Four Reasons to Sell your Real Estate Investment at a Loss

by Dave Peniuk

It's hard to admit that you messed up. It's even harder to admit the mistake, have it cost you month after month, and then just walk away from it (in my case, by selling the property at a loss). It's almost like fighting a gamblers impulse - if I just put in a few more dollars this machine will pay out.

I did it for years with one of my Niagara Falls Crackhouses (If you're new to Rev N You - you might want to read about my two "no money down deals" that have done nothing but cost me!). After initially getting the properties for next to nothing, I shelled out a lot of money year after year for repairs, court fines and more repairs. I took out a line of credit to cover the extra expenses.

The area in Niagara Falls where the real estate investments are located has been improving. A very nice Motel 6 went up across the street. Land has been bought all around the area for new development. I kept thinking if I could just hold on to the property for a few more years I would hit the jackpot and be holding very valuable land. I thought if I just fixed it up, I would attract better tenants and would have an easier time with it. Bottom line is that I just kept thinking if I put a few more dollars in that slot machine I would eventually win big.

Here's just a sample of the problems/issues I had with this real estate investment, and why I chose to sell at a loss rather than feeding the nasty slot machine:

• It was costing me a lot of cash every month to service all the expenses;
• It caused me and my wife considerable stress with all the problems it always seemed to have;
• After my new property manager helped to evict the bad tenants, he couldn't get good ones to replace them;
• No matter how much work and refurbishing we did, there always seemed to be another problem;
• Although the neighbourhood was getting better, it was improving at a snail's pace.

Hopefully by reading Rev N You, you've learned enough real estate investing lessons that you don't end up with your own crackhouses or troublesome properties, but if you do and you find yourself unhappily evaluating the situation regularly, know that it's ok to sell your property at a loss, especially because:

1. Assuming you make money on the sale of another property within the next seven years, the capital losses from the sale of the money-loser will make a nice good offset for capital gains you realize in the future.
2. Continually throwing money at a problem waiting for it to magically become a winning investment is foolish. Yes, some people get lucky but hoping you are going to be a lucky one is not really a good strategy.
3. Stress is bad for your health and for your relationships. If selling the property, even at a loss, will rid you of a lot of stress then it's worth it. What good is building a big real estate portfolio to be rich from, if you're not healthy enough to enjoy your wealth?
4. Owning a negative cashflow property not only costs you money out of your pocket, but can hurt your chances of financing other investment properties because you may not be able to service the debt on the new property.

So, when the deal closed this month, we went out and celebrated it's sale. We couldn't toast with the finest wines or the best foods because that deal didn't make us rich, but we could smile that our Niagara Falls Nightmare is over.

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May 21, 2008

As we wandered through some open houses this past weekend we found a big house on a nice corner lot a few blocks from us. It's a bargain when you consider what townhouses are selling for in our area. And, as we calculated the potential rent revenue versus expenses for it's main suite and finished basement, it's almost tempting to make an offer. BUT, the house is not lovely at all and is a real handyman's project. And the sellers, like those of most of the houses we've looked at recently, are still asking prices that are too high in hopes that the buyers haven't noticed the slowing market.

The unreasonable price tag and the daunting nature of the work it needs will keep us from making a move on it. Besides, May has not been a profitable month for us. As of May 15th, we have one less property in our portfolio. That is six less rental units that we have to rent out and make money from. And, all we have to show for the sale of that property are scars and line of credit debt. But we are glad to be rid of it.

And, alas, a routine replacement of the shingles on our Toronto tri-plex brought about the discovery that there were actually three layers of shingles on our roof already. Those had to go and they didn't go away for free! The roof repair cost us almost two thousand dollars more than we expected! The good news is that we have some nice tax write offs from all of the above to offset the income from our good properties and our other income.

It's almost summer time - the real estate market typically slows a bit during this season. Will you be buying, selling, or sitting by the lake and not worrying about either? Let us know, and let us know if you have questions for us. Contact one of us directly at: dave@revnyou.com or julie@revnyou.com.

Published May 21st, 2008

We're very pleased to share that recently a Rev N You article entitled Real Estate 101: Making Money When You Buy was featured in Early To Rise (Internet's most popular Health, Wealth and Success E-Zine). We love Early to Rise and have been reading their publications for nearly four years. It was a real honour to be published in their great newsletter. Thanks ETR!

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