Perp

Hi Perp, your resilience is admirable. Respect!

Hope you don't mind me asking...what went wrong with the student accommodation? What was the conveyancing error?

 

Thanks for your kind words.

The pre-purchase searches revealed a drainage issue - that we were on a combine drain - that the solicitor didn't think was worth mentioning, and the solicitor just relayed to us that the searches were clear. The drainage issue turned out to be an issue that would cost $150K to fix. We found that out around 6 weeks after settlement when our hydraulic engineer rang us in a panic asking why we'd bought the property.

Whilst this was devastating bad luck, we were very lucky (or less unlucky?) in that a larger neighbour on the same drain was doing a concurrent development and had already agreed with Council to pay for the works on the combine drain, so we were spared having to invest the $150K, but that meant we had to wait for them to complete before we could have tenants, resulting in around $80K lost rental income. We also dropped $25K on legal fees to see if we had any recourse against our conveyancing lawyer - answer "he'd likely be found to be negligent, but your damages would be zero because the value of the property has increased" argh - and about $10K on hydraulic consultant fees trying to sort it. We also had to get short-term commercial finance to cover our cashflow losses until we were complete, at a horrendous interest rate (3% per month ) and there goes another $20K or so in interest and fees on the $100K we borrowed for 6 months.

Whilst the operating of the property went reasonably well, we never really recovered. In order of magnitude, property plus improvements was ~$1M. We'd bought into the property at 80% LVR, but the $100K+ hit we took during the period prior to getting tenants in took us to up ~90%+ LVR.

Once completed with the refurbishments, we had to refinance to get out of the cripping 3% per month short-term commercial finance. The valuation had improved as a result of the works - and because it was now valued as a commercial property based on yield - but it wasn't enough to get us below 80% LVR. Not many lenders go above 70% LVR on commercial property and we had to go with a niche lender on a high interest rate of around 11%.

That high interest rate changed our planned-to-be-neutral-to-$20K-pa-negative property to a $50K pa cashflow drain. Making it worse, because we'd anticipated this property would soon be very cashflow-positive, we'd put it in a discretionary trust, so this was $50K pa of post-tax cashflow. We have good cashflow, but not that good, especially with me out of the workforce. So we drew some equity out of our PPOR to cover the extra cashflow drain. Then a year later, the GFC hit, and student numbers coming to Oz took a hit, and those that came had less cash due to the strong $A, and we had to drop rent around 20%. There goes another $30K pa for a couple of years.

Then our PPOR got flooded in 2009, and I got a bad fungal infection in my sinus from the flood clean-up that lead to pneumonia, and also required sinus surgery to remove the fungal infection. I took my eye off the property, and alas, so did my PMs, and late in 2009 a few bad tenants trashed the place and we had to evict all tenants and replace a heap of furniture (and the PM) etc. - that cost us another $40K in lost rental income and repairs/replacements.

By early 2010, when we finally got The Pad on board (who managed the place brilliantly for the next 5 years until we sold), we were back up above 90% LVR, based on about $100K more debt, and - in particular - the valuation having dropped a couple of hundred $K due to the lower rent.

We just struggled to stay on top until rent, and thus valuation, gradually improved, until finally it had improved enough for us to sell without losing our PPOR as well. We eventually sold at about the valuation we got immediately after we completed the development at the end of 2007.

Yes, we definitely should have sold immediately upon completion at the end of 2007; hindsight is a wonderful thing! We didn't sell because we'd gone through such a struggle just to survive the development, and it felt like if we sold, we'd get no reward for having gone through all that. Also, our plan was for this to be our primary retirement asset.

Ah, one lives and learns...

 

You have my utmost admiration and respect, Perp. That's a tsunami load of Murphy's Law!! And you survived it....wow!

Thank you for sharing.

 

Perhaps my frustration with landlords who sweat whether a $150 repair should be on them or the tenants makes more sense now?

In "Four Yorkshiremen" accent: "Why, when I was a landlord, I dreamed of having $150 problems!"

 

A+ for Attitude.

I also was unaware of the depth of the saga that tainted that property investment.

Good luck with your law studies. As part of her school requirements in Year 10, Miss Player has just written a mooting guide for middle year students to satisfy the requirements of her personal project. She goes to an IB school and is part of her curriculum.

 

Thanks, my friend. I must get down GC way and catch up again soon!

Enjoying my studies, and even participated in a moot last year - great fun. I hope Miss Player is enjoying her studies.

 

Perp, thanks for sharing, not only in this post but over the last few years.

You're on the better posters around, ive certainly learnt a fair bit from you in the past.

 

Thanks, sanj. I appreciate it, particularly as I've left for a while after being abused a couple of times.

 

OK, this forum is feeling relatively friendly, I'll share some pics of the new house. Thank you, @wylie and @Marg4000 for periodically checking in on me throughout the debacle.

Here's a floor plan. The number annotations show where the pics were taken from.



Leaving out number 1 for privacy reasons. (My friends can PM me.)

2 Entry


3 When you enter "inside" the house



4 Courtyard from the other side, showing lovely outlook to neighbour's front garden



5 Entering living pavilion



6 Looking back towards internal courtyard from other end of living pavilion



Oh, and view from the corner of the living room that opens right up to the view of the park at the rear:



Those figures from the corner of the floor plan:



So at under 200 m2 for the indoor space, it's not huge, but it's exactly how we wanted it.

 

Looks fantastic

 

Looks lovely Perp. From the photos it looks as if you have elevated it a fair bit, should help you all feel a little safer. Love the decks and the indoor/outdoor integration.
Marg

 

Thanks Perp, I ended up going with Hive Student Accommodation -Hive Student Accommodation - Brisbane Student Accommodation and Rentals

 

Welcome to the Forum!

That is an incredible journey that you have traversed...I am inspired by your incredible resilience. Congratulations on your new PPOR.
What Keen to hear what your investment plans are moving forward

 

@Perp -- thanks for sharing your story. One thing I don't understand is how your solicitor got away freely on this. There was obvious negligence which cost you a lot. And, fast forward now you have studied law, I assume specilizing in real estate. What would you have done differently?

Thanks.

 

Congratulations on your new home, which looks beautiful. I hope things start turning around for you now. That is a horrible story. Thanks for sharing it though, so important to keep in mind risk mitigation.