Purchased the wrong investment property with instant regret before settlement

[enoughhomeless]

Recently won an auction for a small 30y/o+ 135m^2 unit in Boxhill, Vic and feel like it was a poor decision. Unfortunately only did more detailed calculations after the euphoria of winning the auction and realised making money through property is a lot harder than it seems.

Rental yield: 3.3%

Price: $725 000

Layout: 2bed | 1 bath | 1 carpark

Estimated annual growth: 3.5%

With my calcs, it seems like it will take 5 years to just breakeven, which is a huge opportunity cost and feels crap.

How would one reduce losses in this case?

 

[w200driver]

@enoughhomeless Buyer's regret... happens every time!

Don't worry, you're not alone. I think every person I've come across experiences the exact same thing once the euphoria wears off. A few things to remind yourself:

Property is a long term play - 5 years is a short time frame for any type of investment.

Opportunity cost - yep you're tying up a heap of capital and debt into one single asset and probably for a long time. The upside to this is that your gains are (hopefully) magnified because of the leverage over time.

How would one reduce losses in this case?

Like any investment you don't make a loss until you sell. Now you can either look at this as a bad thing or you can look at this as the first step to your wealth creation strategy (along with a combo of more property or exposure to equities). Paying down debt fast will give you equity along with increased yields, although it could also lower your NGB which depending on your tax bracket may be beneficial.

All in all my advice would be find some good tenants, treat them fairly and don't sweat it. Come back to this post in 6 months after you've paid down the loan a little bit and you'll hopefully feel better about it all!

 

[xxmnbvcxx]

@enoughhomeless IMO it doesn't sound too bad, I'd be more optimistic. Sure, you can't really predict what will happen in future or put exact number on future growth. However, as an ex-Box Hill resident, I'd say:

- Unit is far better choice and more appealing (in my opinion) than apartments, particularly in Box Hill where you have constant supply of them and more to come.

- Think about the future infrastructure development (e.g., Suburban Rail Loop) that will continue to drive growth in the area. Sure, people will have views and opinion on this but I think Box Hill will continue to grow and develop.

- With ongoing population increase (e.g., migration), I think demand for rent will continue to be strong, area like Box Hill will be more appealing due to its location and convenience.

 

[evangelicalexplosion]

@xxmnbvcxx It might be a regional thing, but aren't units and apartments the same thing?

 

[catcarp]

@evangelicalexplosion unit, apartment, flat. all the same thing.

though I, as a brisbanite, do tend to think of Apartments as the larger, more upmarket family orientated ones compared to a smaller unit or flat. (flat is 99% british but I've heard a few people over here call them that)

 

[evangelicalexplosion]

@catcarp I'm in Brisbane too, but sounds like they're different things in Vic.

 

[lejoelle]

@evangelicalexplosion Units to me are a single storey dwelling in a complex, either detached or semi-detached, townhouse is double storey and then apartments are multi level structures with dwellings and shared walls etc.

 

[evangelicalexplosion]

@lejoelle Definitely varies by region then. Units to me are just anything strata titled (so all apartments are units but not all units are apartments).

 

[lejoelle]

@evangelicalexplosion Fair enough! I'm in WA and believe this is the general terminology used over this side of the island.

 

[prodigy]

@enoughhomeless Property was the wrong vehicle if you’re looking at time frames under a decade.

 

[resjudicata]

@enoughhomeless Break even in what sense? What are your calculations?

 

[enoughhomeless]

@resjudicata Taking into account of stamp duty, interest payments, rental income, capital growth and negative gearing.

 

[resjudicata]

@enoughhomeless Depending on what figures you're using, 5 years could be a great deal.

 

[mariyahlauryn20]

@enoughhomeless it is interesting that the median 2 bed unit price for boxhill is listed at $580k and the yield is listed at 5.5% gross.

 

[tracylee]

@enoughhomeless "won" at auction tells me the seller won, not you.

 

[deltaf508]

@enoughhomeless Put in 2 sets of bunk beds that’s sleeps 8 then! $150 each = $$$$$

 

[hogynllan]

@deltaf508 https://www.domain.com.au/REAs-love-this-one-simple-trick!/

 

[lostchildinohio]

@enoughhomeless Its real estate. You have to hold for like 20 years anyway.

And learn from it to make better decisions next time. Where did you see the value in a 2-bedroom unit costing 725k yielding 3.5%? Was there any sound investing decision making here? Or was it pure emotion?

 

[amicusdei]

@lostchildinohio It depends tbh, we sold our first house after 5 years. If the conditions are right, it can come quicker than 10-15-20 years.

 

[calibri]

@amicusdei You never know mate, its all about luck…