After the crash in 2010 two gents started their investing career in property. They went to one of the well known educational groups. They were taught to pull out all of their money out of their Professional HMOs and flat conversions. These 2 gents built a portfolio of double digit plus properties of Professional HMOs and blocks of flats worth in excess of £10 million . They would borrow from a Bridger at extremely high rates…( 3 percent a month). Then they would refinance their properties to the max. World was great for years…wash and rinse as so many are taught. They worked very hard and were living the property investors dream.
We met them several years ago in order to JV & provide potential financing. As we owned a bridging company in the US, we always insisted the borrower had to have some money in the deal. These two gents balked and continued on their expansion. At one point, they sent us a property to see what we would lend. We were on the way to a plane…We pulled out our laptop and called back to give them an indication. We told them our thoughts….and they never got back to us….
Fast forward had a call from a London investor asking about Professional HMOs and what I thought about a specific area. He told me that there was a portfolio of Professional HMOs in the North ( in a rather tough locale) that he was looking to purchase. I cautioned him, it was not just buying cheap, the area might be tough to manage especially from London. In short time, I put two plus two together. The next day, I heard about a bridging company who was having issues in the same town. The sad story was these 2 gents who worked so hard to build a portfolio of properties.
I do not know what was exactly the impetus of problems with them. Even our builders knew about the story. I have lived through 3 real estate crisis’s. One of the main reasons property investors have not survived is over leverage or growing too quick.
Lesson I want to point out…be wary in your property journey. At some points interest rates will go up. Historically they have been 5-6%. Can you imagine how many property investors who are not on capital repayment and over leveraged will have problems. The story repeats and repeats. One of the investors in my bridging company in the US whom I went to school with was a property developer as was his father. He was building several hundred flats in 2007. He thought he was safely leveraged at 65% LTV. However he was wrong. When it got bad…it got very bad. He almost lost everything….Range Rover…Plane….25,000 square foot house…( wife). He survived with the help of his amazing accountant. He learned and I learned with him, the new para gram 50-55% LTV. Because prices did not go down x % does not mean in the future they can. Everything myself and my JV partners try to do are to be somewhat property recession proof….
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