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.
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!
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.
Despite all that I haven’t sold it. Here’s why:
1. 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!
2. 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.
3. 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?
I wouldn’t buy that same property again.But I don’t regret buying it. It taught me some of the most valuable lessons of my investing career.
Since then, every decision I’ve made has been backed by a strategy. I only buy properties that serve a clear purpose in my portfolio, whether that’s capital growth or cash flow or a combination of both.I only ever buy existing houses, never units or townhouses, as it is the land that appreciates, while the building itself depreciates. Strata can often be a cash flow killer, let alone the danger of extra ordinary strata fees that sometimes have to be paid by the owners.
I’ve learned not every mistake needs to be undone. Sometimes it’s better to adjust the plan, learn from the mistakes and move forward with better decisions.
In life, we all make decisions we’d approach differently with hindsight. What matters is how we learn from them.This unit constantly reminds me of the importance of a clear strategy and having the right team around you.
Every property investor has to learn from their mistakes…..unless they have a team around them that can minimise the chance these mistakes happen in the first place.
If you’ve got a property you’re unsure about or you’re planning your next move I’m happy to help you look at the bigger picture.