My mistakes!!!

[sanjayag]

Hi all,
This is to accept to myself and tell others about my mistakes in property investment.

A bit of background first....I came to Australia in Apr 2007 on work visa and got my permanent visa in Sep 2008. Family: wife and a 9 yr old boy. Living in country SA town working in a steel company. Wife works part time to cover her study expenses. 37 yrs age.

1st mistake:
As soon as I got permanent residency, started looking for a small PPOR to get free FHOG and bought a unit house for $177,500. I was very happy newbie as I had to pay only $1000 from my pocket and rest was taken care of by FHOG and the ANZ Bank (thru' LMI). The value of this house is probably only $165k now. This was Nov 2008.

2nd mistake:
Was looking to buy in Adelaide and noticed lot of new development in north suburbs like Salisbury and further, but also noticed the suburbs called Elizabeth is left behind. So I thought this suburb is going to perform in couple of years as they can not leave one area and develop all other areas around it. With limited due deligence, I bought a corner block house (765 sqm) in Elizabeth East for $236K, with 95% LVR and lot capitalised LMI from CBA. This was August 2009.

3rd mistake:
Bought a unit house in my country town with 50% partnership with a friend for $146,000 with 90% LVR from WestPac. To contribute my share of 10% and buying costs, I withdrew $12K from my partially paid off car loan (ACCU).
This was in Nov 2009.

4th mistake:
Bought a flat in a multistory building in my hometown in India for $120K with 80%LVR in partnership with my brother. He lives in there and pays me half the rent. This was Mar 2010.

Now, the interest rates rising and income is not at the same rate. All 3 of my Australian properties are at either same level or little bit down as campared to purchase price. It is pinching now as I'm continuously thinking about the bills to pay and trying to manage my financial affairs.
What are learnings from my mistakes?

 

[HomeBuyAU]

It is pinching now as I'm continuously thinking about the bills to pay and trying to manage my financial affairs.
What are learnings from my mistakes?

It seems you also got into property at the worse time possible and it seems they were not great investments in the short term. All I can say is hang on and get some money in the offset account to make monthly payments less. If stats are anything to go by then there should be period of growth in the future.

At least your way better off than were you were before you immigrated, at least you will be in the long term.

 

[jacbmw]

It is ok to make mistakes mate, just not the same one twice!

What rental return do you get on these places mate?

I like to be purchase places where i can create some Sweat Equity right off the bat, providing me a buffer if prices take a dip soon after purchase.

Not much you can do now about the decrease in the values, but short of selling at a loss and consolidating, you could focus on increasing returns, allowing you to be able to ride out your falling income or interest rate rises.

Thought about putting a removable house on the back (or side) of the Elizabeth east block, it is a decent size and this might be possible (thereby giving multiple incomes and increase returns - also not a huge cost in doing this). Able to renovate cheaply the other places to justify increases in rent?

My point is it is only a loss if you sell, and if you can ride out this time, and take a large asset base into a market upturn - you will be laughing!

 

[Propertunity]

What are learnings from my mistakes?

I am going to attempt a bit of humour (sorry) But you have many more mistakes than 4.

Family: wife and a 9 yr old boy.

Children cost too much. They will keep you poor until they can get to work.

Wife works part time

Why part-time? Put her out to work full-time with a 2nd job at night filling grocery shelves or something.

to cover her study expenses.

Why you let her study? Waste of time - put her out to work & cut study costs.

The value of this house is probably only $165k now. This was Nov 2008.

This is 2011. You can expect to make a loss in such a short time. You have chosen a long term (7-10 years) CG strategy and you are having 2nd thoughts only 1/2 way in when things get tight.

With limited due deligence,

Should be full DD

Bought a unit house in my country town

In general terms, don't buy for fast CG in county towns.

with 50% partnership with a friend

In general terms don't buy with a partner - you are jointly and severally liable for the debt but can only access 1/2 the income for serviceability calcs.

Bought a flat in a multistory building in my hometown in India for $120K with 80%LVR in partnership with my brother.

More partnership stuff. I hope you knew the local market?

I'm continuously thinking about the bills to pay and trying to manage my financial affairs.

You need to fix your focus on the big picture not the day to day stuff. Work on improving the top line (i.e. more income) rather than (or in addition to) cutting your expenses to help your bottom line.

 

[sanjayag]

Mistake

When I was searching for the PPOR, the market was hot and whenever I was putting an offer, the houses were already getting sold. I became frustated and ignored the 'good area' advise from my friends and bought on not so good street. I forgive myself for it as it was my first purchase.

But, my first investment property in Elizabeth East:
I was reading on this forum a lot and gathered from here that the big corner block is good to buy as 'will' have potential for subdivision. But it was a half knowledge as later I found that there is no pressing demand in this area with lot of stck available. Also, the house is sitting in the middle of the block leaving no or little space for any other development. My learning from this is I should have used the forum's knowledge with proper logic and reference.

The rents are $280 gross from Elizabeth (being managed by REA) and $195 from unit house (managed by me and my friend).

 

[sanjayag]

Mistakes

Thanks Propertunity.
I know I made a lot of mistakes and took impluse decisions.

I have got another small property in India which I bought in 2007 and has gone more than double.

The latest flat I bought in India 1 yr back is also doing good CG wise as in very good area and bought it lower than market value. Bought this one for my parents to live mainly (along with my brother) as they spent all of their lives working hard to raise us. Emotional issue.

 

[Propertunity]

I think your heart is in the right place sanjayag

With your India properties is there a way to refi any cash out of the equity?
I know in some o/seas countries it is not an option.

 

[The Y-man]

I think the only mistake might be too much too soon.... but on the positive side: you did something - which is more than what many can say.

As others have said - 2 years can't tell much - need a few more years yet to see results.

If rents aren't covering expenses - time to consider:

1. getting rid of worst performer or highest pain property
2. increasing your worked income (2nd job etc)

The Y-man

 

[murph14]

LOL, from what I've heard, there's nothing good to come out of Whyalla.

Seriously though, you're with a few lenders there. Go see a broker and play them against each other.

 

[sanjayag]

I think your heart is in the right place sanjayag

With your India properties is there a way to refi any cash out of the equity?
I know in some o/seas countries it is not an option.

Unfortunately, that is true for India. I went to the loan manager for the equity and he thought I was trying to talk to him getting a loan for share market investment. when I told him about the equity on my property, he said he was hearing this for the first time. Now a days, few banks in India have started giving this option, but to 60%LVR and at high IR.

Regarding my wife: She is working as aged care worker part time and doing Registered nurse degree in Uni so that she can get a stable job and more income for the family. She has also built up $10K in her account for the emergency requirement and building more slowly.

 

[Seeka]

Mistakes? What mistakes?

I don't see that you've made the mistakes you claim. I applaud you for making moves towards a stronger financial future. Even though you may have paid more for your PPOR than current values suggest it's worth, at least you took the step and utilised the FHOG, so you had a win in that respect.

It seems part of your assessment of mistakes is based on the values not being what you expected by this time. Whether they rise as you hope or not, if you can hang in there your properties should continue to be a strong asset base for you and rents should rise to help ease the burden of repayments.

If repayments are an issue, then as Y-man suggests, maybe try for a second job. Given that your wife is working towards a nursing qualification, once she has that your household income should increase significantly, so if you can hang on until then you'll be in a much stronger position. If finances are really tight, maybe your wife could defer her studies for a period of time and work more hours. Or take in a boarder short-term in your PPOR. Do whatever it takes to stop that 'pinching' feeling.
It could be a juggle, but it sounds to me like you will overcome it given your efforts so far.

A life spent making mistakes is not only more honorable, but more useful than a life spent doing nothing.
George Bernard Shaw

Actually, amongst it all the only 'mistake' that catches my eye is the reference to 'car loan'. Ouch! Don't those things cost a fortune? Maybe one thing to learn from all of this is how to source cheap reliable cars that you can pay cash for.......

 

[srini]

Hi all,
This is to accept to myself and tell others about my mistakes in property investment.

A bit of background first....I came to Australia in Apr 2007 on work visa and got my permanent visa in Sep 2008. Family: wife and a 9 yr old boy. Living in country SA town working in a steel company. Wife works part time to cover her study expenses. 37 yrs age.

1st mistake:
As soon as I got permanent residency, started looking for a small PPOR to get free FHOG and bought a unit house for $177,500. I was very happy newbie as I had to pay only $1000 from my pocket and rest was taken care of by FHOG and the ANZ Bank (thru' LMI). The value of this house is probably only $165k now. This was Nov 2008.

2nd mistake:
Was looking to buy in Adelaide and noticed lot of new development in north suburbs like Salisbury and further, but also noticed the suburbs called Elizabeth is left behind. So I thought this suburb is going to perform in couple of years as they can not leave one area and develop all other areas around it. With limited due deligence, I bought a corner block house (765 sqm) in Elizabeth East for $236K, with 95% LVR and lot capitalised LMI from CBA. This was August 2009.

3rd mistake:
Bought a unit house in my country town with 50% partnership with a friend for $146,000 with 90% LVR from WestPac. To contribute my share of 10% and buying costs, I withdrew $12K from my partially paid off car loan (ACCU).
This was in Nov 2009.

4th mistake:
Bought a flat in a multistory building in my hometown in India for $120K with 80%LVR in partnership with my brother. He lives in there and pays me half the rent. This was Mar 2010.

Now, the interest rates rising and income is not at the same rate. All 3 of my Australian properties are at either same level or little bit down as campared to purchase price. It is pinching now as I'm continuously thinking about the bills to pay and trying to manage my financial affairs.
What are learnings from my mistakes?

I agree with the others. I don't think you've made many mistakes. You've acted as opposed to going into analysis paralysis.

I would suggest doing a budget and reducing non-essential spend if you aren't doing this already.

Hang in there and pay down non-deductible debt as much as you can. Make sure you have an offset account. See if you can consolidate your loans with one lender - may not be an option if valuations can come in under loan balance, but worth a shot.

All the best.

 

[Random Eagle]

Sanjayag hang in there mate.

If you want a lift, get a copy of API (Australian Property Investor) mag (April 2011) and turn to page 96. Read about all of the infrastructure developments and plans in the pipeline for the City of Playford and Elizabeth/Salisbury suburbs in particular - 'Adelaide's Second CBD'.

I own one in that area and was quietly punching the air as I read it.

Didn't Buffet say something about wealth moving toward the patient...

All the best.

 

[Deltaberry]

Where to? Well you dealt yourself a poor hand of cards, but the real task now is how you play these cards. No matter how dire a situation, you can always make something out of it.

Y-Man's advice is good. Would also add you can move out of PPOR and downsize and rent out PPOR. Lastly, could consider taking a hit on painful property/s and reposition yourself. The value of the properties should not matter to you if you're not selling unless the interest is really killing you. So would only act on worst cashflow ones?

 

[Melbournian]

i would try to reposition yourself by selling - also try to cut down on expenses right to the bare minimum. remember what does not break you will only make you stronger.

 

[sanjayag]

Thanks

Thanks to all of you for your kind words and guidance.
So far, I have not missed any payments to anybody and am paying my car loan faster than required. I've also paid $7K extra in my PPOR which I can redraw any time without paying any fees.
Have cut down many unnecessary expenses and am determined to cross the deep river without getting killed.

 

[kum yin lau]

Hi, your purchases are not all that bad just income flow is restricted by some -ve gearing.

You're doing the hardyards now, paying down what you can. It's what most of us had to do at some stage.

the Eliz east house doesn't look too bad a purchase. You may not have a lot of CG but at the same time, you'd not find it easy to buy a similar one for less than what you paid.

Every $ you pay off the principle is earning the same [7% ish ] that your mortgages are worth. The more you save via tightening the belt, the more you earn into your nett worth.

Good luck & go easy on yourself. You're not doing so bad.

KY

 

[Gools]

Sanjayag, don't stress mate. You would know more than most about the Whyalla market and why you bought there. It's a market that has big ups and downs because of the mining and its effects on the local economy. Of course you are negative gearing a bit, the reward will be the big capital gains down the track. The same can be said for your Elizabeth house too. You can say you bought at the wrong time but the pricing at the right time will more than likely never be seen again!

Keep working hard, continue to save a few dollars like you have been and you'll get rewarded in the long run.

Children cost too much. They will keep you poor until they can get to work.

Prop, I know you were joking here but just in case someone gets scared by your comment I just wanted to say how rich I I am from my new baby girl. Not rich in the traditional sense but rich in the most important way.

Gools

 

[lizzie]

hey mate - many of us have been where you are currently ... and survived. i spent days in tears when i too had bought impulsively and nearly drove us to lose everything ... but the lessons were priceless.

couple of things ... your wife has $10k. is that in an offset account against your ppor mortgage? doesn't sound like much, but will save a little on non-deductable interest.

and, have you submitted your ato payg withholding variation. it enables you to claim your anticiapted tax loss on a pay by pay basis, instead of a lump sum at the end of the financial year. does help with the cashflow. as we are 2/3rds the way thru the year, it means you can get your entire anticiapted annual loss condensed into the next 1/3rd of the years' pays.

check out:

http://www.ato.gov.au/individuals/content.asp?doc=/content/00096541.htm

 

[Melbournian]

actually u doing ok. few years property prices would stabilize and grow.
imagine eating cornflakes, cup noodles, water and a dozen eggs over 2 months - it could be worst