I once owned a flat for about a year and a half, and during that time it was only rented out for about four months. The rest of the time I was paying the mortgage, the council tax and the utilities on a property that apparently nobody wanted to rent.
And the problem definitely wasn’t the flat, it was a really nice flat in a nice area. It wasn’t the property and it wasn’t the area. What I realised with hindsight was that the problem was actually me. So let me tell you exactly what happened, because when a property isn’t making what you expect it to make, it’s very tempting to blame everything and everyone except yourself.
Why I bought it
About twenty years ago I bought a nice flat in a nice suburb. Not the smartest part of town, but a decent one, and it was a little bit more expensive than the areas where I usually bought. It was close to local shops, it was on a bus route and, most importantly in my mind, it was very close to a local hospital. That was really why I bought it. I thought nurses, trainee doctors, people like that would want to live there, and it would let in no time.
It was in decent condition as well, so all it needed really was a coat of paint, some new carpets and a little bit of tidying up. Now, that isn’t what I’d normally buy. My model is to buy properties that are run down and add value through the refurb. But the price seemed very reasonable, so I told myself that what I wasn’t making through the refurb I was gaining by buying well, and I went into it feeling very optimistic.
What happened
I put it on the market to rent, and I waited, and I waited some more, and it got to the point where I was actually ringing up the letting agent and saying, have you actually put it on the market yet? Are you advertising it properly? Have we had any enquiries at all? I can’t believe we’ve had no enquiries. And they very patiently said, no, it’s definitely on the market, it’s definitely been advertised, but you’re right, we haven’t had any enquiries.
Until eventually I found a tenant. It was a six month tenancy, but I was expecting the tenant to be there a lot longer, and unfortunately, for whatever reason, they did a midnight flit after about four months. And there I was, back to square one. The good thing was they’d left it in decent condition, so I was able to put it straight back on the market. And then I waited, and I waited some more, and I waited a little bit longer, and I rang the agents again, and it was exactly the same conversation. Yes, it’s definitely been advertised, but no, we’re not getting any enquiries.
It was at that point that I realised I’d probably misjudged the rental market in that area, and so I sold it.
What the numbers looked like
Now, it wasn’t a complete disaster. I got my money back, at least the capital I’d put in, and I can comfort myself that I sold it for slightly more than I’d paid for it, so in that sense I made a small profit, maybe a thousand pounds or so after you take into account things like legal fees and estate agents’ fees. But I’d tied up a whole chunk of capital, the 25% I put down which the bank wouldn’t lend me on the mortgage, and all that time I was paying the mortgage, the council tax and the utility bills.
This was about twenty years ago, so I’m going from memory, but in rough figures the rent was probably around £500 a month and the mortgage was probably somewhere around £250. With council tax and utilities on top, while it was let I was pretty close to breaking even, to be honest. But the empty months, and it was about fourteen of the eighteen, were each costing me something like £380 with nothing coming in. So what looked like a small profit on the sale price was almost certainly a loss once you added in the holding costs.
What went wrong
So what was it that actually went wrong? Well, the odd thing is that to this day I still don’t know why it didn’t let. There was absolutely nothing wrong with the flat, and absolutely nothing wrong with the area. It could be something like, because it was a nice area, most people who were moving there wanted to buy and not rent, possibly, but you’d usually think there’d be somebody who’d want to rent. And that’s only a guess.
What I can tell you is what I didn’t do before I bought it. I don’t recall speaking to a local letting agent. Ideally I should have spoken to about three, or even more, before making a firm decision, because they’re the ones who can tell you whether there’s a strong demand for that type of property in that type of area.
I think, because by this time I owned multiple properties in the portfolio, I’d got a little bit ahead of myself. I got a little bit casual and complacent, and I drifted away from what I know works. My model is to buy cheaper properties in cheaper areas, needing ideally some work, where I can add value. But in this instance I’d strayed into a slightly nicer, more expensive area, with more expensive properties. So in that sense you can say I wasn’t unlucky. I’d stepped outside my own system, and I hadn’t checked whether my new, refined system was going to work.
Fix it or get out?
If you ever buy a property that doesn’t work out the way you thought it would, if it’s not performing the way you think it should, the question you’ll probably ask yourself is whether you should fix it or sell up. With my flat I couldn’t answer that question, because I never knew what was actually broken, and if I didn’t know what was broken I didn’t know how to fix it. That’s the hard part. Fix it or get out is a much easier decision when you know what’s actually wrong. And a quick conversation with a letting agent, preferably more than one, before I bought would have told me much more than eighteen months of ownership did.
What I learned
So what did I learn from all of this? Well, I went straight back to my model, straight back to what I know works, straight back to the cheaper areas where I know properties are very rentable, where I knew the prices I’d be able to buy at, and where I knew I’d be able to find properties that needed work doing so I could add value straight away. And I know that in theory those cheaper properties in cheaper areas won’t give the same level of capital growth over the long term, but at least I knew there would be some capital growth, and I knew they would let.
So the lesson, I think particularly for me, is this. When you find a model that works, stick to the system. But if you want to deviate from it or expand it, which is perfectly valid by the way, because testing other approaches has got to be a good thing to do, then do your deep due diligence and your proper research first. Don’t go into it blind like I did. Don’t change on a whim, or a hunch, or by making assumptions you haven’t tested, or because you think you know what you’re doing because you’ve got a few under your belt and you now feel like an accomplished investor. I thought I knew what I was doing, and as I say, I don’t think I even checked it with one single letting agent.
Here’s to successful property investing.
Peter Jones
Author, property investor and ex-Chartered Surveyor
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