Negative Equity Nightmare - My 3 Mistakes (UK)

Well as this is my first blog post I thought I would tell you about my first ever investment, and the nightmare it continues to be.

To give you a bit of background; I'm based in the UK and over the last decade we saw a huge property boom, which crashed at the same time as the market in the US.

I bought my first investment property in 2008, at the very height of the boom. Today I still have my hands on the property, however it's value sits at around 20% less than the mortgage balance. 

It would be easy to blame this negative equity entirely on the market crash, however when I reflect there are a few huge mistakes I made that really could have stopped the loss being so large (I put down a 15% deposit, so all in all I'm somewhere around 35% down 4 years later)


Although this happened in the UK, there are some mistakes that I think a young, naive investor could make anywhere across the globe:

1. I bought a one bedroom property - When I look back, I think this is the biggest mistake I made. The property I purchased had a lot going for it, but the compromise was that it only had a single bedroom. At the time, I didn't realize how much this would limit the future resale market. It's especially big mistake when I think there were 2 bedroom properties in the area for a very similar price.

2. I fell in love - Well, this is the justification for mistake 1. I got personal with this property without thinking that every quirky little feature that I loved was another way to alienate a future buyer. Being the young romantic I was back then I was certain that I'd find a buyer in the future who loved it as much as me, and would throw as much money as it took to acquire it from me. There has been no sign of that happening.

3. Negotiated badly - If you're one of those people that believe that negotiating is a battle; then I was well and truly rolled over by the tanks on this one. I researched the property history, the area sales history and the current selling prices, and I decided on my maximum purchase price. Guess what; young men in love find it hard to walk way. I ended up paying £5,000 over my maximum price, which in hindsight is an unforgivable sin.

There are countless other mistakes I made in acquiring this property, in fact if you were to write a book on successful investing you could use every step of my purchase as the 'what not to do section'.


So what are the positives? Well, there is no doubting I made some mistakes, but I find the mistakes that you learn the most from are the ones that hit you in the pocket. Today when I make an investment I research in a maticulous level of detail which I may never have done if it weren't for the mistakes made on the investment.

Plus, if you're going to make a loss on a property, it's better to be on a 1 bedroom town house in an inexpensive area of Northern England.

I currently have a tenant in the property, and every month I see my mortgage balance get a tiny bit closer to the sale value. And who knows, if I can keep a tenant in there for the next 25 years and my mortgage gets cleared; well I might not view this property as a mistake at all!