Today’s Steveism comes from my first ever newsletter, and is a simple statement to help people differentiate between good and bad investments.
If you only bought deals that made money, you’d have to make money.
In cricket, making runs demonstrates you’re a good batsman, and taking wickets is a sure sign you’re a good bowler. The equivalent sign of success with respect to investing, is making money.
Sometimes bad investments are dressed up to look good on paper. Your ability to identify the suspect assumptions and restate them to determine the likely financial outcome says a lot about your level of investing skill. So too does your ability to accurately monitor your property’s performance and to take corrective action as and when needed, which may also include selling and redeploying the capital elsewhere.
What investments do you own that aren’t making money? Why do you still own them?
One possible reason is that you don’t want to personalise your loss – that is, you aren’t ready to accept that you made a mistake. If that’s the case, then watching this short video will be beneficial:
What’s the worst investment you’ve ever made? Take a moment to share the details here, thus helping others to avoid making the same mistake by posting a comment below.
Until next time, remember that success comes from doing things differently.
– Steve McKnight
Good one Steve!
I have never made a loss yet thank God… but i’ll keep this in the back pocket of my mind just in case :)
I like the description / saying you use for which we are to avoid, We should not: “Sell the gold and keep the mold”
Cheers Tim.
Losses in real estate are never pleasant, but they are learning experiences.
They remind all investors that their investment is only as good as the assumptions that underpin it.
– Steve
Hey Steve,
Great advice if you can afford to sell them, but we’ve lost so much value we can’t afford to.
Now we’re just waiting for the inevitable :-(
Oh Tess. This doesn’t sound good. Can you provide any more information? Is the loan now more than the property’s value?
Regards,
– Steve
Hi Steve,
We are losing approx $100k a year on a portfolio of 9 properties, however the bank needs to revalue the whole portfolio if we are to sell any properties as they are cross collaterised. The valuations will come to the same amount as our loans. We are stuck with our bank and can’t remortgage with another bank to get a cheaper rate. We have been through the worst over the last 5-10 years with rents and prices dropping, and there is now hope prices and rents are starting to finally rise. If we were to sell 3 of the worst performers we would be left with a loan of approx $900k, with no properties to show for it.
Hi Craig,
Wow, Craig – that sounds like a really harsh learning curve right there. Would you consider adding that story as a topic in one of the forums? It seems to me that one of your advisers has done you no favours in cross-colling everything.
The Mortgage Brokers on here are well versed with xcoll, and with “untangling it” too, and one of them might be able to point you to a path that could be the quickest way to “get back on track”. Here’s hoping anyway,
Benny
Hi Craig,
I recommend chatting Chris Berry as he specialises is this kind of problem.
Make an enquiry at http://www.propertyinvestingfinance.com
Regards,
– Steve
Great Job Steve!
A good wake up call for investors. Also a great reminder that regardless of the due diligence put in before the purchase, things can still go wrong. Ensure you stay on top of your portfolio and are able to adjust accordingly if something was to go wrong.
Indeed Richard.
Even if the assumptions were valid at the time of purchase, conditions change and therefore due diligence isn’t something you do once, but rather something you do continually.
The right time to sell is when you can make more, sooner, with less risk or lower aggravation.
Regards,
– Steve
You sure have it in a nutshell Steve , brilliant and such a way with words – Don’t “Sell the gold and keep the mould” I have just flicked a very slow growth property to basically get my money out and redeploy it elsewhere!
Sold very well with a brilliant RE Agent.
Well done Katie! Onwards and upwards…
– Steve
We live in Kellyville and while we have done very well out of our family home over 15 years ($550K, now worth $1.3M) our investment property went south. We purchased in Cairns (A new 3 bed apartment) and while in the first 3-5 year the value went up we then got hit by the triple whammy of the GFC, the tsunami in Japan and cyclone Yasi. Property value tanked in Cairns as the tourist didn’t come, so developers and tradesmen all ran away. When we sold some 10 years later after being in a -ve gearing situation, we took a $115K hit. We are still paying it back and my wife won’t let me make any financial investment decisions anymore. It nearly ruined our marriage and we are simply stuck in this holding pattern… I guess until we sell our home and scale back. I wish we had simply purchased a unit around the corner and we would have never looked back.
Hi Andrew,
Your PPOR has certainly provided some good news in the midst of the bad.
Andrew>>>> “When we sold some 10 years later after being in a -ve gearing situation, we took a $115K hit. We are still paying it back and my wife won’t let me make any financial investment decisions anymore.”
One thought around that situation would be this – your PPOR showed the way that “money can be made thru property”. You (both?) made a really good decision with your PPOR, and the market added the value over time.
Perhaps the purchase of a BETTER investment property can likewise gain Equity that can pay off the $115k a lot quicker than you can with a wage. Get your wife involved with any educational things you might try, so that you are BOTH onside with the next investment. Even just the purchase of STEPS from Steve will set you two on a far better path when selecting your next IP.
And what if that small outlay can net you 100 or 200 times its cost over a couple of years? Have the wife read it too, and decide on the next purchase together, using STEPS as a guide. You have the Equity in your PPOR to be able to do it – but of course the DSR side has yet to be determined. A Mortgage Broker can help with all that.
Good luck with your next move, Andrew,
Benny
Well said Benny.
Instead of focusing on what didn’t work and feeling disempowered, focus on what did work and repeat chorus.
– Steve
Oh golly Andrew.
I’m sorry to hear this story but thank you for having the courage to post it.
Benny has made some great comments.
I would only say that hindsight is always 20-20. It’s unpleasant, but the take away is to try and learn from what happened and avoid making the same call next time round. I’ve come to believe that life’s lessons keep repeating until you learn them.
– Steve
Hi Benny,
That is a good article, my wife & I have always taken time to work through our property investing together & have used the principle of we are in this for the long run (we have been investing since 1998). We built
one new property & have developed 7 existing semi units along the way all of which are or have been rented out.
We sold a couple on the way when we needed capital (3 daughters weddings & a sons overseas wedding). It was only about 5 years when we came across one of Steves’ books in a give away box on the side of the road, “From 0 to 260 plus properties in 7 years”. After reading it, we found it made sense & struck a cord with our stile of investing. We have since followed a lot of Steves’ straight forward advice & am only sorry we didn’t come across his material when we started out, it would have eased the learning curve. Admittedly we are buy & hold investors who like our properties to be positively geared (I am a blue collar worker who doesn’t have excess income with a need to write off tax).
We have been fortunate that the areas we invested in the property values went up markedly & the rents followed, in an area where there is a call for good basic homes for the average working family. Although property prices slipped back over the last 10 years our rents have continued to rise with cost of living & demand. As Steves’, Uncle Stu said in his book sometimes our initial attempts did turn out ‘dumb perfect’ & we thought it would carry on like that indefinitely. We have kept a keen eye on cash coming in & costs going out, I think this is key to your success.
Don’t give up, look for another way around your problems.
Patrick & Jenny
Thanks for posting Patrick & Jenny.
– Steve
Steve,
I bought a 1 bed room apartment in Perth CBD at the peak of mining boom at $390k.
The value of the property is now $290k ($100k loss!!). And I would need to incur agent fees on top of that.
The property is currently on lease and break even (not negative gearing but not positive either).
What would you do in my position sir?
I know this might sound like a very stupid question, but I’d appreciate any advice on this. Thanks