Forced to Sell Investment Property at a Loss ~100k

UPDATE

  • Thank you for all your replies, I realise didn't make it too clear its already sold signed, so no going back and looking at the poll I don't have the "wish could go back and not sign" regret

  • The tenants are a normal family with 2 kids, new cars, on the annual inspection pictures from RE that are provided to us they seem to have normal furniture tv nothing crazy but not living on mattresses and saving big $.
    I don't mean to pry into their life but I am guessing they live on credit like most people these days. Going from a good wage to jobkeeper is a big adjustment to myself so I can imagine it is the same to them, kids are expensive too. Anyway I don't think legally I can pursue them for rent at this time anyway nor I would like to for somebody that is suicidal (benefit of the doubt)
    The straw that broke the camels back is really my job loss and bro's wage cut.

  • Couldn't evict them even if we wanted to at this time

  • This whole thing also made me realise I don't think I am cut out for the responsibility of being a landlord. Before covid it was pretty straight forward but now it seems fighting for a monetary loss from my pocket may bring a much bigger loss to somebody else even tho I am in the right.

  • Not sure what the agent told the buyer about current tenants/contract
    and what he is obliged to say by law. Pulled the trigger on a loss, paid his fees don't want to know :(


Me and my brother have/had a joint investment property (3 bedroom house in Melbourne south east suburbs).

We bought this place late 2018 for high 600K but with fees stamp duty and some minor touch ups it owes us ~730K. We had a deposit of 80k and at the time I had a ~100k pa job and my brother ~80K.

Place came with tenants on a yearly contract which took care of alot of repayments. We didn't struggle at all and happy to do any/all maintenance requests (which were all minor)

Obviously as covid hit everything lined up against us:

  1. Just before covid hit we had some damage to the plumbing by tree branches we forked out 6k each 12k combined - no problem we had cash on side for this
  2. Our tenants both lost their jobs (couple with kids) initially they agreed to pay 80% rent then 60% and then they said they are hardly scraping in, the female apparently had attempted suicide. Really tough situation, I got kids myself there is no way I want to leave some kids without a parent. Haven't pushed for rent last month and got none.
  3. going from 100k to 1.5k a fortnight taxed is a big drop so we applied for mortgage holidays which are approved but still getting interest added.
  4. boss told me unofficially a few weeks ago once jobkeeper is over cutting down to skeleton crew and can't afford to have me on, he doesn't mind im looking for new jobs while at work as there is not much to do, but there is no jobs!
  5. Brother had to take a 30% wage cut.

At this stage we have seen a few professionals for advice and we have been told to sell NOW for anything we can get, things will get worse and apparently the media and rba don't want cause a panic but its alot worse then they say.

Also the bank said for our own good no extension on the 6 month holidays will be given, between the lines they said exactly the same thing the professionals did.

The bank said its already on their record we are on the 6 month deferred mortgage payments and if we default on payments in the future that will be a big black mark on our names for a long time.

Speaking to family and friends, and with deep and long consideration we went to put the place on the market.

RE said no chance we will get what we paid, said start off with 20K discount.
Was no interest dropped by 5K per week at 30K we got alot of tyre kickers and lowballs. No genuine interest, after 4 weeks the best offer we got was 60K then what we paid. The agent said take it, said all sales are like that and his "inside sources" are saying it will get much worse. Once again got other advice and decided to run "before the market crashes"

60k off the price means we are really just over 100K out of pocket, so basically lost our whole deposit and a bit on top.

What else could we do? did the safe thing?

Id rather lose 50k now then 100k later I guess

Poll Options

  • 407
    Was the right choice in the situation
  • 52
    Should of taken a gamble and struggle

Comments

    • -1

      Should've been harder on the tenants, don't listen to their sob stories. Your rights are yours to enforce. Should've reminded them as gently (or harshly) as you feel, that the eviction moriatorium is ending soon, and you have the right to take them to small claims. Remind them their cars could be sold. Get the agent to do this if you feel soft about it.

      Tennants leave but smash property causing 5k in damage

  • +1

    As a fellow investor I can sympathize a lot, I think we both dived into something too early without enough foresight. Never buy through a RE or rouge buyers agent, there are way too many sharks in this industry, with no regulation. If you didn't lose your income it would have made sense to hold on for dear life and see where the market goes. Selling at a loss is everyone's worst nightmare, banks and RE's gain of course. Hope you don't owe the banks too much after settlement.

  • +1

    Sad for your situation mate! Wish I could chime in before you sold your property.

    As an investor you have to check your emotions at the door. In your situation, you practically signed yourself up to look after your tenants entire family. You said that they could pay 60% of the rent, but where scrapping by. Well they should be scrapping by, they lost their jobs! The landlord doesn't have the responsibility to look after you, so you can be more comfortable in life. Some people have no shame!

    In a constructive sense, you could have insisted to go 50/50 on the rent. When you sell a house, no one is going to buy with non paying tenants. Its going to be a vacant possession, so that family you were providing for will be kicked out anyways (even under the moratorium). It could have been a key bargaining chip for you. Ohwells, don't fret. It can only get better from here on out.

  • +1

    As much as I would love for property to no longer be some investment vehicle (and all the stupid bubble prices that come with it), Government actions for years have told me that ain't changing anytime soon.

    There's always going to be people who lose out like the OP but I'm still expecting soon enough some kind of policy change to ensure property prices are kept high for their vested interests and votes. Paper money seems to earn the votes on paper …

  • +4

    Know how you feel OP, I recently sold my investment apartment too for a loss. I bought it 10 years ago before the massive apartment boom, it was in a good area that has now become over-built which has depressed any chance of capital growth, body corp fee growing every year as the building became older, and like thousands of building in VIC it has combustible cladding during the recent audit which needs long and protracted negotiation/legal action. In the end thought I would cut my loss and to avoid risking further expenditure that I would be unlikely to recoup when I sell.

    All the best with your job in the future!

    • +2

      It's sad we can't even build apartments properly in this country. That fire cladding issue seems like a complete debacle.

  • I think you have made a fair decision. You went out and sought professional advice and listened to advice from family and friends. It sounds like you made a considered decision based on all available resources, facts and assumptions. Not much more you can do than that. At the end of the day no one can predict what the property market might do in this environment. But you would be foolish to think there was no risk that prices will continue to fall from its crazy peaks.

    Maybe you could have pushed the tenants a bit harder. I don't think anyone is getting a free rent-free ride and its unreasonable for them to pay nothing. But that needs to weighed up against the sensitive nature of their circumstances. I wouldn't expect property managers to be skilled enough to make those really hard conversations.

  • that sucks and i am sorry to hear that but you will get through this, as long as you are still breathing and don't give up.

  • +1

    Hey OP,
    You did well.
    Sometimes the emotions of having a property with a falling price can drag you down and on top of that dealing with the tenants in such a situation would have even 'bothered' you more, had you kept it.
    I am in similar boat with falling price of the investment property, bought it in an area when there was no developments close to CBD and post it we have more than 7 new developments within walking distance to our property.

    As they say ' these times too shall pass'
    All the best for your future endeavors

  • Sad story in many ways, hang in there its only money and you will get another shot to make more one day. At the end of the day money doesn't necessarily mean that much to personal happiness as long as you can remain out of poverty.

    It is a credit to you not pursuing your tenants for rent if one is suicidal.

    You probably made a decent decision selling - it is virtually implausible that the market will go up in the near future, and the main question is how much it will go down, depending in part on the duration of the pandemic. Potentially another 12 months.

  • +1

    The best experience sometimes is the hardest experiences to stomach.

    I dunno how many thousands of dollars I've lost here and there and each one ingrains in my mind a lesson I try not to forget.

    Just don't forget if you borrow, you're leveraged and you can come unstuck if all the things turn against you. So think hard about borrowing money, it sounds crazy to tell someone not to borrow to buy a house (which im not), but just be careful.

    Also, any investment has risks, many property owners think its a one way street, it's not. This crisis has taught many that.

  • +2

    Hey OP

    keep your chin up. You are still young so this is a small blip. I'm selling my investment and will likely make even, but what all this taught me is that some people are not cut out to be own multiple properties. I would rather use the extra money to holiday/explore/spend it on something that makes my family and I happy.

    Best of luck

  • Sorry to hear about the loss OP. Don't let it break you. Just remember that the capital loss will offset any capital gains in your future ventures.

  • Yes this thread is scary but investing is the best way to make wealth. For every I got screwed story there are a ton of I'm sitting on two homes.

    Its a risk.

    • +2

      Many people would tell you investments are risk free.

      • Especially property, lol…

      • bank interest is pretty much up to 100k

  • some damage to the plumbing by tree branches we forked out 6k each 12k combined

    Why didn't you get this done with insurance?

  • Good job mate tough call but right decision I think.

  • +1

    Thanks for sharing your story as it benefits others like myself. Commiserations on your $$$ loss, it seems we are all in this mess together so you won't be alone except you may have just made one of the smarter decisions of your financial life by acting fast.

    Markets are boom and bust, the only constant is change.

  • +1

    https://www.youtube.com/watch?v=E_dAMAwne9U - Well this post is now a topic on youtube.

    • "article from ozbargain finance" he says lolll

  • -3

    There's things in place to prevent this happening… Councils rate relief, bank mortgage defer, tenants unable to pay rent.
    Also, the tax payout (interest, plumbing repairs, depreciation) on your previous 100k wage would probably help around now. And even though the tenants did not pay you rent, you are entitled to it (and if it went to VCAT, you'd have no trouble, especially as you were gracious).

    Perhaps the loan valuation was wrong in the first place - I cannot believe it has crashed that badly in two years - I'd nearly call that negligence on the bank valuers behalf (10% if you also include the add-ons you performed - nowhere in Australia has dropped anything like this). If you were faced with the situation again, I would try everything tooth and nail to hold on to the property if it was worth what you paid for it (and anticipated to grow further).

    Also as for the 'crystal-ball' property market, I actually think it is going to sail sky high… lots and lots of new development with the home builder grant [owner-occurpier <200k combined incom = $25k + First home owner scheme $15k + Covid Super W/Drawls $20k + Any extra you need out of super to get your first home - PHEW talk about the perks for getting on that 'unobtainable property ladder' - those baby boomers really do get it all (they never had stuff like that!!!!)… TBH .. Smells like GFC to me…

    This inevitably will push property prices in Capital cities further up - where the cheaper to build and own places little pink houses are a plentiful and selling like hotcakes. City (central) properties will be much more lucrative.

    No-one has a crystal ball, but with property, it rarely goes down (in Aus) and in the limited times it has, the long term holders (much like shares) which take the good with the bad ultimately are successful.

    Your story is a troubling one, I empathise with you, definitely a hard luck story, but unfortunately, that time honoured statement saves so many companies grief as their gotcha - "Past Performance Is Not Indicative Of Future Results"

  • -1

    A bit of advice.

    If something is overpriced, then by definition something is underpriced.

    You have to find the underpriced asset and invest in that. At some point the market will correct and hopefully you will be in a position to profit.

    Dont give up on investing, think of this experience as a very expensive lesson well learned.

  • +1

    Hey, as you’ve mentioned you already sold it, no point to talk about it. However, there is no one to blame here. Everyone, almost everyone are skeptical. Those people who are still buying, either do not know the facts or are taking their chances. You’ve done good. I have an investment property in Geelong and do you believe if I say I’m not getting rent from the tenant since 4 months ?
    We are all in this together!!!!! My advise is, don’t trust the media. I still get emails from realestate agencies that they’ve sold 30 properties in the first quarter which is total bshit!!! Fake propaganda.

    Take care. Stay healthy. You are still alive, so I guess you can again buy something when things get better. Next time - may be buy something cheaper that won’t be a burden during situations like these.

  • Hi monkeyfood, thanks for sharing your experience. You do indeed seem like a nice guy! Hard to say if it was the right decision to sell, but I am wondering if you could have made it work if you really wanted to. If you were paying interest only on the loan after the mortgage holiday ended, you would need to come up with about $500 per week.
    If you could have negotiated with the tenant and told them you would need to sell if they didn't contribute some rent I think they would have come up with some payment plan. Selling the house means they will have the hassle and expenses of moving home, maybe changing schools and more expensive rent or have to find a cheap old house to rent. Even if they agreed to pay only a super cheap $200 a week rent, you and your brother would only need to come up with $150 a week each. Obviously you would still need to come up with rates and other associated costs, but this would have bought you time and hopefully you will have other employment by that time.

  • -1

    Great decision, buy high sell low property is a short term investment, good job.

    • I love Hero's who think they get ever bottom and top of markets correct and aren't retired !

      • I'm retired. Did that at 40 two years ago, I've never picked the bottom or the top of the market though, you accidentally agree with me, that trying to pick the top or bottom is not likely. Hence my point about short term investment in property not being a strategy.

        • +1

          Well I found a Hero that did it the proper way lol

        • +2

          What a man, round of applause for simon

  • When i used to trade shares the best advice I had was to cut your losers short and let your winners run. Better to get out now than hang on and watch whatever equity you had evaporate further.

  • +1

    I guess what is done is done. But you should have tapped into your super. Below is a quick calc and what I would do

    Cost of House + stamp = $720,000
    Deposit = $80,000
    Interest assuming 4%
    Therefore Repayment (weekly) $492

    Super withdraw from you and your brother $20,000
    Tenant Input (100/week) -$100 on repayment (Ask the tenant to put in $100 a week, everyone should share the pain.)

    No. weeks you can last 51 week.

    If you take into account the 3 month repayment freeze from the banks you will get around 60 weeks. That should be sufficient time for you and your brother to find new jobs. If you needed more buffer, you could've withdraw 40k (20k each from super to cover)

    • +1

      They could’ve gotten $40k all up. They missed the boat on the $20k before July 1.

      • Obviously not being personally involved, I am not sure about the timeline.
        But the post was made on July first, so one can assuming that the house was sold before that. Hence at that time they could've accessed their first lot on 10k super.

        Either way 20k would last them 60 weeks which is ample of time.

  • I didn't read through all the comments to see if it was brought up, but you probably made the right decision.

    Sounds like the Sunk Cost Fallacy.

    https://en.wikipedia.org/wiki/Sunk_cost#Fallacy_effect

    If you would not buy the house today, on the price and conditions that you just sold it for, than you certainly should not have held onto it, and kept throwing good money after bad.