When the costs remove the profits

Very recently I almost made another financial mistake in the form of rental no.5. This time, with a little help from Mrs Duffy and my Financial advisor, I managed to avoid the mistake and was fully aware of all costs before moving forward with the purchase.

Over the last few months, I have been patiently waiting for funds from rental no.4 and the money would be used for my deposit for my next rental.

After 3 months of form filling, and document sending, I finally got rental no. 4 re-mortgaged and the funds were transferred over to my current account. Boom, I was ready to go.

With over 40 books read this year (maybe 20 on property), what seemed like 100s of visits to rightmove and purplebricks and a couple of property seminars, I was up to speed with all things property, or at least I thought.

Now I knew exactly how to work out the ROI of each investment (see my blog ‘Property Crash Course’ for further info), I was even aware of the % my deposit would earn each year. The houses that I was viewing would get me 15-20% ROI, if any of the offers were accepted.

If I had the money in October, I would have potentially bought a property from an auction for around £35k but shit happens and I missed out. This made me a little more open to auctions and I found an apartment in Huddersfield for £70k.

It was time to do my research or due diligence if you speak to anyone in the property world. I found out it was bought for £140k around 10 years before. The rent would be £650 pcm and the demand was high according to x2 local estate agents. The Apartment building overlooked a river and was close to the town center and had very good transport links nearby. Not to mention the fact the town had a decent sized University.

If I could agree a price of £65k my ROI would be 20% and I would make over £250 pcm in profit after all other costs were taken into account. After a couple of low bids and speaking to the on-line auction team (via purple bricks), I was informed the vendor would accept £66k. Jackpot!

Before finalizing the deal, I went to the boss to get the ok. As soon as I mentioned apartment, Mrs Duffy asked me about all the charges involved. This got alarm bells ringing and I knew I hadn’t factored everything in. The next day, my FA told me I needed to double check the ground rent and service fees.

So I went back to the auction team and asked for info on all fees associated with the apartment building. They told me that combined it would be £2200 per year or £183 pcm. Putting this into my calculations meant the profit was down to around £75 pcm. Not what I am hoping to achieve for rental no.5.

The lesson is to make sure you do your research on what it is your buying. Although, I have no previous experience of flats or apartments, it is no excuse and wouldn’t have helped me if the deal had gone through. Another lesson (if you’re a man) is to discuss big investments with your wife. I am a firm believer that 2 heads are better than 1!

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