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If Your First IP was a dud and you sold it do you regret selling it now?

Discussion in 'General Property Chat' started by Miss Monopoly, 5th Nov, 2015.

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  1. Miss Monopoly

    Miss Monopoly Member

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    My husband and I purchased our first IP in May 2011 when we knew nothing about property investing other than we knew we wanted to own 10 properties one day.

    Since buying IP#1 I have read books on property investing, read the somersoft forums and gained a lot more knowledge.

    I have since realised that we made every mistake possible on this first IP.

    Mistakes:

    We paid the asking price
    We got sentimental about it
    We knew nothing about cross collaterisation or to ask our broker not to do this. We would have been better off drawing down the equity in our PPOR and using that as a deposit for the IP which would have meant no cross collaterisation and no LMI !
    We renovated the property as if we would be living there not what would give us the best return
    We took too long to do the renovations
    We did the renovations ourselves on weekends which in hindsight would have been better to pay someone else to do them in a quicker timeframe.
    We bought a house that is hard to rent as it has many stairs and on a steep block

    I am considering selling it because it is just costing us more and more money and I can't see us getting any return on it for a long time. Hubby thinks if we keep it then it will eventually go up in value but I am thinking we should cut our losses now and buy something that is giving us good returns now and then we can move forward into buying more properties but doing it the right way next time.

    Has anyone been in a similar situation and regretting selling? or did getting rid of the bad egg propel you further along into your investing journey in a quicker time frame?
     
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  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    My first property was also a dud, and we sold it. SO glad we did as it would have been a money pit and it hasn't appreciated in value at all since we sold. I've seen it on the market a couple of times since.

    Ours was a sloping block too that we did some minor renos on. It had a gorgeous outlook, but timber houses aren't great investments.
     
  3. larrylarry

    larrylarry Well-Known Member

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    In 2003 we bought a brand new apartment in rockfalls in a complex with 300 others. A year later we moved to Parramatta and rented out Rochdale. It was costing us money.(lift, swimming pool, gym, steam room, putt putt golf, bbq areas, security) We sold it 2 years later because our wages were not that high. The price doubled only after 12 years but no regrets because holding costs took high.

    I just bought an IP and it's negatively geared but CG will be much better than Rockdale apartment. Now I'm looking for cash flow positive IP 2 outside metro areas. Sometimes it's best to cut the losses and move on. Have you done detailed calculations?
     
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  4. Perthguy

    Perthguy Well-Known Member

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    I don't regret selling my "bad egg". I sold it a couple of years ago and it just went under offer for $3k more than I sold it for. :D
     
  5. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    If its a dud costing you money with no capital gains in the near future, my recommendation is to cut your losses and sell it. If you see reasonable capital gains in future then i'd consider holding it for at least a bit longer.

    Think about it in an opportunity cost perspective... if you would use that money in a property or vehicle somewhere else which performs better if you had that money in your hand, cut your losses and redeploy the money.

    Thankfully I've had no real bad eggs, my worst was my first one though that went nowhere for the first 3 years. (Bad market timing). But after that it went up 45% in the next 2 years, so it did finally perform. So if its fundamentally sound... and likely growth soon... and not costing you an extreme amount to hold... and there's nothing you can see that will give you a better return (remember to factor in selling and buying costs)...keep. If not... sell....
    I did eventually sell it just shy of owning it for 5 years and i'm not unhappy with the price.

    That money I soon redeployed into another opportunity that I was able to add a lot of value to. That one is now worth double the purchase price in 4 years. Note the other would still have performed quite well though too since I sold... huge Sydney boom...
     
    Last edited: 5th Nov, 2015
  6. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Sounds like you have learned heaps along the way @Miss Monopoly :)

    Might be an idea to have the place valued in case there is equity in there you can get your hands on and to talk to your broker (hopefully not the same one who allowed you to cross your loans!) about your serviceability for a top up and future purchase. That'll clarify things a a lot for you and help make the decision.

    If it's any consolation, I didn't stuff up my first purchase, but I did stuff up the finance by going direct to the bank and taking advice from non-investors. I fixed my loan for 15 years at >8%. I'm not even kidding.

    3 years later I broke the loan, had a 5-figure break fee and had paid tens of thousands in extra interest from day one.

    But breaking the loan allowed me to pick up a couple of IPs in quick succession and I learned a lot about finance in the process (maybe that's why I became a broker – to help others make better decisions than I did!)

    It was definitely the right call for me to break the loan and cop the big fee for doing so. I have done well from the two IPs I bought immediately after.
     
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  7. Ozzie in Texas

    Ozzie in Texas Well-Known Member

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    My hubby and I did one as well. It wasn't my first IP, but it was our first together while living in Australia. It was in a great location and a great suburb......the fairy tale ugly duckling in a good street.

    It was an old fibre board home in the Shire in Sydney.

    We were too swept away with dreaming about our fantasy home, we didn't think to research the cost of renovating an asbestos structure, let alone restrictions on removing a protected huge gum tree too close to the house to do any major structural changes anyway.

    We spent weekends on stripping ugly old wall paper, painting and sanding floors and we flipped it in a few short months. The market was on our side and make a small profit.

    Regrets. No. You have to move on. It's more costly to hold in vain hope.....just like holding onto a bad stock that tanks because everyone else realized well before you did that it was a dude......and you keep on holding just in case you can recover some of your losses. I've done that as well.:rolleyes:
     
  8. Miss Monopoly

    Miss Monopoly Member

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    Thanks everyone !

    As soon as I clicked "post thread" I knew I had already answered my question and decided what to do. I know it's time to cut my losses and start again the right way. I guess I just needed to hear that others have done it and it worked out ok. I hear so often on here that you should never ever sell and I took that too seriously.

    Steve I underestimated the importance of getting the finance structure right, I was just so excited to be buying an IP that I wanted it at any cost. Like you I have learnt from my mistakes and since I have made so many I have learnt so much. They say you have to fail to succeed so since I have made so many mistakes I just need to do the opposite next time:D
     
  9. Perthguy

    Perthguy Well-Known Member

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    I was never planning to sell my first IP either. Things do always go to plan though and it ended up being a good decision to sell.
     
  10. Johnny Cashflow

    Johnny Cashflow Well-Known Member

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    My girlfriend is about to sell her first IP she bought. Reasons being is it hasn't gained in value and won't for ever due to the amount of development going on in the area.

    I have also had to sell an IP that would have been a good development site in years to come but needed a lot of money of money spent on it now to be able to hold it, it was also x collaterised. I must admit at the time it was hard to sell I had an emotional attachment to it but made the hard decision to cut it loose and am happy I did. It freed me up from x collatrisation and I was able to buy a better IP that rents for more and can also be developed.
     
  11. bob shovel

    bob shovel Well-Known Member

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    Don't sell until you work out a plan or your strategy and see how it fits in. You want to" own 10",so you want to get serious so I'd look at your current situation and find a broker,along with a valuation.
    Then look at the market your ip is in, is currently rented? Talk to the pm and see how they feel having it on their books, do they see it to be a problem child
    then where the cycle is for your ip - is there going to be some cg to grab the equity then run or has the ship sailed and you'll be waiting 5+yrs for any growth. If no growth soon you may be better selling and cutting it loose and buying elsewhere that will work better for you.

    My first ip I was told by an expert to sell. I didn't, life got in the way and 5 or so years later it started to increase in value!
     
  12. Miss Monopoly

    Miss Monopoly Member

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    Thanks for the advice everyone !

    Bob I have listened to what you said about having my strategy right before I do anything. The PM has just found tenants that want to sign for four months which will give us some time to think about what our next step should be. The property has been vacant for so long because of the renovations we decided to do so it will be nice to finally have some rent coming in and soooooo nice to not have to go there on weekends to renovate !!!!
     
  13. Bayview

    Bayview Well-Known Member

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    First IP - brand new townhouse in complex of 4.

    Was supposed to get $450p/w rent, ended up getting $350p/w and took 3 months to get a tenant.:eek:

    Total shock as it was in a good suburb, good location and very nice property...go figure.