FAIL.. anyone?

[Baguette]

Hi, this is my first post but I have been reading this forum for a while.

Last year, my wife and I have invested in our first IP and are currently thinking about a second one.

As we are starting our research, interviewing professionals for this next step, and reading this forum, it strikes me that very few posts actually write and detail actual failures or mistakes.

Well, everybody actually does, but indirectly:

Past failures or mistakes are always turned around into counsel, recommandation or advice to other fellow investors. This is absolutely great and why this forum is so valuable to the community.

Turning pain, or a bad experience into a Learning is actually a natural, positive, even physiological way to deal with and heal from a negative experience.

However, I think there could be MUCH value in sharing what exactly went wrong for given investment or strategy, and how it happened.

The reason for sharing a negative experience in detail, as opposed to "only" the final counsel, recommandation or advice, is that the FAIL story provides a CONTEXT that others can appreciate in light of their own situation or plans, and act accordingly if needed.

With the cotnext, it might actually be more RELEVANT (?) to all that are still on their journey.

For example, the few detailed negative stories that I have came accross on the forum, are as engraved in my memory as the great success stories.

Hoepfully I'm making sense..

E.g. Here somebody bought a marketed dual income investment without confirming the claims with the council, there somebody purchase an NRAS or OTP without enough DD or negotiation and valuation came 80k below.. etc.

To summarise,

I think it could be interesting if some would spend a little bit of their time to tell everybody about that KEY mistake or oversight that they made on THAT perticular investment or situation which went south. With the context.

Thanks!

The value of the thread will be the sum or those fail stories that we post. Turning bad into good!

 

[The Y-man]

It could just be that NOTHING ever really goes wrong!

I think many have detailed their trials and tribulaitons in the interviews

http://somersoft.com/forums/forumdisplay.php?f=4

Having said that, I will start doing the long threatened "update interviews" starting with myself at some stage - and that will read like a series of disasters!

In any case, our first major disaster came along from

• Buying the property through an "all in one place" property guru (who finds properties for you, arranges finance, legals, etc etc)
• He strongly suggested we buy a 2BR apartment off the plan.
• He said we only needed a 10% deposit to be paid to his company (yes, we were young and foolish) and he would organise the rest
• We signed an unconditional binding contract
• He turned out to be a fraudster. He disappeared with our (and other people's) deposits
• We had to come up with another deposit (because the contract was REAL)

The other problems with this particular property were typical (IMO) of Off the plan (OTP) purchases

• What we got was not quite what we thought we were getting - like the pool had the wrong heater
• Body Corp costs were way higher than initially predicted - not helped by the huge electricity bill when someone put in a electric heater for the inddor pool instead of a gas unit! Or the bits of artwork etc that kept getting stolen.
• A large list of things that needed to be fixed at settlement (power not connected to some rooms, blown lights, no hot ware, cracked tiles, wavy walls, incorrect cooking stove....just the usual stuff....)

We were lucky in that it was a rising market, and loans weren't an issue (valuation was no problem - unlike some people trying to settle OTP today)

The project was delayed several years - a problem for some, but fantastic for us as we struggled to save up another deposit.

As far as properties go - that's about the only major FAIL in 22 years (and even then we sold it at a profit 5 years later)


On the other hand, if you want to know how we lost a few million in the share market.... well, I guess no one will be interested because that ain't about property

The Y-man

 

[Dazz]

I think it could be interesting if some would spend a little bit of their time to tell everybody about that KEY mistake or oversight that they made on THAT particular investment or situation which went south. With the context.

.....something that I posted on the forums 6-1/2 years ago.....was one of the turning points why we ceased investing in residential real estate.

----------------


We had a bit of a bad trot with a residential house we bought, about 4km from the Perth CBD back in '97.

Thought we had got a bargain, a nice 3x1 fibro tile house on a decent block of dirt, with a fantastic rear yard. Looking back, I think we got swayed too much by the yard's presentation, and with my wife being from Queensland, she was highly influenced by the pawpaw and mango and fig trees growing healthily out the back. Lawn looked a treat and everything seemed OK.

We checked the title out, and saw that the same family had owned it for 15 or so years, with one change 3 years prior, and that was when the husband and wife divorced. The husband had kept the house and the wife moved on, so he was living there alone, and obviously been "tinkering" on the inside for quite a while.

Asking price was 129K, and we put an offer in of 120K. He came down to 127K, and then we upped our offer to 122K. To be pedantic, he came back with 122.5K, which we were very happy with as he'd moved heaps. We signed the dotted line and thought we'd got a bargain.

Just at this point we shifted over to the Middle East to work and left the property in the hands of no less than 3 'reputable' PM's. Four months later one of them finally notified to say they had found some great tenants, 3 young lads and everything was great.

Tenants moved in, rent payments immediately stopped and parties immediately started. We had neighbours complaining to all and sundry about parties going on 'til 4 in the morning, drug deals happening left right and centre....you get the impression - party central.

We kept getting reports from the PM saying everything was just great, at $20 per month postage and petties on the accounts, as an example. Tenants were looking after the place and the gardens were a treat.

We'd also ticked a little box or two on the management form saying the PM was authorised to take out CR / WR / LT / Ins / Maintenance / PM Fees etc out of the rent and to credit our bank with the surplus. After a year of leasing out, we hadn't received a penny.

Came back to Australia, and the wife and I decided on our first afternoon back to drive past the place and have a look at "our lovely house". We sat outside in the car on the opposite side of the street and the wife instantly burst into tears. I got a tad miffed.

Where our front lawn had been, 3 dead cars were upturned, with their bare axles exposed. You couldn't see the front door for garbage and car parts piled high. The garage was far worse.

Despite a "no pets" policy on the PM form, they had two adult bull terriers in the backyard, and they'd just had a litter of 6 puppies, with full reign throughout the house. There was a further 4 cars in the backyard in varying stages of being torn apart. They were operating the place as a "chop shop", buying wrecks for $ 50, doing them up and selling them for $ 500 to their druggy mates.

All of the fruit trees out the back were dead, having been smashed into by what only could have been a demolition derby conducted in the backyard with the wrecks.

Next day I called a meeting with the PM and her principal, and we met on the kerb outside the front, with a report they had faxed me 8 days earlier stating they'd just performed an inspection (which they charged us $ 60 for) and everything was just as we had left it. Their only comments were "I'm speechless" and a shrug of the shoulders and "What can I say ??"

They reminded us it was our property not theirs, and if we read the agreement closely, it clearly stated that the Owner held the Agent harmless and not liable for any risks associated with the property.

So, after I ran them both off, and quickly physically evicted the 3 hopeless druggies (no Mr Nice guy - trot off to the tribunal for me) I set about, with alot of generous help from the entire extended family refurbishing the place.

Spent 3 hours digging with a shovel just to get to the front foor so I could open it up, 17 trailer loads of their garbage to the tip, both Dad and I got rashes under the arms after carrying out the flea infested carpets where the dogs had had their puppy litter on the floor of the main bedroom.

My wife was out the front 2 days into the clean up, when a young 15 yr old girl came up and asked if this was the place where she could score a foil. My wife said "A what ?" To which the girl said "Don't worry" and turned around and left quickly.

The next day I was out the front with a wheelbarrow and a big V8 pulled up, with two big heavy looking characters emerging. Instantly twigged they were the suppliers looking for their money as well. They asked where my tenant was. I said "I don't know, he took off and owes me $ 800, if you see him tell him I'm looking for him." They said with a deep low voice "If we catch him first, we'll snap his spine." Joy.

So, 3 months of intensive full time renovations, $ 25K worth of capital expense to rectify white ant damage the previous vendor had covered up with masking tape and repainted over (white ant inspector employed didn't find a thing....and his certificate with all of the legal get out clauses was only partially valid for 24 hours after the inspection, thereafter the entire certificate was worthless).

Got the place up to scratch again, re-advertised it, got lots of "ooh, this is lovely", picked out the best of a bad bunch (none had any money whatsoever) and proceeded to tell them that this was our house and they were to treat it with respect. Signed up the "nice" couple who proceeded to also stop paying rent, and decided just for giggles to trash it again.

We got despondent, gave up on the area and it sowed the seeds for literally giving up on residential tenants altogether.

Put the place up for sale, and the next door neighbours sneakily fooled us via a "undisclosed nominee" offer to our agent via a 3rd agent after initally inspecting the place on the first home open as a normal buyer. We got taken for about 8K worth of losses on the sale price because of that tactic, and when confronted, our REA who was supposed to be looking out for our interests also shrugged his shoulders and said "What can I say ??"

All up, our impression of our experience with this house was ;

• Pumped in lots of heavy physical work
• Pumped in lots of time
• Pumped in lots of money
• Received lots of headaches
• Received zero financial benefit

Gave the whole thing up as a bad joke, and invested our money in Big 4 Bank shares and haven't looked back. I think CBA were at about $ 14 a share, and WBC were at about $ 8 a share. Cap gains and dividends and imputation credits have been a joy ever since....with no headaches and no time and no ongoing costs involved.

 

[Baguette]

Thanks Y-Man and Dazz for this

And thanks for pointing to the Interviews Y-Man, I hadn't discovered that side of the forum yet.

Dazz your story is incredible, it's pretty much the worse tenant story I could have come up with, if I had tried.

I think these stories, with these details, put the situations in perspective; which in turn helps investors recognise and acknowledge them earlier, if or when they knock at our door..

Anymore?

 

[Angel]

There are a few words that have been banned from our household's vocabulary, and "fail" is one of them. We don't fail, we go through an experience which allows us the opportunity to learn and grow. I cant think of any experiences we have had that have provided us with the same learning exercises as Dazz's; we have been through a number of adventures that didn't turn out as we had expected.

We have also banned the words "never" and "impossible".

 

[devo76]

1#First IP had no add value potential leading to minimal growth since purchase in 07. And being a 2 bed limits rents also.
2# listening to the doomers on here way back and locked in a loan at a high rate just before they fell.
3# freshly reno'd another house and went against my gut feeling by renting to a Sydney plaster company on a contract in town. They filled my 3 bed house with 11 foreign workers and trashed everything.
4#went into subdivision foolishly thinking the council will want your business. It was far longer and more expensive than I planned .

All that said they were not really backward steps. Just trying times.
I do look forward to an easy step one day.

Cheers

 

[YLC]

Daz, your story puts property investing in perspective. Sometimes people are carried away by the large number of IPs they've purchased.

After purchasing few negatively geared IPs, we purchased a duplex of 2 units returning 7.5% yield. It should have been cashflow positive if not neutral. Unfortunately, the council rate was quite high and kept going up by 20% and same with insurance. It also needed an ongoing maintenance because the tenants were quite rough. Every few months, it's either the HWS or the stove or the aircon, etc... So this IP was in fact cashflow negative. We ended selling this IP. The experience from this was to look at low maintenance IP and quality not quantity.

 

[Edmond Dantes]

1...
4#went into subdivision foolishly thinking the council will want your business. It was far longer and more expensive than I planned .
...

hey Devo, is this the one you were going to put a granny flat as well as building a house (by subdividing the lot)?

 

[lizzie]

Dazz your story is incredible, it's pretty much the worse tenant story I could have come up with, if I had tried.

Yep - probably worst story I've heard of as well. Had all segments of Dazz's story but spread over several properties - trashing, drugs, non-payment etc - so not one property was as painful.

HOWEVER ... if Dazz had had a good experience with this property (and others) - all loving tunes - would he have turned his eye to commercial? Or would he have stayed happily with resi?

 

[Ideo]

1) Invested in a serviced apartment. I was young and naive. It just shows that you should do research properly and not get sucked in by advertising.

2) My current rezoning. It is going through. It is just taking a lot of time and money. I thought this would be the case, but some unexpected issues (threatened species - an underground orchid FFS) and issues with the engineering department of Council for sewer connection (they wouldn't accept a pumping station despite us offering to pay for it) have delayed it. It's not a failure as it will happen and it will make enough for me to get a nice PPR mortgage free, but it does chew up money as it is rural land only making a bit of cash through agistment and a small cottage that doesn't get much rent at all. More of a learning curve.

I don't think anything is a failure if you can take something away from it.

 

[devo76]

hey Devo, is this the one you were going to put a granny flat as well as building a house (by subdividing the lot)?

Thats the one. The house had an existing granny flat but since i needed to build the new house before i could subdivide( council requirement due land size) this caused all kinds of problems.

house should be complete in the next 2 weeks so i will have managed 3 incomes/2 blocks good equity and positive cashflow but it cost way more and has taken way longer than planned.

ill have to update that old thread when i can get to it.

cheers