- GrizzlyBearMember@grizzlybearJoin Date: 2001Post Count: 32
I just thought I would share a phone call I had today with a friend and fellow property investor.
He bought a unit off the plan in the Docklands (in Melbourne) about 18 months ago that was due to be completed in early 2002. His strategy was to sign up now, sit back and profit from the capital gains and then look to sell it around the time he was due to settle.
I remember speaking to him at the time and in his words “It just can’t fail, it is guaranteed to make money”.
Well, let’s fast forward to the phone call I had with him today…
Not one nibble and now he’s settled too.
Furthermore, he is in the not so envious position that he can’t afford to rent it and can’t afford not to rent it. Why? Keep reading…
Supply of rental properties in Docklands far exceeds demand and his best offer is ‘a pittance’ and hoplessly negative cashflow. If a tenant moves in then he also loses his ‘brand new’ attraction (just like a new car out of the showroom).
But if he doesn’t rent it out, he loses more than $5,000 per month.
So what is his plan now?
Well firstly, he is praying like mad that a buyer comes along.
After that, he is resigned to the fact that he will lose his home. Also, since his superannuation is not enough to fund the remainder of his life (he’s 58!), he has just realised that it’s back to the job market for now and the dubious honour of a small government pension later.
What Can We Learn From This?
Well, there are plenty of so-called ways of making a lot of money in real estate. Some work and some do not.
But of most frustration is to see normal people like my friend here follow so-called advice that can’t lose only to find that he’s in a worse position than ever before.
Investing in property requires big dollars. Even if you are using other people’s money you cannot divorce yourself from the fact that you sign the contract.
If you don’t know what you are doing in real estate, then someone who does will profit from your inexperience.
If my friend had developed a strategy and used the tactics, like those that will be discussed at the upcoming Australian Property Investing Masters seminar, then his future would be a lot brighter.
Be careful that you don’t make the same mistake! The cost of educating yourself is a drop in the ocean compared to the cost of making mistakes in property.
Hope to see you at the event,
David BradleyDavidUMember@daviduJoin Date: 2001Post Count: 101
That is such a sad story and so unnecessary really as it is relatively easy to make money in property with limited risk. It seems that this will be the one of those many heart break stories we are bound to hear about in the future. Ultimately the savvy inestors will benefit at the expense of those less experienced like your friend.
David UChrisBedfordParticipant@chrisbedfordJoin Date: 2002Post Count: 23
This, unfortunately, is an all too common story.
I think there were two factors that worked against your friend. One was getting caught on the wrong side of leverage and the second, believing he was on a “sure thing”.
From my experience with sharemarket investors, there are many who have not understood that leverage is a twin-edged sword and have decimated their savings/superannuation/home equity with astounding speed.
It is a sad fact that today, when someone approaches a broker to buy some shares, they are usually presented with an application form to open an account and given an application for a margin loan. There is a common misconception that using leverage has no downside and if you get into trouble it “must be the broker’s fault” and besides, you can always sue.
Investors and traders seem to be eternally on the search for the ‘Holy Grail’. The no-risk investment. If someone says “You can’t lose”, run the other way.
Risk and reward are inextricably linked and if we are willing to accept this and have a plan that recognises this fact, we are on the way to sustainable, profitable investing.
(Praying is not something that is recommended as part of your investing plan.)
Edited by – [email protected] on 12/07/2002 8:34:02 PM
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