It’s hard to admit you were wrong. It’s even harder to admit the mistake, cost you month after month, and then just walk away (in my case, selling the property at a loss). It’s almost like fighting a gambler’s urge: if I put in a few more bucks, this machine will pay.
I did it for years with one of my investment properties in Niagara Falls. After initially getting the properties for next to nothing, I spent a lot of money year after year on repairs, court fines, and more repairs. I took out a line of credit to cover the extra expenses.
The Niagara Falls area where the properties are located has been improving. A cute Motel 6 has set up shop across the street. Land has been purchased throughout the area for new developments. I kept thinking that if I could hold onto the property for a few more years, I would hit the jackpot and have some very valuable land. I thought that if I fixed it, it would attract better tenants and it would be easier for me to do it. The bottom line is that I kept thinking that if I put a few more bucks into that slot machine, I would eventually win big.
Here is just a sample of the problems I had with this property, and why I chose to sell at a loss rather than feed the nasty slot machine:
- It was costing me a lot of cash every month to cover all expenses;
- It caused me and my wife considerable stress with all the problems she always seemed to have;
- After my new property manager helped evict bad tenants, she couldn’t get good ones to replace them;
- No matter how much work and renovations we did, there always seemed to be another problem;
- Although the neighborhood was improving, it was improving at a snail’s pace.
Hopefully, by reading our other real estate investing stories, you’ll learn enough lessons not to end up with your own troubled properties, but if you do and find yourself unhappily evaluating the situation on a regular basis, know that it’s okay to sell your property. at a loss, especially because:
- Assuming you make money from the sale of another property within the next seven years, the capital losses from the sale of the one you lose money on will well offset the capital gains you will realize in the future.
- Continually throwing money at a problem hoping it will magically turn into a winning investment is foolish. Yes, some people are lucky, but expecting you to be lucky is not really a good strategy.
- Stress is bad for your health and for your relationships. If selling the property, even at a loss, will relieve you of a lot of stress, then it’s worth it. What good is building a huge real estate portfolio to get rich, if you’re not healthy enough to enjoy your wealth?
- Owning a property with negative cash flow not only costs you money out of pocket, but it can also hurt your chances of financing other investment properties because you may not be able to pay off the debt on the new property.
So when the deal was done, we went out and celebrated its sale. We would rather have made money on the deal. But we were happy that we could take the lessons of that ordeal and walk away. We couldn’t toast the best wines or the best food because that deal didn’t make us rich, but we could smile because our Niagara Falls Nightmare was over.
