The little IP that blew up

At the suggestion of Skater and Ozperp in the thread on Trusts, I will relate the story of an IP gone wrong. It feels a bit out of place in the middle of all of your spectacular successes. Even though this occurred many years ago, maybe our mistakes will help others.

This is in no way a self pitying sob. My line of work makes me grateful every day that we have good health, happy down to earth kids and a roof over our heads (albeit a rented one).

Here goes:
Mr A and I started our property life in the USA with nothing - the scratch around behind cushions looking for bus money kind of nothing.
We bought a PPOR (easy to get a loan in the USA, as now the world knows) and from that equity moved along fairly fast to owning resi buy/hold IP's. I was the one passionately interested in houses, design and research. Mr A has never been interested in property and just signed on the dotted line.

(Digression: this may surprise many Aussies but most Americans just don't "get" property. In the decades I lived there I did not have one conversation about property with any friend. They invest in property almost reluctantly - because their accountants tell them to. Cash flow is what they pull out of the wall every week with their piece of plastic).

In the late 80's/early 90's Mr A was pulling in buckets of money from his tech related work. These were the heady days of tech development and people were cashing in stock options every few months worth $2/300K.

We were living very well indeed.

Rather out of the blue, Mr A announced that he was buying a property purely as a tax deduction to offset the huge income. My protests were put down as the incoherent ramblings of a 10 month pregnant woman. Alarmingly, it was agri-commercial, a completely different area to resi. It blew up because he and his lawyer misinterpreted a tiny clause in the fine print of the sale documents to do with a complicated area of water rights.

There was a court case. Mr A lost. We had to liquidate everything except our PPOR to pay the legal fees.

We picked ourselves up, dusted off, and started over, but Mr A refused to buy further properties. He switched to the stock market. Then came the dot com bust...

At this point, I'll stop because what comes afterwards is not property related. We have had minor booms and busts ever since and do not currently own any property. The hundreds of thousands of $$ in legal fees would translate to millions in "lost opportunities" because there have been 2 significant RE booms in Ca since that time and the area we were investing in has barely had a dent in it from the current housing meltdown.

The mistakes are pretty obvious but to clarify:
1. We didn't think of asset protection and didn't ask advice as to what legal structure would be appropriate.
2. Buying for tax deductions instead of CG
3. Investing in something we did not understand.
4. Expecting a general run of the mill property lawyer to understand a complicated area of property law.
5. Wanting to fight something in court rather than just paying up to settle, even though you think you are right.
6. For me, not insisting that we get right back into property. I beat myself up over this one, regretfully.
7. ? There's probably more that I'll think about at 3 am.

I hope someone finds this useful.

Later I'll post where we are at and ask for some advice. I have the purse strings now. There isn't much in the purse but I still love property.
 
Thanks, Amadio, I appreciate your sharing your story with us. I've appeared in API's "My Property Nightmare" myself, so I'm well aware this isn't a success-only journey.
 
I actually prefer to hear the nightmare stories over the successes, so I can learn from others mistakes.

Thanks for sharing. :)
 
Hi Amadio,

Im glad you shared that. I think it will reinforce things for a few people.

A few of your points can be used in any investment decicion, especially in regards to asset protection and understanding the investment.
 
The mistakes are pretty obvious but to clarify:
1. We didn't think of asset protection and didn't ask advice as to what legal structure would be appropriate.
2. Buying for tax deductions instead of CG
3. Investing in something we did not understand.
4. Expecting a general run of the mill property lawyer to understand a complicated area of property law.
5. Wanting to fight something in court rather than just paying up to settle, even though you think you are right.
6. For me, not insisting that we get right back into property. I beat myself up over this one, regretfully.
7. ? There's probably more that I'll think about at 3 am.

I hope someone finds this useful.

Later I'll post where we are at and ask for some advice. I have the purse strings now. There isn't much in the purse but I still love property.


Ouch,

Thanks for sharing.

The main thing that will turn it around for you is Point number 6. Together with your learnings and the fact that you have found this website, hopefully will assist in getting you back on track.

Your thread count suggests you have recently stumbled on the forum, so hope you find the neccesary 'inspiration' from here to get back out there and start building your portfolio again. I am glad I stumbled accross this site about 6 months ago.

Cheers,

F
 
Good to see you have built yourself back up from such a traumatic time. It's also good to see that you're planning not to let a mishap stand in the way.

Good on you, and i think the nightmares are good to hear about. You've learnt the hard way (unfortunately), but have probably saved many.

I also hope you find the forum useful, and make some friends that will be a keyboard away :)
 
this is a great post and credit for it. There is a tendancy for the cheer squad to rule the roost here, whilst the unfortunate skulk off to go and find a job
 
ps... i know a guy who has been a multi-millionaire twice and lost it all and is about to make it 3rd time lucky! I think this time he plans to retire. It's an amazing frame of mind he operates in, he treats cash quite differently. I tend to grab cash with both hands, he tends to let it go with the flow
 
Our journey has not been without hiccups either. It's been a case of two steps forward, one back along the way. Losing huge wads of money in business, making it back and then some in property, with a nasty case of being ripped off a couple of times smack bang in the middle.

Sometimes you just have to keep plugging away as the alternative is incomprehensible. My sig (below) was a comment made by my daughter several years ago now, as she witnessed first hand how we were like an Eveready Battery - keep on keeping on.

I always remember a comment made by my accountant (he was quite old), over 20 years ago now, when we were almost penniless and each year came to him with a failed business attempt. I remember laughing and saying something along the lines of "You must think us crazy. Do you get many people like us, that keep trying something different? Do any of them actually find something that works for them?"

His reply was that over the years he had seen several people like us, and that some just gave up, while those that just kept plodding along, striving for something more than the norm, usually found their way. I believe that property is "finding my way".
 
Hi Amadio,

Your story brought back memories which still make me feel sad. :(

My wife and I used to run a successful if modest business, we had one investment property and decided to open a second business - a Roller Skating Rink. In our case we knew the industry and were passionate about the business however we did not know the market (we thought we did) and were undercapitalised (CF was worse than our worse case scenarios).

The business quickly went south and no matter what we did (TV & Radio Commercials, Letterbox & Car Leaflets) the business went South. There is no way to cover the losses each week and so I get a job as an electrician in Sydney commuting daily. Although our two kids were young they get in and help mum run the rink during the week, my wife got a casual job on Sundays with on call out other times and I ran the rink with the kids when she wasn't able. If you read between the lines... our life is work, work, work.

We are losing more money per week then we can earn at our jobs so we negotiate with the owner of the property to reduce the term of the lease. He agrees, so we only have to find the cash for another 18 months or so.

With no other way to cover the costs of running the business we sell our PPOR which we owned outright, and move into the flat above the business. This is already included in the lease, so now saving on mortgage payments. My very smart wife puts aside enough money from the sale of the PPOR to pay for the ongoing business costs until the end of the lease.

Now for the outside of the box stuff.

Although the business is not going so well :rolleyes: we have a pre-approved loan amount so my wife decides to buy a couple CF+ properties in Tassie. This puts us further into debt but we are actually are better off on a weekly basis.

To sum up, at this stage we have 3 IP's (2 CF+ and 1 CF Neutral), no home but a place to live rent free. We are working ridiculous hours and living on a diet many uni students would relate to; leftovers from the rink, bake beans, noodles and rice. :)

With the money put aside to cover the shortfall for the duration of the lease we decide to look for a PPOR in Campbelltown. We put down a sizeable deposit and in the meantime rent it out as CF+ again adding to the bottom line.

Before the end of the lease I am offered a management role in Sydney's Hills District. At the time there was no motorway from Campbelltown to the job so we decide when we wrap up the business we will rent somewhere closer to my work rather than move to Campbelltown.

We close the business a month before the end of the lease and go to Disneyland. :D

Yep you read it right. As it turned out we had put more money aside then we needed to cover the shortfall on the lease. This meant we could afford to pay out the lease and take a well deserved break.

Now the funny thing is that I only know today, literally as I write this post it has dawned on me, how extremely lucky we have been. I have always thought 'we had to sell our PPOR which we owned to get by, oh woe is me' but in reality we as a family had the ability to get through this time and come out the other end.

There were many options which we could have taken which would have been easier in the short term but I cannot think of one that would have placed us in a better position then we are today.

I started this post to show how I relate to your situation, and I ended up finding that we have a different story but hopefully our story will be of benefit to you. Writing it down has helped me get a better focus on where we have come and how lucky we are to have come through it together.

Regards

Andrew
 
Thanks for your words of encouragement, and it's good to know that some others here have worked their way from the bottom back up to property ownership again.

I'm learning tons from this forum - books and magazines are helpful, but the real nitty gritty of how investors put concepts into practice is invaluable.
 
Hi Amadio and Andrew,

Thanks for sharing your stories. Very few really successful people, have made no mistakes on their journey.

I have also been through my ups and downs. The GFC caught me off guard and I lost literally hundred's of thousands of dollars.

I have learned from my mistakes, as I am sure you have and like you Andrew, am sincerely thankful that my situation didn't get out of control. I was able to make the right decisions and with some helpful advice from some very kind people on this forum, came out on top. Although I am a few thousand short than I was three years ago, I am sure I will make it up in the next few years. :)

I'm actually thankful I didn't lose more than just money. :)

Regards JO
 
Top