Every property investor has to learn from their mistakes…….or do they? A key one of mine came in 2016 when I bought a unit which I thought was a great way to start my portfolio. In hindsight it wasn’t! But interestingly I still own it.
It’s not my best investment. It doesn’t align with my current strategy. Yet it still serves a purpose in my portfolio.Here’s why.
What I Bought and Why
Back in 2016 I was just getting serious about property investing. After a trip to the Gold Coast, I decided to invest n a unit there. It was established and seemed like a bargain. I negotiated hard, getting the purchase price down to $175,000, and the previous owner had paid more than that! For what I was paying it seemed like I was getting it at a discount.
It felt like a low-risk way to get started. It wasn’t!
What I Got Wrong
The fundamentals weren’t right. The location was more of a lifestyle choice than an investment-grade market. The strata fees were a killer of the cash flow…..beware of gross yield vs net yield after all costs have been taken into account. The property was only 39m2,limiting the lenders that would provide a mortgage, which will lower the number of potential buyers if I ever sell it. The growth was slow. Most importantly, I didn’t have clear goals for what I wanted to achieve through property investing and a strategy for how to build a portfolio to achieve them.
I was investing on emotion not data.
Why I Still Hold It
Despite all that I haven’t sold it. Here’s why:
**It’s positively geared**
Over time the debt has significantly come down and the rent has gone up massively. It now delivers solid cash flow even after the high holding costs.The current rent is $570pw, achieving a gross yield of 16.9% on the original purchase price. Even after the significant costs it now produces a reasonable positive cash flow. My learning, it is better to do something than nothing at all!
**It has doubled in value**
It took time but the market eventually moved. It’s not the best performing asset I own but it’s not dragging me down either. The real learning was the importance of opportunity cost. I could have invested in a market that performed much better to set up my portfolio for significant earlier capital growth. This would have enabled me to grow my portfolio faster.
- Selling would trigger capital gains tax
If I sold now, I’d lose a chunk of that growth to tax. That doesn’t make sense when the property is holding its own and delivering income. Who wants to give money to the tax man?
