About twenty years ago, my managing agent rang me sounding very pleased with himself. He had another client who was trimming his portfolio — about twelve properties — and wanted to sell them as a job lot rather than individually. Was I interested?
At the time, I was thinking about how to grow my own portfolio without spending the next couple of years sourcing properties one by one. Buying twelve in one go, from a client my managing agent had been looking after for years, seemed like a great shortcut. The properties weren’t being given away — there was no fire-sale price — but the chance to grow quickly, with properties that were already known and tenanted, was hard to ignore.
There was one practical complication: the properties were a hundred and fifty miles away from where I live. That wasn’t a surprise — after all I had taken the strategic decision to invest at a distance when I first started investing, and I was happy not to be near enough to my portfolio that I’d feel tempted to be hands-on or interfere. I was after passive :).
So my managing agent arranged for me to visit each property — a wise thing to do, I’m sure you’d agree. I needed to see what I was buying. He contacted the tenants and made appointments, and we spent a day working through all of the properties.
Getting around twelve properties in a day, spread across the city, meant we had to get our skates on, and what this meant was that I ended up doing a series of viewings, and not inspections. And there’s a big difference. Twelve properties in a day, tenants in situ, a general impression of each one — condition, whether it looked well looked after, whether the tenant was treating it properly. From what I saw, everything seemed fine. The deal went ahead and I bought all twelve.
Then a tenant left
Not long after agreeing the deal, and whilst the solicitors were doing whatever solicitors do, and whilst I was arranging mortgages on each of the properties — I decided it was easier to buy and finance the properties as individual properties rather than as one deal with one purchase price — one of the tenants left. Nothing unusual in that. It happens.
This particular tenant had been in a ground floor flat in what they call a Tyneside flat — that particular arrangement is common in parts of the North East where what looks like a terraced house from the outside is actually two purpose-built, self-contained flats, one above the other, each with their own front door. My managing agent told me it needed a bit of attention before reletting. Again, nothing unusual about that either, and I was assuming a lick of paint, and maybe some minor repairs. Nothing serious. It should be back on the market in no time.
That was until the builder pulled up the bathroom carpet.
It was an old carpet — probably been down for the best part of ten years, certainly not the kind of thing you’d want in a bathroom. The plan was simply to replace it with something more practical. But when it came up, there was rot in the middle of the floor, but nothing you could have known about without lifting the whole carpet.
The builder took the floorboards up to see what he was dealing with, and found that dry rot had been established under that floor for a very long time.
Dry rot spreads differently from other types of rot. Once it takes hold, it generates its own moisture through a network of root-like strands called mycelium, which can travel through walls and timber frames well beyond the original damp source. In this case, those strands had worked their way up through the stud wall between the ground floor and first floor flats, into the ceiling, and into the floor structure of the flat above. And it had quietly eaten its way through that flat as well.
When I heard, I was gutted. And of course, both flats had to be gutted as well. Every affected timber had to come out. The stud walls, the floors, the lot. And because a property stripped to the shell then needs putting back together properly, we decided I may as well renew everything whilst we were at it — plumbing, electrics, kitchens, bathrooms, new floors, walls skimmed throughout, and for both flats — by the time it was finished, we had in effect fully refurbished both flats from scratch. The work had to be done carefully and completely: dry rot spores can spread on shoes and clothing, and anything less than a thorough job just means the problem comes back.
In 2007, in that part of the country, the bill for both flats came to around forty thousand pounds. To put that in context: that would be what I’d consider to be a full price today, let alone twenty years ago. Forty thousand, in 2007, was a significant sum.
That was £40,000 I was not expecting to spend when I did the deal.
What caused it
The almost certain cause was a slow leak from the bath waste — a worn seal or a loose connection, the kind of thing that gives no obvious sign of a problem but allows water to seep steadily into the subfloor over months and years. Dry rot needs moisture to get started: wood moisture content above around twenty percent is typically enough for it to take hold. Once established, it generates its own moisture supply and spreads from there, which is what allowed it to travel so far from where it started.
What the viewing couldn’t show
When I’d been around that flat on the day of the viewings, the carpet was down. There was no obvious bounce in the floor — nothing that would have made me stop and think. The bathroom looked the way a bathroom looks in a property that’s been tenanted for a few years. Nothing about it suggested there was a serious problem underneath.
And in my defence, the mortgage valuer didn’t spot it either — and no, before you ask, I was assured by the lawyers there was not a worthwhile case to make against him to claim on his Professional Indemnity insurance.
So it landed fairly and squarely with me.
It was found because a builder decided to pull up a smelly old carpet and replace it. If he’d done the job differently, or if the problem had been under a room with harder flooring already down, it could have gone undetected until it was considerably worse — if that’s even possible.
What changed
The honest answer is that I’m not sure a more careful viewing would have made a difference here. The mortgage valuer didn’t catch it. A building survey might have flagged the floor as worth investigating, or it might not — a surveyor working to a methodology and a time constraint, unable to lift carpets, isn’t necessarily going to find something that a builder only found by chance.
What it changed was my thinking about hidden defects as a category. Not that they’re common — in my experience they aren’t. But they do exist, and when you find one, the cost is real. This story is the evidence for that.
It also changed how I think about time. Twelve properties in a day is a viewing, not an inspection. A viewing gives you some idea whether the place is looked after or not, and whether the tenant is treating it properly. On the other hand, what I call an inspection — one where you have time, and you’re actually looking in more detail rather than forming a general impression — tells you something a lot more.
Ground floor properties and older stock with suspended timber floors now get more of my attention, and more of my time, than they did before this — but, to be fair, all the properties get more of my attention now.
And I do look at bathroom carpets and floors in ground floor flats rather differently than I used to.
Here’s to successful property inspecting.
Peter Jones
Author, property investor and ex-Chartered Surveyor
PS. If you’d like a practical guide to what to look for on a property viewing, my book 63 Common Defects covers the things that cost buyers money when they miss them — and how to spot them before you commit. You can find it at thepropertyteacher.co.uk/63-common-defects-investment-property-spot/
