My preferred strategy when it comes to property is a boring buy-and-hold for as long as I can. Being a ‘Mingebag’ (or ‘Fun Sponge’ as my 8-year old calls me) this suits my personality.
Property prices are very cyclic, as I have witnessed first hand over the last 18 years. This is ok if you are a Landlord who is in it long-term, as the ups and downs tend to have less impact.
In my mid twenties I had 3 rentals that were in negative equity after the 2008/2009 financial crisis. Being around £50,000 in the red put me in a dark place and I eventually became numb to it and accepted the fact that I was a failed property investor.
It took me over a decade to sort my act out and get back into buying rentals. My problem was that I let a few bumps in the road deter me and prevent me from doing something that I love.
Being a Landlord isn’t always easy. There is always a tenant who wants their ass wiping and the Government doesn’t help, as they always seem to find a way to kick you in the proverbial balls.
With sustained tax and regulatory squeeze from successive chancellors, this has had a big (negative) impact on landlords in the UK (Financial Times). This almost led to me giving up on property all together and I can fully understand how this will prompt many landlords to sell up.
An example is the 3% stamp duty on buy-to-let and second homes that was introduced in 2016. This means that if you want to buy a rental for £100,000, you have an additional £3,000 to find as well as the 25% deposit and other costs like solicitor fees.
This is without the next bump in the road, which is the COVID-19 pandemic that we are all, trying our best to deal with.
Back in March when the UK was about to go into lockdown, I was getting messages from my tenants who were understandably concerned. My attitude was that if they were out of work they could have a 3-month rent holiday providing the mortgage company gave me a 3-month mortgage holiday.
It worked out that 2 out of 4 tenants lost their jobs so they were given the rent holiday. Thankfully, the mortgage companies gave me the mortgage holiday so there were no real issues. Interest will still be added to my mortgage and my payments on those two accounts will go up but this was my only option for tenants who were struggling at the time.
My aim is to review it in the middle of June and hopefully my tenants will be in a better place financially. The Mortgage holiday scheme, initially set up in March, has been extended so that borrowers can have a break of up to 6 months (This is Money). This is something I hope to avoid, as I don’t want the interest to add up for another 3 months.
Even with increasing taxes, more and more legislation, the current crisis and the looming aftermath (inevitable hard times economically) I still feel confident that the ‘Buy and hold’ strategy is the way forward.
Thinking back to the financial crisis of 2008/2009, it scared me away from property for many years. This time I am hoping that my experience will kick in and the current crisis won’t scare me away and (with a bit of luck) I will be able to continue to buy rentals.
The first house that Mrs Duffy and me lived in was the result of one of my financial mistakes.
Getting a little too excited, I didn’t want to miss out on a new development in the area where I lived. Me being the big time property investor I would swoop in and make a quick £10,000 and move on to the next one.
This didn’t happen, as my £130,000 purchase never got valued above £125,000 after it was built. So because of my little f**k up, we had to move in and live in the house (a house we didn’t want to live in) for 5 years.
I was never going to sell for any loss so I knew I had to keep it long-term. After moving out we started renting it out and have had good tenants ever since.
14 years after the failed purchase, the mortgage is now significantly lower than the £120,000 that we would probably get if we sold it so we now see it as a good investment.
This just shows that with the right strategy (buy and hold long-term) you can afford the occasional mistake when buying rentals. Just don’t make as many mistakes as I have over the years!