Edge Newsletter #15 - Property Acquisition Setback and Update

What I’m Reading

I’m a little ashamed it’s taken me this long to read Boom Bust by Fred Harrison. Harrison is widely credited as the man who discovered and popularised the so-called 18-year property cycle. I’m only two chapters in. While I don’t agree with everything presented, it’s very well researched and raises some thought-provoking concepts. I will be providing more thoughts as I read more.

Resource of the Week

Whimsical is a website that allows you to create your own professional flowcharts. The interface is beautiful and intuitive. So give it a try next time you want to make a flowchart.

Quote

“I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want. Maturity is the ability to reject good alternatives in order to pursue even better ones.”

Ray Dalio

Thoughts

I wrote about my issues with one of my tenants in last week’s newsletter and made a subsequent TikTok video about it. I have to say, all of your support deeply move me. I’ve discovered that it's a topic that evokes a strong feeling among many investors. I’ve received literally hundreds of suggestions from subscribers advising that I should hire some travellers, road men, and services along those lines to deal with it.

After careful consideration, I have decided that on this particular occasion, I won’t be taking those offers up. I will be continuing the contract with my solicitor. On a more serious note, it serves as a reminder that these things can and do happen. I want to stress that it is very rare. The vast majority of tenants are excellent, reasonable people. As an investor, you must be on top of your responsibilities and the paperwork. As I mentioned in my video on this topic, the entire claim could be thrown out if just a single piece of paperwork is not in order. Such that the tenant could stay in the property and refuse to pay rent indefinitely, and the landlord can do very little about it from a legal standpoint.

This was exactly the situation on a call with a landlord following my video. In his situation, the tenant has not paid rent for over two years while staying in the property. If this happens in general, it could be disastrous. So for those starting out, please don’t take shortcuts and seriously consider rent guarantee insurance with legal protection. Once your portfolio goes over around four properties, I would not say it’s worth it anymore, but for smaller portfolios, it can save you sleepless nights.

In other news, I had a slight setback with my latest property acquisition (a two-bed penthouse in Derby). I’m currently quite far progressed in the legal stages. Unfortunately, the valuation came back from the lender valuing the property £5,000 below the accepted offer (which was already £10k below the asking price).

Of course, I technically could just put more money into the deal, but as I always say in property (and investing in general), you make your money on the purchase. So forcing myself to practise what I preach, I was adamant not to overpay even though it would mean potentially losing out on solicitor's fees and making me feel very silly. But I figured the seller had also invested a lot of time and was keen to sell. Also, since it was an official valuation, from their perspective, if they rejected the offer, they could plausibly have the same issue with the next buyer. Thankfully they have agreed, and we are back on track.

This raises another point about valuations in general, which always cause me some level of anxiety. It’s not an exact science at all. I’ve had valuers value the same property well over £10,000 apart. What gets worse is it’s not even wholly dependent on the property in question but their appetite for lending. For example, during lockdowns, they were downvaluing properties simply because they didn’t want to lend. So it’s always important to not bank on the valuation being a specific figure, regardless of how much research you do.

Hit reply if you want to share anything at all, I respond to every email. Have a good week!

Hans