Going into Christmas 2019, I was quite happy as my 5th rental was almost secured. Working out the ROI (Return On Investment), on the total money invested, I would be getting 16.4%. That is £4440 (total profit per year) divided by £27,000 (total invested).
Coming out of Christmas 2019 and into 2020, I received the survey report from my Financial Advisor. See below:
A retention of £6,500 has been applied for the following. 1). There is evidence of rising damp to several sections of ground floor walls and penetrating damp to sections of internal wall and ceiling to the first and second floors. The applicant must obtain a fill timber and damp report from an approved PCA member identifying the cause and remedial works required, together with an estimate of costs. These works should be implemented within 3 months and, upon completion, a minimum 20 year insurance backed Guarantee provided, a copy of which must be forwarded to the lender. 2). The corrugated asbestos sheet roof covering one storey rear addition are in need of replacement. The applicant must of obtained in full report from an approved PCA member detailing the remedial works required, together with an estimate of cost. These works should be implemented within 3 months. 3). The timber decking within rear yard id rotten and slippery and needs to be removed for safety purposes. These are small gaps within the party walls within the roof space. The gaps should be filled to comply with current Building regulation Requirements, ie. to provide a minimum 60 minute fire resistance. We shall proceed to offer on this basis providing all the remaining information has been received. Please note a re-inspection will be required which will incur a £100 fee.
Other than the rising damp that seemed to be an issue, what jumped out was the £6500 upfront fee I would have to pay on completion. I would get the work done then get the money back but it wasn’t the point – my budget was decimated.
Putting this additional £6500 into the ROI calculation meant that my new ROI was 12.2%. Still decent enough but the initial outlay was my biggest concern.
My FA said I could negotiate a new price but even with a few grand knocked off, I was almost certain that I was ready to pull the plug on the deal.
I went back to the property for one last look. This would help me make my final decision.
After seeing the property again and taking more time to see what work needed to be done, I made my mind up. A new bathroom was needed, the kitchen needed replacing and the boiler looked on its last legs.
With rising damp costing me £6500 initially (the cost of the works would total roughly £6000 and then I would get the retention fee back if you catch my drift), and another £6000 minimum on the internal issues, my initial investment has moved from £27,000 to just shy of £40,000. Fuck that.
Granted, it isn’t an ideal start to the year but shit happens and my attitude is that DUFF Properties moves on. Although I currently have 4 rentals, they are privately owned (mainly in Mrs Duffy’s name). What this means is DUFF Properties still has 0 houses but that is a minor detail we wont dwell on.
I have booked 2 viewings and will continue to push for rental no.5. I have a few weeks off work so I will be working hard to get the right deal for the next house.
What I can say from this experience is that you really have to keep your emotions out of property investing. I worked out my calculations and was happy with the deal. The rising damp survey came back and fucked up the deal. I wasn’t emotional as I pulled out and will move on to the next deal.
To steal a quote from a recent property seminar: “Use formulas not feelings.”