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Damned houses EXIST !!

Discussion in 'Real Estate' started by Tropo, 24th Jan, 2006.

  1. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    To buy first IP or …. not to buy!!!!?

    The decision to buy was not that difficult. After reading few books, attending few seminars and having done the financial plan we decided to buy IP as we thought there is more for then against having the IP.
    Surprise, surprise! reading and doing is a different matter.
    When you read stories everything is so easy:
    Find property, go to the bank and borrow money, find the tenant and voila you are a property investor!!!!
    You think it is easy. You are wrong. It is not that easy.

    1.Finding the good quality property
    That was easy. Plenty around to choose from. We decided on sunny Brisbane. Not much to say here. Selected the property and signed the contract. That’s it.

    2.Going to the bank and borrowing money
    It took us 4 months to refinance and restructure current home loan. At the end we had 2 LOCs. One for a PPOR and second for IP and other investments. At the same time applied for an investment house loan and approved. Great!!
    After selecting IP we go to the bank again (I am using the mortgage broker) to get the previously approved investment home loan and then it started!!!! Missing applications, not enough information, each week another problem. Second application missing, our investment house contract was never received by the bank. We heard many different excuses through our mortgage broker. For few weeks we were going back a forward with the same issues. Finally on the last day as per IP contract, some success (bank manager came back from holiday I guess!) after faxing the same paperwork to the bank again, to our surprise loan was approved (this process took another 2 months) but LOC for IP was reduced by 30K. Why? We had no time to ask!!! (in the meantime my wife changed a job and got higher income).
    Now the question is where to find 30K??? but this is not bank’s problem.
    My problem is that I am stretched to the limit and have no buffer at all.

    3.Finding the tenant
    Settlement of our IP took place on 05.12.2005 (brand new house in sunny Brisbane). I knew that it was not going to be easy to find tenant before Christmas. But my PM managed to collect four applications. Great job.
    Selected one (they had a dog, but what a hack… agreed). Tenants moving in just after New Year. Hurray!!!
    The day after New Year …. Guess what happened..!!!
    Tenant suddenly pulled out of the deal. Another one paid a deposit and pulled out of the deal few days later, and the other 2 disappeared!!
    Well, back to the drawing board. PM looking for another tenant.
    We start thinking that somebody put spell on us or our IP?
    PM was probably more shocked than us, what a damned house!!!
    Around one week later PM found another tenant but …. Guess what ?? …
    This couple has only 6 children but no dogs and no pink elephants either (what a pity = I like pink elephants).
    Cutting long story short… BIG Family moved in last Friday…signing contract for 12 months.
    So far so good I said to may wife…We are back in business….Are we ???.
    Guess what happened next…?
    Today PM called us that the tenant is complaining as there is no hot water in the house for the last 4 days (since they moved in). Remember this is a brand new house never lived in and inspected by builder, us and building inspector!! Nobody had a shower before so we did not know that there is no hot water. We all expected the hot water to be there.
    What next? We do not know. :confused:

    Could the more experienced property owners tell us if this is it, or it will go like this forever or can be worse????
    If so, who wants to guess whether we buy the next IP or not? If you guess correctly I will tell you which bank was stuffing me around!!!!! But you may already know.
    Builder promised to send somebody tomorrow to check what might be wrong with the brand new hot water system. I would be not surprised if the water system is stuffed, or somebody has stolen it or cold water is connected to the hot water, so the whole house may require new plumbing.
    On the other hand, I do not know what to think about those tenants, because being in their shoes (without hot water) I would get mad and burn down the whole house.
    I would like to know what is wrong with this house or what kind of surprises are waiting for us around the corner.

    4.Being a property investor
    It is not fun so far because I still have to pay an interest on loans, I have no income from rent, and I have to pay council and insurance no matter what.
    Next time I will think few times before I acquire next IP.

    I wish all the best to all of you brave people willing to buy new houses, old houses or trying to renovate run down houses. My case may not be common one, but it is proving to me, that trading is 100% less stressful than investing in IP.

    But wait… I hear you are saying Leverage…….
    My question is:
    How long and to which extent can you ignore inconvenience and problems to make leverage worthwhile??
  2. Nigel Ward

    Nigel Ward Team InvestEd

    10th Jun, 2005
    This too will pass.

    Maybe you should think about changing PMs once the current one's appointment expires?

    Have you factored in:

    1) unforseen repairs
    2) general maintenace
    3) extended vacancy
    4) interest rate rises

    into your calculations. Can you handle all of those things (remembering bad things seem to happen in threes!) (Altho you've had more than your fair share by now!)

    Hang in there Tropo. In ? years' time when the house price has doubled, and it's one of many in your portfolio, you'll be laughing thinking - gee that early stretch of bad luck we had on that first house was weird!

    Just make sure to manage your cashflow and provision for the downside and you'll be fine!

  3. Glebe

    Glebe Well-Known Member

    15th Aug, 2005
    Sydney, NSW
    Thanks Tropo for that, it paints a picture that isn't often painted by investors. However we rent, and for the last 12 months we've been the perfect tenants so you'll have your good and your bad times.

    But if banks lent 90% to shares I'd never bother with property this lifetime...
  4. jscott

    jscott Well-Known Member

    10th Jan, 2006
    My advice would be keep persisting it couldn't really get worse (could it). I must say the banks are absolutely useless. From my experience they are late everytime - no matter how much time you give them they leave everything to the day before. I have had banks give mortgage documents to the wrong people and all sorts of things. To me they are the biggest pain in investing in property.
    I think the banks give all this work to the kids straight out of high schools that spend all day thinking about going out and forget about work - they all look 16 if you turn up to a settlement.
    As for renting a house out. The only real problem I've had was on the first home inspection with a group of potential tenants... I turned up to the house (was doing it on my own without a PM) 5 minutes beforehand and hear this dripping sound upstairs... what the? Had someone left a tap on a bit? So I go upstairs and find all this crap all over the floor and its all wet, then I noticed the ceiling had collapsed in one bedroom and all the way down the hall. The water had soaked all the way up the walls as well. First thing I thought for some reason was that someone broke into the house from the roof.
    Turned out it was a leaking aircon pipe and the water had built up over time till it all gave way...
    Anyway.... just as I noticed all this, the doorbell rings with the first couple of potential tenants.

    On the bright side even though the place was in such a mess and I was rather red-faced explaining the situation, a couple loved it and agreed to move in paying top dollar and they wanted it for 5yrs (yearly leases). Obviously after the mess was fixed up.
    Never had a tenant problem since...
  5. Jacque

    Jacque Team InvestEd

    16th Jun, 2005
    I feel your frustrations, Tropo, as I've been there (many times) before!
    You have my empathy :)
    My finance nightmare story is a settlement that fell over some 7 or 8 times but we won't go there today........
    However, take heart. Investing in property isn't always a smooth exercise. But it isn't always rough either! There is work to be done, research to be carried out, stressful situations to endure. It can be a real rollercoaster at times, that's for sure :)
    Then there can be literally months of boredom, as you don't hear anything negative from your PM, maintenance issues are non-existent, tenants are quietly paying, values aren't moving. You almost feel itchy with anticipation in wanting to DO something- perhaps renovate? Inspect when there's no need?

    You also need to stay focused here and remember the bigger picture.
    Why are you investing in this property?
    What are the benefits long term to you?

    Though we all have different stress "triggers", property investing can, at times, become overwhelming and seem like so much work and worry that it's easy enough to want to throw in the towel and vow never to do it again.
    But, let's look at your situation (based on what you've shared in this post) and break it down into workable problems:
    Please note that this is only my opinion :) and I apologise if this seems to be somewhat simplifying or trivialising your situation. That is NOT my intent!

    1. Finance: this can often be the most stressful part of the entire exercise when purchasing property. Believe me, you are far from alone in experiencing high levels of frustration with lenders! If it were dead easy, more people would be borrowing for property every day :)
    Write out a list of questions for your broker and get them to follow up for you. The main questions would have to be:
    Why was the LOC reduced to $30K less?
    If this is affecting your ability to service this loan so much, then what measures can be taken to reduce the burden?
    Perhaps the terms of the loan can be altered in your favour?
    I'm sure a solution can be found to make the loss of this buffer less painful for you. Ask the brokers on this site and you might just get some answers.
    Perhaps from now on, it might be more beneficial to confirm all approvals before you go shopping for IP's, even if it's only an email confirmation from the lender or broker, such as a pre-approval. Getting loans often takes longer than what you plan for, and it's also a good idea to be in regular contact (read: regular pain checking the situation every couple of days!) with your broker/lender to manage the process.

    2. Tenants: The two main issues here appear to be your vacancy period being somewhat longer than you anticipated, and your recent hot water system malfunction.
    As far as vacancy goes, this is something that one should always factor into your costs beforehand. I'm sure you have done this already, but, in your situation, I can understand why you're understandably anxious to secure a paying tenant sooner rather than later.
    I allow for 6 wks vacancy per yr when I'm considering purchasing an IP, to ensure I can still afford to keep paying for the property should this situation arise. 6 weeks is a fairly lengthy period to be paying the bank when you have no rental income coming in, so you'd better be prepared with a safety net account.
    Some investors ignore this vacancy factor, and consider that their property will be different. There will always be tenants in it! An optimistic view but not true in reality. The longest vacancy period I've had on any of my properties was just under 7 weeks for one year. Others, however, haven't had a day's vacancy. It's a bit of a lottery, but, as an investor, it's a real cost that you must factor in at the beginning of your search. Same goes for maintenance costs, rates, strata fees, water, other levies etc
    The time of year that you've attempted to rent out your place was also against you, so don't be too hard on yourself. Ensure that your leases finish in either mid Jan-mid Feb or June-July to maximise demand. I've learnt this from experience myself and have consequently altered most of my lease periods to suit these times of the year.

    The hot water system, unfortunately, is one of those maintenance issues that you can do little about except get it fixed. In your case, it sounds like it's going to be covered under the new builders warranty so I wouldn't waste time dwelling on it. Let the PM arrange it all- that's their job now :)
    Try not to worry about the things that haven't yet happened, or might occur, with this property. As humans, we have a terrible natural tendency to do this. So many of our problems and much of our stress is caused by the result of an overactive imagination :)
    I'm sure your new tenants won't burn down your house :eek:
    What's the very worst that can happen with no hot water in the middle of a Brisbane sweaty summer? They take cold showers :cool:

    3. Stress: We all react differently to specific situations and events in our lives. That's human nature. But I find that talking it out with family/friends/colleagues really really helps. Mind you, this could have something to do with being female. The whole MARS AND VENUS stuff. Who knows?!!
    It's also really useful to find out, with investing, that others have faced similar challenges. You are not alone, Tropo :)
    I know that may provide little comfort to your current situation right now, but there's plenty of willing listeners in your investment community who will be able to not only offer empathy and similar stories, but real solutions to your problems.
    Hoping that you've done some meditation (I find Tim Tams helpful too!) and some answers are coming to you even as you read this.
  6. gekko_99

    gekko_99 Member

    31st Dec, 2005
    Not sure if someone mentioned it above but the hot water system may not be able to cope with 2 parents and 6 kids, depends on what the house is built for.

    Apart from that property is crap for cash flow unless you want to go bush, then it might be ok but then there's other risks. Mind rents rise and with the debt locked in it can all be good over time. It can be good for capital growth though and I saw that with my parents house when they sold.

    Shares and funds can have massive growth but less leverage which I guess means they can cancel each other out and make shares/funds just as good (RE: CFS Global Resources Fund has been a stunner over the last year). But there also seems to be a heap of shares/funds that have gone south as well. With my exposure mostly to property I prefer it for cap growth and the standard message on this forum am trying to get cashflow out of a fund.
  7. eddievanhalen

    eddievanhalen Active Member

    31st Aug, 2005
    Sounds like my one and only IP Tropo - I think we're both a bit more focussed on shares and happy to be :D

    I've shared many of your experiences on that property more or less.........

    -persistent problems with leaking water behind walls and related maintainence issues

    -copped a %#$^&% of a bank valuer who came in under purchase price meaning I needed to find another 15k at short notice. This was at a time when I had put everything into the deposit.

    - I've had major renovations done on my property by tenants without my permission ( a wall air con unit put in - when they left they had the cheek to offer it to me for $1500. I told them to shove it and made them pay to restore the wall to its original condition. I wasn't in a position to afford the $1500 anyway)

    - had my last tenant leave a pile of bricks under where the remote garage door comes down and then shut the door , damaging the bottom of the door. I had to pay for the repairs as they claimed it was my fault as the safety feature on the door (it should have bounced off when it detected the bricks) didn't kick in - the PM agreed with them. At the least I thought some shared blame there.

    -I've had massive hooks put in walls , stupid looking hook locks on doors and it's always "It must've been the last tenant - it was there when we moved in". TAKE PHOTOS of every wall in the house in between tenants !!!!!

    - In my experience landlords cop the bad end of any argument more often than not simply because it ain't worth your while taking it to a tribunal - and they tend to be very tenant friendly too.

    In conclusion ..............yes , my property takes up more of my time than it's worth now (given my sharemarket returns). However my original share trading capital came from drawing equity on that property :rolleyes:

    I've decided to start buying property again in a couple of years BUT if I have say 1.5m to spend (or 300k in deposit) I'd be focussing on more expensive property. The sums may not work out as well , esp with cashflow, but after my experience I want to keep property numbers as small as possible. Two well researched 750k homes..........median or just above median in a nice area ..........sounds far better to me than five 300k homes.


  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    In my experience, most of the problems people have with investment properties revolves around bad property management. Get a good property manager and most of the problems either go away, or get managed effectively.

    Unfortauntely, good property managers are almost impossible to find, and even more difficult to keep.
  9. Tropo

    Tropo Well-Known Member

    17th Aug, 2005

    Yes, I factored for all your 4 points.
    Unfortunately 30K short stuffed me up.
    But If I am in big trouble I think I can find somewhere few thousands…

    My plan is set in the way that I can survive if interest jumps to 9% also I may survive if I get vacancy rate around 5 months. But all of this will dramatically decrease my lifestyle and I want avoid this. To me any kind of investment should NOT have negative impact on my everyday living.

    Also – I am not sure at this stage, if I can/should blame my PM for all this problems. She asked this people why they did not call her immediately when they discovered that there is a problem with a hot water. And their answer was ….. “ we did not want to disturb you during the weekend”.
    If this is true … I think I got very 'weird' or polite tenants.
    Yep… cashflow is the matter of be or not to be…I know that.
    Oh well…let’s see what happens.

    I agree with you.
    Give me 90% to shares as well and property is the past for me!!

    On the other hand I would like to hear more BAD experiences from IP investors, because investing in real estate is more bumpy then some people think.

    I agree with you. Banks are the biggest pain in the butt.
    Your experience with leaking air con. pipe is very scary !!.
    I do not know what I could do in situation like this …. And I do not want to know.


    Thanks for your advise !!. Very much appreciated. It made me feel better.

    As you said, cold shower in the middle of a Brisbane summer may not be that bad. On the other hand this whole story is a frustrating experience, and reminds me of my first trade I took long time ago.

    Well, I guess this is my first lesson, and I hope the last one... or I may learn to be more patient!!!
  10. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    gekko 99
    Water system in this house is big enough for an average size family. In this case the family is not an average size – but the problem is that the system does not deliver even one drop of hot water at the moment. It is in the process to be fixed.
    Yep, some funds are doing better than others. Private traders also…The trick is to find the right fund at the right time. :)

    Trading is more appealing to me than investing in IP, but unfortunately property provides some kind of balance. We do not have many options.

    After reading your problems from hell, my current one sounds like a joke !!!!! Thanks for your story.
    I have got a lot of photos on my own and PM made quite few as well. So all together I have got a nice collection!.

    Your idea of keeping number of properties as small as possible is quite unusual, but frankly speaking I can not imagine (right now) myself managing/owning let's say 5 or more properties at the same time. :eek:

    You hit the nail on the head.
    Only time will tell how good my PM is. ;)
  11. Tropo

    Tropo Well-Known Member

    17th Aug, 2005

    O.K......Problem is fixed !!.
    The SWITCH was off in the electric box (outside) .

    But new problem is born. :eek:
    They can not open/shut garage door using remote control...hahahaaaa...
    I think that batteries are flat OR there is no batteries in the remote control...
    Looks like another Muppet Show.... :D :D

    Who knows....I may consider buying another property sooner than later ... after all!!! :p
    PM will look after those problems from now on.
    I do not want to know about it!!!

  12. D&K

    D&K Well-Known Member

    14th Nov, 2005
    Hi Troppo,

    Pity I didn't see this yesterday as I've had this one before - first port of call is usually the power/fuse box. As for the remote doors, check batteries and the switch to the electric motor on the door itself - if that doesn't work check that the doors are actually engaged (there's usually a lever or cord that engages and disengages it) and if all that fails check the combination for the remote and the door have been set the same (a series of little switches). When the gas heater or cooktop doesn't turn for the first time, make sure the shut off valves are open, etc.

    Another good one to look out for is the switch for the oven - some builders like to put these out of the way (hidden) and switches for gas stoves tops with mains power igniters or not fitting the batteries on the others.

    Most of these things may only get done once in a house's life, that's why we forget.

    We had a new tennant move into a property over a year after the first one moved in. They used the diswasher and flooded the lower floor (they went upstairs to unpack) costing a few thousand in floating wooden floor and carpet. The first tenant was a young doctor who just moved out of home - lots of take-out pizza we guess - and he had never used the dishwasher. The fault (drain blockage that then overflowed and flooded) had never been detected since the house was new.

    You have to be ready for these little issues to occur, just keep laughing not crying. Keep calm and think each problem through. It is a pity that this happened on your first IP but when the next boom hits and $100k equity appears in under two years, on money that was mostly borrowed, you will know it was worth it.

    Welcome to property investment :D

  13. Jen

    Jen Member

    21st Oct, 2005
    Hi tropo,
    It sounds like you had a baptism of fire. Maybe its good to get it over with now and the next purchase could seem like a piece of cake (although banks are always hard)

    I used to sweat about every little thing and I think it's just part of the process. Jacques comments strike a chord with me and D&K is right about the equity building up -it's very nice.
    Over time, I have come to take a lot of the day to day issues in my stride. It's the big picture which is so good and which you should focus on. Don't give up because of this one place.

    The equity in my properties have allowed me to leverage into further investments too.

    Hopefully this property will settle down and after you see how it goes for a the year you may get a better feel for whether this type of investment is one you can deal with,
  14. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    Thanks for your input. Very interesting.
    My PM checked remote control before tenants moved in. At that time was no problem. From now on it's a PM's problem.

    Hahhahaaa.You are right. It sounds like a baptism of fire to me !!!.
    I think that I just need to get used to this kind of problems.
    PM will inform us only of any serious issues.

  15. Jacque

    Jacque Team InvestEd

    16th Jun, 2005
    So now that another month has passed, Tropo, how is this all going?
    Hopefully things have settled down and you haven't heard any more from the tenants or had any mini-disasters?
  16. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    Hello Gorgeous...

    Yes.... I think that things have settle down. I hope that a house is still in the same place and the BIG family must be happy because as I have not heard anything from my good looking PM.
    So far =
    No earthquake
    no volcano eruption
    no flood
    no fire
    no roof collapsed
    As you see - no problemo so far...And I would like to keep it this way.
    I have got 5 weeks to my long holiday and I do NOT need any "surprises" with my IP.
    Wish me luck (if such thing exists)- please !!!.
    Ciao... :)
  17. Tzaki

    Tzaki Well-Known Member

    20th Sep, 2005
    Don't let it send you Troppo mate!

    Property is a good, long term vehicle and has formed the basis of our other investing into shares etc.

    Each property is different, back in '00 we bouhgt 2 3br townhouses in managed complexes, one was tenanted 2 weeks before settlement and they stayed for nearly 5 years. The other one was vacant for 6 weeks and had a high turnover of tennants. The difference - the on-site managers one was a guy who fussed over things like and old woman (sorry can't think of PC term here :D ) and the other was a lady with poor english skills, who took the easy-out if there was one. That manager was replaced by a couple who are VERY enthusiastic, focussed and charge 0.5% more but worth every cent! The day they took over there was a change in tenantcy and the rent went up $35pw!! ;)

    Hang in there it will be all good!
  18. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    Your story (above) indicates that almost all of us have some 'bumps', bad dealings with the IP's.
    Reasonable increase in value of my IP in the last 3-6 months creates very positive outcome - so I'll hang on in there as long as possible. ;)
    On the other hand I would like to see my IP 12 months from now... or maybe I should not see it?. :eek:
    See you next time ! :D