my book 63 Common Defects covers them. You can find it at thepropertyteacher.co.uk/63-common-defects-investment-property-spot/
