Many investors are holding onto properties that are fast becoming money-pits, losing value, losing income, losing potential. How long can you allow your portfolio to bleed for?
Money that has been poorly invested in property ought not to be considered invested but merely spent, and as we know, spent money is largely irretrievable. This is an unpalatable truth that seasoned investors know but other players, particularly those who came to the pitch late in the game, find it hard to accept.
The day you buy is the day you make your money. This is a common sentiment and particularly true for property, so, what constitutes a poor investment? In the current market, equity over the shorter term cannot be taken for granted. The buyer/investor must buy equity or add it. Buying equity is done by sourcing BMV (below market value) property so that no further work is required. To add value (and correspondingly, equity), it will be necessary to buy well, in an emerging area, where demographics are stronger and where the property itself has potential for expansion or upgrading. In essence, if the figures don’t stack up on paper, you should not even view the property.
No investor can turn back time, it is important to acknowledge your current position and move forward from there. Too many investors fail to realise that they have invested in poor performing property that is unlikely to represent a good investment into the mid-term future. Instead of selling it and deploying the capital elsewhere, the temptation is to hold it in the hope that it will improves, against logic and current market trends. As a general rule, this action (or inaction) compounds the loss. There are several reasons why investors are doing this right now and exposing themselves to greater losses, and here are just a few of those reasons:
• Fear – paralysis by analysis, there are too many arm-chair experts for them all to be right. Take independent advice, make a decision, take action and be accountable for your money.
• Inexperience – lack of experience often leads to a failure to recognise the warning signs. Increase your awareness.
• Denial – loss aversion due to basic human psychology, be willing to take the loss, if necessary and admit to previous mistakes, it will make you a better investors going forward.
• Loss of objectivity – overly optimistic, your portfolio does not exist in a bubble. It is possible to be the exception rather than the rule (Buyers Broker specialises in this), however, this will not happen by accident.
If your portfolio is losing money, take steps to stem the losses promptly and turn it around (by sourcing a tenant, re-visiting lease terms etc). However, if it cannot be turned around, consider a BMV sale to save your future cashflow (not to mention your sanity!). If a loss is unavoidable then take it on the chin, move on and learn from past mistakes and work the capital released even harder to compensate. In short, you need to work it or sell it…