my not so great investment experience: Cheapie strategy

thought id like to update

the last couple of months has been tough
my buffer has completely gone, im pretty muchputting all my salary into the maintenance and shortages

ive now replaced 3 HWS, 2 heaters, 140 days of arrears for one property
ive got mould in a property that the agent is recommending I replace the tenants entire new furniture set
i also have to take a PM to tribunal for doing an atrocious job of mgmt

im now thinking of selling 70% of my portfolio, as im getting fed up of working my butt off to stay afloat on the loan

however if the property values shot up as soon as I sold id be very annoyed at myself

some of my regionals havent really moved in 3 years

if I sellup most of them i will have very healthy equity

am I being a bit knee jerk reaction?
is this just a small blimp in the long road?
will I regert if I sold?

 

If you have no buffer I'd at least sell 1 to free up some cash. And then regroup and decide what you are going to do next.

I doubt anything is going to boom anytime soon

 

Be honest with yourself. If the properties have not jumped in value over the last few years with these low Rates and there is nothing on the horizon for the area infrastructure wise it is unlikely they are moving any time soon. I had one property that was cashflow positive I sold recently because I was fed up with the crap pm's in the area, bad tenants and generally nothing going on in the area. See you later alligator! Money in my pocket and the feeling liberated.

 

In those circumstances I'd definitely sell at least one. These are supposed to be cf+ properties I think which pay for all or most of their costs. If they're not meeting this purpose and have issues that will be expensive to fix then there's no point in holding on to them. Some of the improvements such as new hws could be an opportunity to sell and take back the money. I don't know where they are but a jump in values beyond what you're spending seems unlikely.

I have a good few cf+ cheapies but you have to go for 'good quality' i.e buying ones that others have spent money improving so unlikely to need a lot of work. Also, even in a regional area it has to be a suburb/street where the kind of tenants you want to target .i.e responsible ones are going to want to live, plus very low vacancy rate is extremely important. Won't be cf+ if there's no tenant. I'd just learn from this, replace the portfolio with something more likely to meet your goals. Definitely always keep a buffer or you're at serious risk of going under.

 

Where about are most of the properties located? As others have stated I'd sell one or two off to get some breathing room and than rethink your plan. Maybe get a Harvey Norman card and start getting heaters aircons etc on there interest free cards for a few years. Good luck and I'm sure you'll get back on track

 

yes that is certanly an option

some have, some havent, to be honest, there seems to be no real pattern, some of the really rough areas havent moved while some of the ones I think are/were good havent moved, while some of the ones I thought were average have

and yes I agree with you, wve just had a boom across most major cities and I was sitting there thinking, ok, so should i have bought in the major ares or is it the regionals turns now as cycles usually follw this pattern.

I dont have a crystal ball but I do believe it will go up at at least average levels (however im not so confident now)

yes they are supposed to be cashflow positive and they arent at the moment which really sux. the repairs ive put down to a string of bad luck (who can predict when a HWS will die)

I just dont want to sell now and regret it down the track......
hell I knew of a guy who bought $300k of FMG shares just as they were taking off and sold at $600k a few weeks/months later, had he held on to them, in 8 yrs, it would have been worth something silly like $40m

and yes there is an opportunity cost as well, to be honest, I have nothing that I feel is a better opportunity cost, eg even if Ihad the money I wouldnt be buying now in most major cities,
I dont do/know shares. I have also thoguth about going into business but wont require that much cash

I have even thought about selling 90% of my portfolio, and buying a PPOR (which wont be a good investment) but once again, choosing which ones to shed are a bit hard

 

around the country, bendigo, ballarat, logan, smithfiled, elizabeth, ashmont, ipswich, bathrust, cessnock, and a few others

ive been thinking of selling all and withdrawing out of the property market but I feel that it is a bit of an overreaction.

since one of hte property rules is "its not a short term gain"

 

Most of those areas are ok, I'd expect them to recieve some ripple effect growth over the next few years. If your over the maintenance hump now, don't sell hang on.

But get all revalued and draw down into offset so you have buffer established.

 

I'd pull out of Ashmont and Cessnock. I think the other ones maybe ok.

 

I am in the same boat @TMNT
purchased a number of properties in 2013 and have seen great growth with NSW stock (almost doubled)
SA stock I purchased at peak so very little/none.
(Would not have purchased if had time again, mind you they are semi's)

Issues with tenants & maintaince (mainly tenants) has been getting worse with the properties.
Yield is terrific 12-15% odd for NSW..
But I want to focus on developing/USA so will flog them off.
If you can sell and make the money make more money.. Why not.. It goes against the grain of hold forever but sometimes cashing out makes more sense

 

I don't think so @TMNT. I think it's okay to re-visit the strategy and see if you need to change something to move forward. Many will hold out of ego...and it takes a lot of courage to acknowledge there is a problem before you can fix it. So kudos to you for taking that ownership.

Who knows about the future. Will depend on HOW much this selling will improve your situation i.e. not pumping money into something which isn't moving? And how much your borrowing will improve should you build on your 30% portfolio and available equity.

p.s. i'd hold the ones in "cities". Plus for the city ones I'd look at how good your property managers are.

All the best!

 

Hope it all works out well for you bud and you can put all this behind you.

For me personally, going through the stage where I am questioning and challenging my current strategies to redevelop myself.

 

I don't know about this rule "not a short term gain"?? All I know is that if you are losing money then its no fun and that wont make you rich anytime soon, it will keep you poor.

Sometimes we have to make hard decisions to move forward in a positive way and to also have a happy life today.

I personally have had to take hard action on a scenario which I have mentioned before on PC where my partner lost $1M in his business this was about 5 years ago now. I sold up all our properties to pay creditors etc, and they were all in blue chip areas, it killed me but it had to be done to move forward and so we had a chance to recoup the losses and grow wealth.

In hindsight it was probably the best thing that happened, I know sounds ridiculous, but it was a turning point for me in the investing game, as I realised I needed to do things differently, I had to change my mindset, went from a passive investor to trading and strategizing.

It is totally possible to recover from where you are today, just have to be positive and take action.

MTR

 

Having been through a couple of cycles now this hold forever carry on is a nonsense to me when it comes to property.

There is a time to hold and a time to sell. A lot depends on the condition of the property, yield and what's in the pipeline for the area.

If you own anything in NSW that has not moved significantly in the last few years - sell it now! If you own anything in NSW that did do well but the yield is still crap - sell it now! We're at a high water point folks and we won't be back here for 10-15 years. That mouldy house out at Cessnock with the dodgy tenant isn't going to do you any favours so offload it and let someone else deal with the hassle. If you hold and it goes no where you'll need to renovate and then you're just throwing good money after bad, another urchin moves in and trashes the joint and the cycle goes on.

 

Agree
Timing is everything and I can prove it, if investors purchased in any metro area in capital cities of Sydney, Melb and Perth in 2013 they would have made money, because all these markets were rising/booming.

Perth of course had a shorter cycle started in 2013 and peaked in 2014, important to pull the pin prior to peak otherwise you would be looking at losses today. Once again its all about timing markets.

For those thinking of buying in Perth and Darwin today they are getting the timing completely wrong because these markets are falling

 

I find timing hard in terms of making money, a lot of it really is just luck. Timing so you don't lose money is key. Evaluate your properties every 5 years, 10 years. If you made a mistake, shoot the dog and move on. If the market is good, evaluate, does this property need a lot of maintenance or big Reno soon? Yes! Sell it and move on. There is always a time to make a good deal but the really good times to sell are few and far between. Especially for regional property.

 

It can be luck of course but the signs are very obvious when markets are moving, its a matter of investigating further.

Media coverage, auction clearances increases and even threads on PC booming markets, a couple of phone calls to agents to find out how quickly stock is selling will help work this one out.

Boom cycles generally go for around 3 years, we have seen this with Melb and Syd. Close to the peak is where you achieve highest growth. It is difficult to jump in when the market starts rising because indications are not clear, however once we get the noise then we can start to work out, you can even see it on realestate.com, more under contracts and limited stock.

 

@TMNT any chance you can do a break down of each house to see what each one is costing you?

 

In 2014 I was going to buy in Elizabeth...I ended up spending a bit more money and buying in Salisbury instead. I remember when I was speaking to my broker she said she had a few clients purchase in Elizabeth, but most ended up either regretting the purchase or selling due to nightmare tenants. Semis in Elizabeth you're dealing with the lowest of the low. At the time when I was considering Elizabeth I was mainly just looking at the yields and the buy-in prices believing they were sure things to rise. 2 years later and nothings changed, but the area seems to be getting worse, which is a problem because it scares first home buyers away so even with infrastructure it doesn't give the area a chance to 'gentrify'.

 

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