Four ways to profit and prosper after a difficult period

Victor Dong, a long-time real estate investor, is no stranger to mistakes.
During his journey to create wealth, he made some expensive missteps.
He tells how he broke with a market that would have enriched him by $ 800,000

"ERRORS? I do not make mistakes " is not something I've ever said. Because I did a lot!

From the moment I thought I was a stock trading genius (and that I had lost $ 40,000 – the pain still stung me) by the time I was caught by the trick of a cunning agent and that I have slowly bet against me (the sly fox $ 25,000 more on me), I made more placement mistakes than I can count.

But the biggest investment mistake of the school of hard knocks was the mistake of not acting on the one who escaped …

It was in 2009. We were looking to buy in the North Parramatta area in Sydney. After months of open inspections and phone calls to agents, we came across a four-bedroom townhouse that was being sold by the mortgagee. The auction will take place the following week. The poor owner had bought the diet three years earlier for nearly $ 600,000.

On the morning of the auction, it seemed like the sky was really open – it was windy, wet, and very cold. So when we arrived, we were greeted by the real estate agent, who looked absolutely miserable and a brave neighbor.

We were the only registered bidders. And so began the auction …

"Opening offers?", The agent said.

Silence was our answer. "The bank is offering $ 310,000; it's the reserve, "he said, looking at us directly.

At this time, a bid of only $ 1 on the reserve would have insured the property. Yet we remained silent. We just shook our heads and left.

The price of not bidding? Well, in 2017, I found that a similar townhouse in the complex had sold for $ 1.1 million. I think we'll stop there.

We have not bid for many reasons. It was on the main road, the diaper charges were high, and it was also in the depths of the GFC, where sadness reigned everywhere.

But most importantly, it was fear. Fear of the unknown, afraid of being wrong and afraid of losing money. Here is what I learned from this capital experience:

• Leave your emotions behind you
I've learned not to be affected by the negative sentiment of the market nor by the fear of the unknown. Investing in any asset class is about numbers and strategy. If you believe that prices will rise in the long run, let short-term thinking at the door.

• Counseling is Essential
Investing may seem like an individual sport, but the best investors are the team players. If you do not know something, ask. Build your team around you, which could include an accountant, a mortgage broker, a property manager, a real estate agent, a depreciation expert – the list is still long.

• Forgive You
Recognize that mistakes and failures will eventually happen to you; that's what makes us human. Do not dwell on what went wrong. Instead, forgive yourself and learn from mistakes to make sure the first time is the last time.

• Continue like this
The most rewarding things in life are the most difficult. Do not sit to complain. Keep on going! Investment success is really just a numbers game. If you keep more winners than losers, you're ahead. Take it to me, I used these lessons to buy the next property, the next one and the next one!

They say the best time to plant a tree was 20 years ago and the second best time is now. If you want to bounce back and have a financial impact in your life, take this first step. Get an investment book, attend a seminar (but keep your wallet at home!) Or build this team around you – in 20 years, you'll thank yourself.

How to avoid a dishonest investment in the first place
Real estate investments are risky, but investors can do a lot to minimize their exposure to missed investments. It is largely a question of choosing solid assets and affordable properties

For all investors, be it novice in real estate or investing actively for many years, your very first consideration should be the budget when buying a rental property.

"You want to make sure you do not over-commit financially; it's an important first step in building a real estate portfolio, "says Melinda Jennison of Streamline Property.

"You also want to ensure that you have a financial reserve in the form of cash available through a clearing account, for example, in the event of a problem."

In addition, it is essential not to sacrifice quality for the purchase of a "bargain" property within the limits of your budget: "Ideally, investors should buy a property in an area where tenants can to pay the rent. Socio-demographic data from one region can affect rental yields and property damage, which is why it's important to understand the region when buying to mitigate this type of risk, "says Jennison.

It is also essential to ensure that you have adequate insurance.

"There are many types of insurance to consider, the obvious one being homeowners' insurance, but you also have to consider activities such as income protection and life insurance. to minimize all potential risks, "she adds.

"Finally, it is essential to choose a good property manager who oversees the day-to-day management of your property. Property managers are responsible for assisting with the process of selecting quality tenants, ensuring tenants are taking care of your investment property, and keeping tenant rent payments up-to-date. "

Property Problem No. 2:
TRANSFER OF PROPERTIES

We have almost all experienced a "sunk cost" bias: it is this attachment, logical or otherwise, to a purchase in which we have invested and which we can not support. The problem with sunk costs is that it can keep you tied to an asset that hurts your financial future. Here Ben Kingsley The founding director of Empower Wealth and Chairman of the Board of Investors Council on Nonprofit Property of Australia [PICA] tells us about a cost bias …

Despite all our genius, humans are the only animals to suffer from a sunk cost bias. That's true. Even laboratory rats know that their chances of survival increase when they turn to future rewards rather than backwards, compared to their previous decisions!

Almost all of us have experienced sunk costs at some point in our lives.

For example, have you ever bought a garment and even if you have never worn it, you can not get rid of it because you could wear it some day?

Or maybe you know someone who has stayed in a relationship for too long, even though he knows his relationship has run its course. And who can blame them – it's really hard to say goodbye to someone in whom you have invested so much time, effort, and emotion, is not it? do not you?

Or maybe we made a financial investment that, despite our best intentions, simply did not take off. Although this is really bad, instead of trying to reverse the situation, we sink our heads in the sand, choosing instead to rely on hope – hope that our financial investment " could be profitable. "

Does this sound familiar to you? If so, you'll learn more about the sunk cost bias than you think!

Why pay attention to sunk costs?
Sunk costs are expenses (in the form of money, time, effort and / or energy) that you have already invested in a given decision. These costs can not be recovered, they are therefore "irretrievable".

The sunk cost bias arises when you focus on these past costs instead of focusing on potential future earnings, and on the positive results, financial returns, and overall benefits that a change might bring .

As you can imagine, a sunk cost bias can pave the way for a Pandora's box. You can end up torturing yourself with "if only" thoughts until you are seriously mentally exhausted!

And the most devastating thing? We spend our precious time convincing ourselves that it is better to live with a bad decision than to find a solution that could actually lead us to solve our problem.

Of course, I understand. None of us likes the idea of ​​loss. It does not matter whether it is a real loss or a perceived loss. We will make foolish efforts to lose nothing. We are emotionally attached to the results, and when we have to face the fact that a very big decision we have made has not been canceled – well, it can be a hard pill to swallow.

But you may not know that you are the one who stands in your way. You may be dealing with concepts such as …

– Fear of immediate regret
What happens if I make a change and the recovery does not happen quickly? It is easier not to change than to initiate change and hope for the best.

– Fear of Waste
This is where we try to justify that it was not a bad decision at the start

– Theory of Engagement
We remain stuck in a belief and choose not to change, even if the evidence we should change is overwhelming.

– Cognitive Dissonance
We exaggerate the benefits to make sense or justify the cost or "loss" that we have already suffered.

– Theory of Perspective and Loss Structures
We tell ourselves that change is synonymous with loss, more than gain.

Here is the point on which I really want to touch you. All of the above can come into play, but the truth is: smart people can and must make bad decisions. It's a reality of life. Nobody is perfect all the time.

The solution is not to give you a hard time. Instead, find it by clearly describing why you made the decision. To do this you need to ask yourself high quality questions so that you can see things clearly. Questions like …

Did I logically or emotionally think when I made my first decision?
Have I done enough research before acting?
Given what I know now, would I make the same purchase?
In my current situation, am I sacrificing other opportunities because of my unrecoverable cost bias?
Are these missed opportunities detrimental to the overall result I am trying to achieve?
Would I ask my relatives to make the same decision as me?
In ten years time, will I be satisfied with the choice I make today?

In the end, we all made decisions that were unsuccessful. It's life. But that should not be the end of the story. Far from there. The trick is to bring you information – facts and facts dummy and cold – to help you make an informed decision.

Our brains are wired mainly for survival. So now that you know the sunk cost bias, there's no excuse for not doing what you need to do. You understand the concept now, and you can drown it with tangible logic and evidence-based research to make this milestone the next step.

Which means you'll know when it's time to quit and you can act with confidence. After all, knowledge gives power, but only when you act accordingly.

CASE STUDY : Nick and Alana Hayes
NRAS subsidized unit with one bedroom, Fortitude Valley, Brisbane

Nick and Alana's investment real estate has never been designed to be an emotional chain around the neck. But over time, they had the impression that their real estate in the Brisbane suburb of Fortitude Valley was doing more harm than good.

On the death of her father, Alana, in 2012, she was offered $ 120,000, which she invested in a NRAS subsidized one-bedroom apartment in Fortitude Valley. But what should have been a silver lining has since dropped about $ 50,000 from the original purchase price of $ 400,000, leaving the Queensland couple exhausted and wanting to avoid making any decision. did.

"We have certainly been duped in this respect by the good selling point. After that, I guess we just started working and having children, and we found ourselves in the sand. "

Reduce Numbers Nick and Alana bought the off-plan apartment with a 100% loan-to-value ratio, using the equity of another investment property and leaving the father's gift of Alana late in a clearing account to offset the loan. . This, added to the drop in value, means that the property is now in a negative equity position.

The good news is that they have injected $ 284,000 into the bidding account in six years. Thus, even with capital losses, the property has a positive cash flow of about $ 5,000 a year. It turns out that it will be grace that will save their situation. See the following scenarios.

SCENARIO 1 – SELL AND PURCHASE ELSEWHERE BY RESERVING $ 100K
Using Empower Wealth's sales or holding calculations, it is clear that it will cost them $ 13,500 in agent commissions and legal fees. No growth means no capital gains tax; if they keep $ 100,000 in reserve, they have more than $ 100,000 left to go shopping:

Scenario 2 – Doing No More
If Nick and Alana do nothing:

Their net position is expected to improve by approximately $ 60,000 in three years as a result of the combination of single-digit capital growth and positive cash flow.
However, the opportunity cost for the main alternative markets suggested exceeds $ 100,000!
The opportunity cost will far exceed the cost of entry and return to the market.

For example, if they reinvested their funds in the suburbs of Old Beach, Tasmania, here is what the investment schedule might look like in relation to their present property:

Wondering if you should sell or keep your investment property?
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Property Problem No. 3:
FINANCE

Whether you find yourself in a difficult situation because of bad decisions, poor financial management, or a declining real estate portfolio, there are solutions to help you get back to the fore

Loan requirements have changed significantly in recent years. For investors, this means that you can no longer assume that you are able to do what you did the last time you applied for funding and that you expect approval.

Graeme Salt, mortgage consultant, managing partner at Chan & Naylor Finance, said that a tightening of services remains a problem for many who are looking to buy a property or to refinance, adding that it's not a problem. There are now "thousands of borrowers with loans that would not be approved today, given the way lenders put pressure on credit."

"Nowadays, a financial application still has a lot to do," explains Salt.

"Detailed credit reports mean that, well before applying for financing, borrowers must be sure that they have a good credit history, such as credit cards and service bills. public. In addition, when banks evaluate loan applications, they want to see transaction records for up to three months. In other words, if your account statements show numerous references to Afterpay or Deliveroo, they may call into question your commitment to repay a loan. "

It is essential to do your best on this fragmented financial market. But what strategies can you use if you are in trouble and do not know how to move on?

Negative Equity Management
Negative equity is what happens when the loan you have on a property is worth more than the value of the property itself. For example, you could have a $ 600,000 loan secured by a $ 530,000 property.

This is obviously a painful situation; no one likes the idea of ​​holding excessive debt against an asset supposed to constitute their wealth, not strip it.

"We are seeing a number of assessments right now. Cela a un impact significatif sur les ratios de valeur localisée, qui constituent un critère important pour les prêteurs dans l'évaluation d'un prêt », a déclaré Salt.

"Heureusement, les prix n'ont pas tellement baissé que nous voyons de nombreux exemples de capitaux propres négatifs dans lesquels une maison vaut maintenant moins que l'hypothèque."

Mais gardez bien à l’esprit si vous vous retrouvez dans une situation d’équité négative: à moins que vous ne soyez obligé de vendre le bien, il ne s’agit que d’une équité négative sur papier et vous pouvez peut-être rebond.

La première étape consiste à déterminer exactement le montant que vous devez sur cet actif, semaine après semaine, afin de vous assurer qu’il est abordable. Si vous trouvez que l'écart est trop grand entre le revenu généré par la propriété et les dépenses que vous devez payer pour son entretien, alors il pourrait être une bonne option de refinancement.

«À mesure que les restrictions portant uniquement sur les intérêts se lèvent, il existe d’excellentes possibilités de tarification à explorer. Au cours des 12 à 24 derniers mois, tous les prêteurs ont augmenté leurs taux d’intérêt, mais ils les révisent à présent. Les emprunteurs qui satisfont à leurs critères peuvent bénéficier d’une économie allant jusqu’à 1%, voire même au-delà », explique le courtier hypothécaire Andrew Mirams Intuitive Finance.

Une économie d'intérêt de 1% sur un prêt hypothécaire de 500 000 dollars équivaut à 5 000 dollars par an, soit près de 100 dollars par semaine, ce qui pourrait faire une énorme différence pour votre trésorerie globale.

La clé ici, bien sûr, est la valorisation officielle de la propriété. S'il est prouvé que les valeurs foncières locales dans la région ont reculé et que vous ne disposez pas de suffisamment de capitaux propres dans la propriété, le refinancement peut s'avérer difficile – ou extrêmement coûteux.

Un courtier en finance expérimenté peut être votre meilleur allié, car il peut vous aider à naviguer de la manière la plus productive possible. Tenant compte non seulement de cette propriété, mais également de toutes les propriétés de votre portefeuille, ainsi que de votre style de vie, de votre revenu et d'autres dépenses, un bon courtier peut vous aider à élaborer un plan vous permettant de faire face à court terme à votre situation de fonds propres négatifs.

«Cela peut être difficile [to refi nance]mais il est primordial de le faire avec les bonnes recherches, les conseils et connaître le résultat souhaité. Les prêteurs sont encore ouverts aux affaires! », Déclare Mirams.

«Je crois que de plus en plus d'investisseurs continueront à rechercher des courtiers hypothécaires professionnels pour les aider à faire face aux complexités des forces du marché actuelles et à obtenir les bons résultats. Je ne dis pas que les gens ne peuvent pas le faire eux-mêmes, mais il est presque impossible pour les gens de connaître les meilleurs tarifs en même temps que les meilleures politiques pour obtenir le résultat souhaité. "

Problème de propriété n ° 4:
RUPTURES DE RELATION

Le divorce est l'une des principales raisons pour lesquelles les propriétaires sont obligés de vendre, et les conséquences peuvent être coûteuses. Comment pouvez-vous naviguer dans ce temps émotionnel sans vous effondrer – mentalement ou financièrement?

Fiona Fisherwood est l’agent acheteur principal de l’immeuble et elle rencontre un grand nombre de personnes qui cherchent un nouveau logement dans le but de se séparer ou de divorcer.

Malheureusement, elle comprend la souffrance et le bouleversement provoqués par la rupture de la relation au niveau personnel, après s'être séparés de son mari il y a quelques années.

«Lorsque vous êtes au cœur de l’action, vous n'êtes pas nécessairement en position de prendre ces grandes décisions financières concernant la vente de la maison familiale ou l’achat d’une nouvelle maison. Mais ces décisions doivent encore être prises », dit Isherwood.

«La séparation des propriétés est une entreprise de grande envergure. Il peut être très utile de disposer d'un conseiller impartial pour vous aider dans ce processus."

C'est pourquoi Isherwood a commencé à se spécialiser dans le travail avec les couples récemment séparés.

«Dans ma situation, j’ai eu beaucoup de chance, car un ami m’a référé à un stratège en séparation, et j’ai depuis appris aussi sur les coachs en divorce. Si vous êtes à cet endroit après votre séparation, je vous recommande vivement de faire appel à l’une de ces personnes. Vous pouvez aussi voir un thérapeute ou un conseiller, mais une personne spécialisée dans la séparation peut être vraiment utile », dit-elle.

"C’est affreux de voir des gens passer par ces terribles échecs, où ils traînent en traînant et qui rapportent 500 000 dollars en frais juridiques – ce qui est en fait arrivé à un de mes amis."

L’aide juridique peut être coûteuse, mais il est essentiel de faire appel à un avocat, ajoute Isherwood.

«Chaque personne à laquelle je parle est en train de le traverser, ou le connaît, ou connaît un proche qui l’a traversé. It’s not always amicable, so it’s important to have people on your side to guide you through,” she says.

“Working with a good mortgage broker, an accountant, a fi nancial planner and a buyer’s agent is going to help you build yourself back up again. There are so many steps and so many people involved – and it’s really reassuring to know you’ve got the right advisor with you at each step of the process.”

You’ve separated: what next?
First things first: you need to do an overview, and pronto.

“Who took care of the money? Who was responsible for fi nances and paying the bills – you, or your spouse? If it’s a discussion you can amicably have, then it would be wise to sit down and work out who was responsible for money and what the action plan is from here,” advises mortgage broker Nancy Youssef, founder of Classic Finance.

“If it’s nasty and this isn’t possible, and you have joint accounts, then you might want to close them and seek legal advice immediately.”

Next, it’s time to do a full fi nancial stocktake of what your assets, debts and liabilities are, and to ensure that any money you owe together or individually is accounted for.

“Does the ledger balance? Has there been any spending that shouldn’t have taken place? A lot of break-ups happen due to money issues, so this can be quite contentious,” Youssef says.

“If you have rental properties, this would be a good time to talk to the managing agents to let them know of the split, so they know what’s going on and are aware you both need to be across decisions.”

It’s also a good idea to keep the bank abreast of the situation if you have a mortgage, she says. This may seem like a difficult conversation to have, but Youssef says it’s crucial that you have the discussion before your fi nance situation potentially worsens.

“It’s better to keep the bank in the loop, rather than to hide it, because once you fall behind in your repayments, recovery action will start taking place – and that’s the last thing you need. It just adds to the stress,” she says.

“Instead, call the bank. Explain what is going on. They get these phone calls every day, and they can be very understanding, as unfortunately divorce happens all the time.”

The lender may even be able to offer you a repayment holiday while you’re getting back on your feet.

Separating and selling
Accredited property investment advisor Miriam Sandkuhler, CEO of Property Mavens, agrees that turning to professionals for help is essential at this very difficult time.

“When dealing with property during a separation or divorce, couples face many challenges while journeying from selling the family home and/or investment properties to buying into the market again and creating future financial security,” Sandkuhler says.

“Couples must be wary of advice from well-intended family and friends, and seek expert and professional guidance to minimise mistakes instead.”

The actual process of physically separating your living arrangements and selling the family home is understandably “a highly emotional time”, Sandkuhler says, which is why it’s important that any decisions made during this time are as unemotional as possible.

According to Sandkuhler, the challenges that couples face include (but are not limited to): 

divesting of property, which can be very complex
arguments, rash decisions being made, or inertia setting in
making emotional decisions/mistakes
mistrust in relationships, which can stop people from moving on with their lives

“This is where an independent vendor’s advocate can help. They can help you to determine the best sale method, when to sell in terms of market timing, and the property’s appraised value,” she says.

“Once the property has sold and your budget is known, you need to assess your next steps.”

Buying for the next stage of life
Just as important as moving on from your previous home is considering your needs and next steps. Careful planning must be undertaken before you rush out and buy another property.

“This is where I have seen clients make mistakes and buy the wrong property type in the wrong location, because of short-term thinking and not enough long-term planning,” Sandkuhler says.

“It’s OK to rent for 12 months to let the dust settle if you don’t feel ready to buy straight away.”

The caveat to this is that if you are in a rising market it is important to get back into the property market as soon as practical, which is why expert advice is paramount.

“This is often where I see women freeze, as they lack confidence and knowledge and don’t know where to start or who to trust – but leaving money sitting in the bank doing nothing can be a fatal error. Hoping for Mr Right to come along so you can buy again with someone else may also be detrimental to creating financial security for yourself,” she adds.

“Men on the other hand often race out and buy again, but it may not be a well-considered purchase. They might buy a low-maintenance apartment or villa, but if there are only two bedrooms, what happens when the children are older and don’t want to share a room?”

Sandkuhler urges those who have newly separated to consider the following before they buy:

Do you need to factor in kids living with you, and for how many years?
Can you buy in the area where you are currently living or where they go to school?
Do you have enough money to buy where you want to live, or are you better off rentvesting?
What do you need in terms of lifestyle and amenities (after the kids leave home)?

“This is where an independent, licensed buyer’s agent can help. They can help you to determine a buying strategy and research, source, assess and negotiate on your behalf to make sure you buy well, make good decisions, minimise risk and don’t overpay.”