Edge #14 - Raising court proceedings; the not-so-glamorous side of property investing.

What I’m Reading

Understandably inflation has been one of the hottest topics when it comes to macroeconomics in recent times. It’s also a concept that has a tonne of misconceptions. I’m very cautious about who I consume content from in the financial world. Ray Dalio’s most recent article breaks down the challenges that central banks face, the knock-on effect, and where our economy is headed in the coming years. Spoiler, in a word, Stagflation. I guarantee the 10 minutes you invest in reading this article will net you a very high ROI.

Resource of the Week

I’ve used Starling bank for one of my property investment companies since 2019. The co-founder of Starling also founded Monzo. I’ve just found the app interface the slickest I’ve used and have been a happy customer since then.

Quote

Hope, in a technical sense, is more than the sunny view that everything will turn out all right. Synder defines it with more specificity as “believing you have both the will and the way to accomplish your goals, whatever they may be”.

Emotional Intelligence - Daniel Goleman

Thoughts

It’s happening. Something many property investors dread. I have a nightmare tenant and am having to go through the entire eviction process and to take them to court.

Looking back, I was perhaps too soft in the early years by giving a clear problem tenant too many chances. I brought this up to a more experienced investor at a recent event, and she shared that she had a similar mindset at the start but quickly realised that the longer things drag, the worse it becomes.

It is essential to tread a fine line. Property is unique in that it’s not just an investment. You have a responsibility as it’s someone's home. So I err on the side of caution, but when a tenant manages to generate a list of issues so large I had to track everything on a spreadsheet, you have to put your foot down (refusing to pay rent 5-6 times over 2 years, punches a hole through your door, smashing tiles etc.)

In terms of costs, it’s not cheap. They’re currently 2 months in arrears. If they decide to drag it out all the way to court, it could easily take 6 months, so that’ll be 8 months of non-rental payments while you’re still, of course, liable for recurring costs like the mortgage payments. The initial quote the solicitors provided was £5,500, which could end up more depending on how it goes, plus around £4,000 I’ve had to fork out on repairs. It can get eye-wateringly expensive.

As the landlord, the burden of proof is overwhelmingly on you. The tenant has rights to the property that supersedes yours as the owner. To the extent that if you are missing a single document from an extensive list, the whole claim could be thrown out. If this happens, the tenants could simply refuse to pay rent and stay in the property without you being able to do much.

I’m sharing this not to rant but to draw attention onto this issue. One conclusion I take from this is to vet tenants much more stringently in future. This experience also does little to dispel a commonly held view that property investing is ‘not worth the hassle’. At this point, I’d be inclined to agree in some circumstances. If, for example, someone wanted only to purchase one BTL property and had no ambitions to grow a portfolio, I’d take a serious look at other options.

Whether private landlords are good for society, in general, is an extremely polarising topic, so I won’t delve into this. However, the facts show that the number of private landlords has been steadily declining and, last I checked, was at a 7-year low, while property prices have reached new records, and we now have a rental housing crisis. By making it difficult to get rid of problem tenants, there is a risk it will disproportionately penalise the most vulnerable tenants, such as those on low incomes, on benefits, who have children etc. A bit like the poorly implemented right to rent checks which essentially palmed off the home office’s job to landlords and made them liable if the immagration status of tenants weren’t compliant. The result? It just resulted in discrimination against people with foreign passports.

I’m not sure how the proposals in the recent white paper that the government released will affect the industry, but some change is in order. The issues the industry is facing are mounting and can’t be put off for much longer.

Just hit reply if you have any feedback, questions, or anything at all. I read and reply to every email. Otherwise have a great week!

Hans