My Top 5 Mistakes
I was asked recently what my biggest mistakes have been in property. I started to think about it and realised I have made quite a few! My mistakes seem to cover almost every area of property investment, but what I realised whilst running through them is that I have learnt so much from each and every failure.
In many ways, each “failure” has actually been a crucial part of my success so far. Thankfully, I have avoided repeating any of these mistakes, but they have all cost me greatly.
So, I thought I would share them with you in the hope that you can learn everything I did, without experiencing the pain – emotionally and financially! – of actually making the mistakes.
1. Being swept along in a “hype”
When I first wrote out my property investment business plan, I knew the strategy I wanted to focus most of my time on was Buy-to-Let with Infinite Returns. I was focused on creating as much cashflow as possible, whilst also getting a good return on my investment by pulling almost all of my money out of each project once I had added value.
I had one HMO (house of multiple occupation) within my portfolio, but my business plan was to continue growing my BTL portfolio whilst expanding into Land Development or Commercial properties.
However, I met with one of my previous property coaches and they told me about an HMO company who could offer a package deal sourcing, refurbishing and the letting out HMOs for me in the midlands. They told me lots of their clients had been using the company and were building big HMO portfolios really quickly using them.
It sounded great – all the time-consuming elements of finding and renovating a property taken care of! Too good…
I went along to meet with the HMO company and find out a bit more about the area and the properties on offer. They presented me with a property which was all ready to go – it needed a refurbishment (which they would take care of) and they said they had tenants lined up ready to move in.
However, the company were also factoring a sizeable sourcing fee, which they weren’t factoring into their “Return on Investment” calculations. The numbers they presented sounded fantastic and I was drawn in, agreeing to purchase the property.
Thankfully though, I sat down shortly afterwards and ran through my own calculations. The true ROI was very different – I would barely be drawing any money back out of the property after the refurbishment, so I would end up leaving a large chunk of capital in the project.
This didn’t fit with my strategy at all, but I continued to be swept along for over a month, before I finally plucked up the courage to pull out of the deal and continue with the strategies in my business plan.
And then, I learnt my previous coach who had recommended the HMO company was even set up to receive commission from the sale of the property! I had been completely duped into going along with a hype and so nearly committed thousands of pounds to it!
Whilst I didn’t make the bigger mistake of going through with the purchase, this mistake still cost me over £1500 in legal, surveyor and broker fees, not to mention the time and energy I wasted!
Lesson learnt – stick to my business plan and don’t let others talk me into new strategies or areas without doing my own research first!
2. Taking on a Tenant In Situ without Due Diligence
The third property I purchased was direct to vendor (meaning no estate agent involved in the sale). The property had a tenant living in it and the vendor managed the rental himself, meaning no letting agent was involved either.
After my offer was accepted by the vendor, my solicitor and I asked to see the AST (tenancy agreement) and proof of the deposit the tenant had paid. A reasonable start, but sadly my due diligence stopped there.
The vendor assured me that the tenant was a good tenant and they had never had any problems or late rent payments. I took their word for it, not daring to question anything as I was too wary of the sale falling through.
I bought the property and passed the tenant on to my letting agent. The tenant was initially quite difficult to pin down and get to sign a new tenancy agreement, but eventually they signed a standard 6 month AST and agreed to pass on the deposit as soon as they received it back from the previous owner.
I should have seen a couple of warning signs, but I didn’t want to admit anything could possibly go wrong, so I buried my head in the sand and pretended everything was completely normal.
A few months later, the tenant completely stopped paying any rent and the deposit was nowhere in sight. The letting agent and I tried on multiple occasions to contact the tenant through letters and even occasionally knocking on the door.
No rent, no contact. Nothing.
All that changed was a camera was put up on the tenant’s door, presumably so that they could check who was knocking without opening the door!
Eventually, I had to go down the route of serving notice on the tenant and finally evicting them.
Sadly, they left the property in an awful state, so on top of £1000s arrears, I also had to cover a full refurbishment of the property.
Lesson learnt - If I had done my due diligence properly in the first place, referencing the tenant as if they were moving into one of my properties, I would have known the full situation from the start. I could have insisted on vacant possession or prepared myself to start the eviction process earlier on, saving myself a lot of wasted time, emotional stress and money.
3. Using a Builder with no JCT or Recommendations
Just writing the title of this mistake makes me squirm in embarrassment!
I was investing in a property outside of my normal investment area, closer to Cambridge where I grew up. Cambridge was far too far away from my normal BTL investment area for my tried and trusted builder to travel and complete the refurbishment, so I had to look for a new builder to use.
I found out that one of my old college friends was starting up his own building company and so I got in touch and agreed a quote for the refurbishment with him.
I relied purely on our shared background as a basis for trusting his building capabilities and completely ignored my own advice; to get recommendations, validate previous work and sign a JCT (Joint Contracts Tribunal).
The project started out well for the first few weeks, but then he fell behind. Work at the property completely stopped with the house mid-way through a major refurbishment and miles off being ready for tenants.
It transpired that my builder friend had taken on more than he was ready for and was spending almost all of his time working on a different project. The rest of the contractors (a.k.a. mates) he was using never appeared to know where he was or when their specific trade was going to be required.
My project was falling further and further behind…and then he crashed his van and had his licence confiscated!
A builder with no van?! Definitely not good for keeping on top of multiple projects spread across different sites.
However, because we had agreed pretty much everything verbally, I had absolutely nothing to fall back on or any leverage to convince him to get back onto my project and get it finished as agreed.
In the end, I had to pull in separate contractors to finish off parts of the project and the property took an extra 3 months to refurbish than planned. That would be annoying in any case, but with this project I had signed up to relatively expensive bridging finance, so each additional month was a painful combination of big expenses and no rental income.
Lesson learnt – ALWAYS get recommendations or view previous work from your builder and get a JCT in place. If you aren’t familiar with them, JCT contracts outline the work that needs to be done, who is doing it, when they are doing it by and for how much. They are well worth the effort and you can even find templates for them online.
4. Not Sticking to My Systems
When I first started to build my property investment business, I put a system in place for reviewing all of my offers once a month.
It isn’t a particularly sophisticated or exciting system – I simply enter the details of every property which I have been to view and calculated an offer on into a spreadsheet. My spreadsheet highlights which offers are still “live” (i.e. the property is still on the market) but were submitted or reviewed over a month ago, so that each month I can go through and call up the agents to review the offers.
Now this system certainly doesn’t produce a new property purchase every time I review my offers…and the process of making all of those calls has, at times, felt a little daunting and almost pointless.
A couple of years ago now, I was a little busy and chose to completely skip 1 month of my review process. I just couldn’t quite will myself to call up the same agents again and ask if the same properties were still on the market and if anything had changed.
But guess what happened…another investor swooped in and bought one of the properties I was tracking! And not only did they buy it, they only paid £2,000 more than my current offer. The property was on the market for £45,000 and sold for £28,000.
Wow. I felt like a prize plum.
Lesson learnt – stick to my systems! I now actively look to outsource tasks which I don’t enjoy and will eat up all of my time, so that I can focus on the important parts of my business which need my personal attention. That way, I avoid burn out and either not bothering or not getting round to doing what really matters to keep my business growing.
5. Undervaluing Myself
This is by far my most costly mistake. I like to think of myself as a confident, successful person. But I am also very susceptible to imposter syndrome and to questioning my own capabilities.
Throughout my property investment journey, I have worked with lots of investors to get access to private loans.
When I first started out, I was aware that I had no experience and I struggled to believe anyone would want to invest in me. So, I set my interest rates relatively high.
As I continued to grow my portfolio, expanding my own knowledge and simultaneously spreading any risk of investing in my business, for some reason I lacked the confidence to lower the interest rate I was offering. Instead, my interest rates always seemed to be increasing!
Eventually, I ended up agreeing to give one investor a 10% p.a. interest rate return on a long term private loan. Yes, this investor was investing more than I had ever borrowed before and they were also investing for a longer time period, but I was in completely the wrong mindset. I didn’t even try to negotiate!
I wasn’t looking at the private loan as a win-win for both me and the investor. I was focused on how much I needed the finance to secure more investment projects, not on the benefits the investor was also getting.
Essentially, I massively undersold myself and have ended up paying out LOTS more in interest payments than I needed to. All because I didn’t value my skills, knowledge and experience highly enough.
Lesson learnt – I now see the value in what I offer to my investors. I am able to provide them with opportunities to invest their money at great interest rates (now around to 6% p.a. on all of my loans!) with minimal risk and virtually no effort on their part. Now my investor loans truly are win-wins.