Saved by Mr Piper

I put in an offer for an investment property a few days ago. It looked perfect, in a good location with excellent transport links. The only downside was that it had a downstairs bathroom, but the location was so good I didn't care. I didn't spot the extent to which banks charge high fees for mortgage arrangement, and in the end, talking to Mr Piper saved me from making the deal. Here's what happened after I had viewed the property.

I went on the Money Saving Expert website to see the best way to get my Buy To Let mortgage sorted out. As part of the instructions, I then went on Money Supermarket, and found that the best deal was with a company called The Mortgage Works. I then called a mortgage broker, told him my details, and he phoned me back the next day. The best deal he could find was also with The Mortgage Works (makes you wonder what these brokers get paid for). I had worked out a plan to get the mortgage paid off in half the time with aggressive overpayment, covering my risk by using an interest only mortgage.

I then called Mr Piper (friend, mentor, and property millionaire), and told him of my plan. He proceeded to tell me about all the different types of mortgages, and said that he had never had an interest only mortgage. He revealed that he only ever used repayment mortgages. Nowadays, most BTL investors use interest only mortgages, as they are usually not interested in investing for the long term. He said that mortgage brokers are only interested in their commission, and that the  high arrangement fees make such deals unprofitable for the landlord. The arrangement fees are added on to the total mortgage, so would affect the entire repayments for the mortgage term! As an example, if the mortgage is for 100k, and the arrangement fee for 1 years fixed mortgage is 5k (yes, some fees really are that high), then expect to pay off payments based on 105k, for the entire mortgage term! If you take out successive fixed 1 years deals for 5 years, payments would now be based on a total of 125k! He said my plan would not work, as mortgages only allowed limited overpayment, before charging heavy penalty fees. All of a sudden my numbers did not look too good, and my grand plan dissolved.

Mr Piper also said that buying any house with a downstairs bathroom was a massive no-no. As he spoke, he delved into percentages, maths, mortgage rates, and I thought to myself that it was amazing that this guy had never been to college or university, started his days as a market-trader, then car mechanic, and here he is now, giving me an excellent multi-millionaire masterclass in property investing. Mr Piper has paid off all of his mortgages slowly and diligently, and is a multi-millionaire. He said "I didn't want the bank to own my properties, I wanted to own them myself, outright". He pointed out how risky interest only mortgages are, and how such landlords actually own nothing, they are merely renting the property off the bank.  I realised that even though I could put down a deposit on a property right now, it would clearly be more profitable not to.

I learned a lot more from Mr Piper's masterclass. UK property is still expensive, and it is a massive challenge to make a profit as a landlord in this area. I have been moneyseeking for many years, and I thought I knew enough to pull off some audacious moves in the property market. I checked with my mentor first, and he saved me from what may have become a terrible mistake. I had every intention of checking as much as possible before I purchased anything. I remembered the words inscribed in the chest of Mathon the gold lender, in the book The Richest Man in Babylon: "Better a little caution, than a great regret". I pulled out of that property deal. I'm going to keep looking, and keep saving lots of money towards the deposit, hopefully prices might also drop a bit by the end of the year. I won't buy anything, unless I have checked it over with Mr Piper first.