5 Property Mistakes That Cost Me $3.5 Million (And What I'd Do Differently)

One of the five terrible property mistakes I made is I sold a house in 1993. Its valuation now is nearly 10 times what I sold it for.

Hi, I'm Andrew Wright, principal of Professional Southport, and this is the Andrew Wright Property Podcast. I've built a multimillion dollar property portfolio delivering a seven figure annual rental income. And led my real estate team through thousands of sale and lease transactions. In each episode, I share real deals and strategies that will help you find, fund and operate profitable property deals.

The aim of this show is to provide education and build a community of like-minded investors who can collaborate, share insights, and help each other in each other's journeys. You can make excuses or you can make money, but you can't do both. So come and join us.

Adam:: Hello and welcome to another episode of the Andrew Wright Property podcast. Now, today we're doing something that most people tend to avoid. We're gonna talk to Andrew about five disastrous property decisions he's made where the deals did not go to plan. Andrew, welcome back. How are you?

Andrew:: I'm very well, very well. Just for that introduction. That's absolutely fantastic. I'm just wondering whether we should do a podcast about the 2000 bad share transactions I've done.

Adam:: Well, you have mentioned that it's lucky you're good at property, mate. So if anyone could recommend a good share trading podcast, Andrew, we'd probably need to have a listen to that. So I could just, we could probably just pause for a moment and wonder what you could be doing property wise had a few of those share ones actually gone right.

Andrew:: Look, the $15 million I lost in the GFC 20 years ago, if I had put that into two commercial properties, it would be worth about 60 or $70 million now.

Adam:: That's amazing. Yep. Fantastic. Can we move on?

Andrew:: We can.

Adam:: Well, we're about to move on to five of these things that we're gonna break down about, you know, what went wrong, the numbers and the rules you now use to avoid this happening going forward. So let's look at deal number one, which is 23 Clarendon Street in Logan Home. Between 1993 and 2003, was this your very first property deal?

Andrew:: Yeah, it was. And one of the reasons why I thought it'd be an interesting podcast is that you see all these podcasts on TV and all these guys get up. Oh, I've never done a bad deal. I've never lost money, and I question how many deals they've actually done. But it's fair to say in the last five or 10 years, a lot of them are probably telling the truth because the markets have just gone up. And people who listen to this story right now will probably be in disbelief.

This first one, I owned a house in Brisbane for 10 years and lost money on it. The rents didn't go up in 10 years. And a lot of the people building real estate buyers agencies at the moment, their strategies are based around buying in hotspots. Let's buy here. Let's increase the rents 10 or 20% every year, and force the value of these properties up.

Well, my first experience in real estate was buying a house, and for 10 years the rent didn't go up. It went up about from, we started 125 bucks a week rent. It went down. Then it finished after 10 years. I think the rent was $140 a week after 10 years.

Adam:: So what happened? Where did it go wrong? Talk us through.

Andrew:: Nothing went wrong. It was just the market. Some of these podcasts talk about if you buy in the right place at the right time, the market will do the heavy lifting. And that is a hundred percent true. And I actually have a lot of respect and admiration for a lot of these young buyer's agents that have helped their clients make a lot of money. The market's been on their side. It's been very, very good. And I just caution at this period in the cycle, people going out and buying a heap of negatively geared properties, assuming that they will be able to jam up rents another 10 or 15%, and that property prices will keep going. But that's my motivation for sharing this.

Number one property that I bought, I was 22 years of age. I just lost 15 grand that my dad lent me to buy a finance brokerage business to go out and become self-employed. I had to pay him back that money. So I had to go against my will and desire of being self-employed. I had to get a job because I had to pay my dad the money back.

Shortly after I started, it was probably six or 12 months after, I wanted to buy my first property, so I couldn't get a loan. I had no deposit. Knock knock. Dad, can you help me out? I need a deposit for my first house. Can you lend me 15 grand? Oh, son, you still gotta pay me back for the last 15 grand you lost. I said, dad, come on, please, please. You know you're an entrepreneur. Let me get started. Can you lend me the money?

He said, Andrew, the bank's gonna take a first mortgage. I've got no security. What security do I have? Dad, I promise I'll pay you back. I said, gimme a loan. I'll pay you 6% and I'll pay you back over time. He said, son, the bank's gonna have the first mortgage. You're a high risk. I'll lend you the money. I want to encourage you to try things, but I'm gonna charge you 10% interest.

And that's what happened. He lent me the deposit. 15 grand. I paid him 10% interest for the next 10 years on that deposit. I bought a house at 23 Clarendon Street, Logan Home for $90,000 in 1993 at 22 years of age.

Adam:: So you're in the property market?

Andrew:: I'm in the property. That's how it started. Rents at that stage were flat. As I said, my recollection is the rent was $125 a week. After the property went vacant, we had to drop the rent five or $10 a week just to fill it. And rents went sideways for the next 10 years.

And about 10 years later, we had a disaster where the tenants did a runner. They were behind on their rent. The property managers went to check up on them and they had to put what's called an abandonment notice. In rental residential property legislation, you can't just enter the property, you've gotta stick a thing on the wall saying, abandonment notice. We believe this property's been empty and we're gonna access this property in 24 hours because you haven't given an entry notice.

So they whacked that up on the door and they rang me and said, look, it looks like they've done a runner. Went in the next day. Sure enough, not only had they left it, but the place was an absolute disaster. It was literally 30 centimeters of rubbish covering every part of the flooring. And all of the underground part of the house was just completely covered in rubbish and all the kids' toys and dirty nappies and everything. Just everything left there.

And I had to ask my family to go down there for a couple of days over a weekend to clean it up. I didn't have the landlord protection insurance at that time, which is another mistake that I made.

Adam:: Was that because you didn't know about it or was it a choice on cost?

Andrew:: I can't remember. I just know that there was no insurance there and I had to go and clean it up myself. And at that point in time, after my brother, my mother, and my father spent all weekend there cleaning the space and multiple trips to the dump, I obviously evaluated what was going on. I'd held that asset for 10 years. It hadn't gone up in value. It was negatively geared. I was losing money every year and after 10 years it hadn't gone up in value at all. And then I just spent two days with my family cleaning the place. And that was enough emotionally to trigger I'm getting rid of this thing. It's given me nothing.

So I sold it. I bought it for 90, 10 years later, running a loss every single year. I sold it for $89,000. Now why wasn't there capital growth in that time? It wasn't all in Logan Home at that time. I can't remember how the cycle went, but all the houses in the area hadn't gone up much at all. It was just a terrible market to be in.

I lost money and I'm going to put up on YouTube now for our listeners, a valuation I did this week on RP Data to see what that house is worth now, and it came up at $830,000, nearly 10 times what I sold it for.

Adam:: So another 22 years on from when you sold it?

Andrew:: Yeah. So 10 years it went backwards for me and over the next two decades it's gone up nearly 10x. This just shows you sliding door moments. And so you can learn what you want from that, but you can't beat a market. And I just want the listeners, not to panic, but just to realize that going forward you can't expect that the markets will continue roaring up every year forever because markets don't go up forever.

And I'm also gonna put up on the YouTube now a little graph, which is the 18.6 year property cycle, which some economists believe in and study, and that's predicting that property prices will peak in 2026 and go down for the next four years. Now, I'm not being a doomsday person. I don't actually believe that property prices will crash in this country because there's such a shortage of supply. The building costs are so high. But I can tell you that I think there is a very high probability that they will go sideways for the next four years after this financial year.

Adam:: That's an interesting one to watch.

Andrew:: I hope I'm wrong. But you wouldn't see too many property deals go that badly. Not in a capital city. This is not a regional, risky location. This is in Brisbane.

Adam:: I'm surprised it didn't put you off property altogether.

Andrew:: Well, it did put me off at that time. Because that would've been an emotional rollercoaster. Lost a heap of money.

Adam:: So can you estimate what your out of pocket would've been over that 10 years roughly?

Andrew:: I haven't done it. It's just a few thousand dollars each year. And then, you know, I lost the stamp duty. I paid real estate commissions and you know, I probably lost 5,000 on the capital side of it, if you include stamp duty and real estate commissions. But add an extra 10 years at two or 3000 minus, you're talking 30 or 40 grand. But as a young 22-year-old trying to find your feet, who's minus 15,000 net worth, every thousand you lose hurts.

Adam:: Absolutely. Alright, let's look at another one. So this is the arts and crafts market shed in Hope Island. Bought off the plan?

Andrew:: Yes. In the mid 1990s, after I bought that house in Logan Home, that asset wasn't performing very well. I thought I'd try and get into something that was positively geared. Something came up in Hope Island, in Sickle Avenue, near Sanctuary Cove.

They were building a development called the Arts and Crafts Market. And it was basically, if you ever look and see those self-storage sheds all around the place where there's like a little garage, a single lockup garage with a roller door at the front. That's what it was. It was just a couple of hundred of them. And the idea was that all the people would buy these single lockup garages and they would operate a little arts and crafts market similar to the Carrara markets. And the idea was you run a business there and make a bit of money, and everyone's gonna be happy.

Now they forecast for investors. If you didn't wanna operate it as an arts and crafts market, we would find you, the developer would find someone else who wanted to rent the place for you for 150 bucks a week. Now the purchase price of these little tiny sheds was 55 to 60 grand. And 150 bucks a week is nine grand a year rent. I'm doing the numbers. 15% rental return. How good is this?

So I buy two of them, right? And I convince my mom and dad into buying two. So we buy four of them, right? Five years later, the market has gone bankrupt. The guys who sold it to us decided to charge a $2 cover charge, an entry fee for everyone who comes through the gates. Carrara Market's free. And they're trying to charge them $2 to get in. No one comes. It's an absolute disaster.

And five years later, paying body corporate fees every year. No tenant in the sheds, negatively geared. I sell both of those sheds. One was 55 grand, one was 60. I bought it for, I sold 'em both for 15 grand each to a guy called John Fish who amalgamated the site and now there's a high rise residential complex there.

Adam:: So he bought everyone's?

Andrew:: Yeah, he amalgamated, he knew everyone was hurting, paying body corporate fees. Lost cause, no future. No upside, can't be fixed. He saw an opportunity to amalgamate them all and now there's a big block of residential units there.

So if I'm doing the numbers correctly here, paid round about 120 grand. I got 30 grand back. Lost 90 grand plus outgoings. As a young whippersnapper whose net worth was already minus 15 grand. I'm now worth an extra 90,000 negative.

Adam:: Where did you finance those two?

Andrew:: I can't remember. I'm so embarrassed now. I've just sent you some notes on these deals. I can't remember how I financed them. But obviously I had to pay the money back.

I just wanna come back to that one. What I want someone not just to hear that I lost money. I want people to learn. So in the last podcast we did a couple of weeks ago, you asked me about a metric called replacement cost. How I look at that now, at that time, if I had the same experience I have now, instead of just looking at the potential 15% gross rent, if I had applied that metric as a safety mechanism and said, okay, what would it actually cost me to build this thing? I would've realized that it only would've cost 10 or 15 grand to build those things. And if I had used that metric at that time, I wouldn't have paid 60 grand for them.

Adam:: You would've realized this isn't a good deal.

Andrew:: Yes. So that's where you bring in a different metric that gives you a totally different view, rather than these rose colored glasses that this market's gonna be great and that the arts and craft market's gonna work.

And there's a big thing in property development circles where trainers of property developers will tell people, you don't wanna be the pioneer in a property development. You don't wanna be the first person that's trying a new thing that's never been tested before. There's a classic reason why, because this is a thing that had never been tried before. No one apart from the Carrara markets had done it there. All of Hope Island at that time 20 years ago was rural land. You drive along there now, it's full of townhouses and residential developments. It was either side, it was like cows in the paddock. There wasn't even any people that lived there.

Adam:: Alright. Deal number four that went off the rails. Pivotal Point offices Southport bought in 2005. And you still hold them now?

Andrew:: Yes, these are in fact your office. I'm still in there now. So two offices, but I've been in there and I'm gonna call you out on this straight up. It's almost empty. There's your staff, but there is so much space there empty. It's not funny.

So there's two offices there. I bought them in 2005. 527 square meters of net lettable area, plus balconies and courtyards and things like that. I thought they were a good buy. It was $3,000 a square meter times 527, $1.58 million plus GST at the time. Similar offices in Robina and other areas were selling for 4,000 a square meter. So I thought at $3,000 a square meter it was a good buy.

I bought those two offices as an empty shell for 1.58 million, which means just concrete on the floor and a ceiling and some poles. Like there's nothing else there. So I had to employ an architect and a builder to do the fit out. And it cost me an extra $400,000 or thereabouts to fit it out.

So it cost me 1.58 plus close to a hundred grand in stamp duty.

Adam:: You weren't planning on putting yourself in there at this particular time?

Andrew:: Yes, I was. I was paying $130,000 a year to rent an office at the 13th level of the corporate center at Bundall. I'd been running a financial planning business there for six or seven years. I was paying 130 grand a year rent. I thought, maybe I can use that 130 grand a year to buy my own place. So that's what motivated me and it was easy to get financed because I go to the bank and say, well, look, here's 130 grand extra I can put into the interest on the loan. So made sense at the time.

I bought it, spent 400 grand doing the fit out. That with the stamp duty, that brings it up to about $2.1 million. And just recently now I spent another $80,000 upgrading. After 20 years of depreciation, I had to replace the carpets, repaint it. I put in LED lights. I've moved my business in there. So I've spent $2.2 million on that property.

And I just had it revalued in December. After 20 years, that 2.2 million investment is now worth 2.5 million. Say 300 grand works out at 0.6% per year capital growth for 20 years.

And if I had the opportunity, that's not a disaster as far as losing money, but if I had spent that 2.2 million buying four 550 grand houses in Southport 20 years ago, or four sheds, they'd be worth six or $7 million now. So it's the opportunity cost. You lose the opportunity cost. It's not like my share market investments where I've put in millions of dollars and it's just gone, disappeared. It's the opportunity cost where the money hasn't grown and it would've been better in a different asset class.

Adam:: So what about tenants in that time? Because you, the size was always gonna be far bigger than you needed for your office coming over from Bundall.

Andrew:: No, it wasn't at that time. Initially what happened was I had a big business then. I employed 35 staff. I moved my financial planning business over there. I broke it into two separate offices and I put next door my finance brokerage business. I employed three full-time finance brokers and two other staff to assist the finance brokers. And I put the finance brokerage business over there. And later I set up a self-managed super fund accounting business, which I put over there as well. One of my own businesses that sort of rented it from my trust that owns the site.

So initially I used it, but when the GFC happened, I bought it 2005, 2008 I had to get outta the business. We've talked about that in episode one, only three years later. And then I have had to rent that property out ever since.

Now I was very lucky in the early years. I had a government department called Q Health go in there and pay me an exorbitant amount of rent to rent that property. After five years they moved out and then I started experiencing a bit of vacancy with the site. I've had a couple of tenants move in and out, and then I had about one year there recently where it was empty again. And I moved my business back into the property in April, 18 months ago.

Adam:: So what's the lesson for our listeners to take away from this one?

Andrew:: I think the big thing is buy something with some land. Now, the reason that site hasn't gone up is there's no land component there. It's in a high rise building. It's 527 square meters of depreciating building, but there's no land going up in value, and there's evidence of a 20 year investment that's gone up half a percent a year because I don't own any land.

The other reason it hasn't gone up a lot is because I'm paying $350 a week in body corporate fees every week for services not received. Sorry. Don't get angry at me body corporate managers. I don't get value for money and nor would another investor for the $350 a week body corporate fees I'm paying.

Whereas if you buy a freehold building with some land, you don't have to pay body corporate fees. So my suggestion is that you take that into account when you're buying an investment property, whether you have a land component and whether there's a high body corporate involved.

Adam:: It is unique I think for a series to look at where things have gone wrong.

Andrew:: Well, I'll go a bit further with that, Adam. And you know what, I still don't even know now even with my experience and knowledge. I don't know if I'm doing the right thing holding onto that office now. I mean, there are smarter people than me that have told me in the recent year or so, Andrew, you should sell that. Go and put two and a half million dollars into a freestanding asset.

So you might say, well, why don't I do it now? The reasons are several. One, it's hard for me to go and move my business and all the energy it takes to go and move out. I've just moved back in there. Two, I'm of the opinion that with building costs so high, I'm hoping and praying, although I have no confidence, that I actually think that those office strata title properties will increase in value in the next few years because at two and a half million dollars valuation, that's about 4,000 something dollars a square meter. I think the replacement cost right now, including buying that site, will probably be 10,000 a square meter. So I'm actually hoping there might be a little revival in the next few years for these office properties.

And I'm hoping that the values will go up and I own 12 car parks with that office and a car park in Southport's worth 25 grand. So I've got $300,000 worth of car parks. And you know how hard it is to find a car park.

Another problem that is a bit of a rort, I'd like to share with the viewers in relation to that transaction. When you buy a vacant commercial property in Queensland, the Queensland government deems that it is fair and equitable to charge you stamp duty on GST when you buy an empty commercial property in Queensland.

So I bought that one for $1.58 million. Because it's an empty property and not a going concern, you have to add 10% GST to the federal government. The tax office, you can claim that back when you do a BAS. But the Queensland government will charge you, they wanna tax you on the tax. They charged me 5% or thereabouts stamp duty on the 158, which is an extra $8,000 stamp duty. Tax on tax, a tax on the federal government's tax.

And it's important for investors if you're going to buy a vacant commercial property, my advice is to talk to the agent and your accountant to see whether you can enter into a short term lease on that property before you enter into contract, so you can tick the going concern box. Don't have to fund the 10% GST and you don't have to throw away an extra 5% on the GST to the state government.

Adam:: That's a great tip for anyone watching or listening.

Andrew:: Alright. The fifth and final disaster, Marquee Street, Mermaid Waters. Once again, compared to my share market disasters or maybe some property development disasters that other property developers can talk about where they've lost money, this is not a capital loss disaster. This is an opportunity cost situation again.

So my wife and I purchased 221 Marquee Street, Mermaid Waters off her parents. Her parents came from Japan and purchased that property. We bought that property for $600,000. It's a north facing waterfront house.

And shortly thereafter in 2008, we've talked about this before, there was a little thing called the GFC. And due to my gambling addiction, playing around with share trading and the like, I convinced my wife that she should let me sell that house to fund my gambling addiction.

And that was supposed to be basically her inheritance from her parents. Now, we did buy it. It wasn't given to us. The market value at that time was 600. We only actually paid them 450, but on the stamp duty thing, you have to put the real value to pay stamp duty. We bought it for 600, but her parents basically gifted us 150 there because it was worth 600. They could have sold it to someone else.

And one of the things about Japan is they actually have a death tax, an inheritance tax over there. So it's quite common for Japanese families to help their children out, pass on assets there, because if it's not in their name when they die, the kids don't have to pay the inheritance tax. A lot of Japanese families help out their kids early in life before they die.

So I sold that property for $830,000.

Adam:: How much time had passed since you'd bought it?

Andrew:: It was only a few years. The market had started to go up there and we bought it for 600. We sold it for 830,000. In fact, I remember having the chat with my wife and thinking, geez, the market's gone up. It's gone up like 30% already.

Adam:: Were you living in it?

Andrew:: Yes, yes. I just moved out of it in 2005. I bought Sovereign Islands and we moved from Mermaid Waters over to Sovereign Islands to the new place and we just started renting that out.

And another tip for investors in Australia. Talk to your accountant. But you are allowed to claim a tax free principal place of residence exemption on capital gains tax for up to six years after you move out of your property, as long as you don't call another property your principal place of residence. So we moved out of that for a couple of years and that $230,000 capital growth was tax free because of this six year rule. You can still claim it's your principal place of residence.

I ended up gambling that away as well. On the stock market. Options, accounts, a thing called contracts for difference. And you can see why I got divorced. You can see it's my fault.

So the point is, this week along with 23 Clarendon, I clicked on RP Data to get a valuation. Estimate of market value of that property now is $2.5 million. We sold it for 830. We've left $1.7 million on the table there.

Plus, if we add in Clarendon Street, there's two and a half to 3 million in opportunity cost. This is the first time I've actually thought, oh gee, should I be talking about this?

Adam:: Look, and I love your authenticity and you're being vulnerable with this and showing your followers and viewers here that it's not all pizzas and roses out there. You have experienced things that didn't go well. And the emotion that comes with that, because you can see how passionate you get when you are doing deals and things are going well, and this is showing the other side. And I applaud you for coming out with this episode and doing that. Because a lot wouldn't. And there's so much to learn there.

So I guess from that one especially, it's don't throw out the crown jewels to chase something else.

Andrew:: Look, I think when it comes to what I want to learn from that one is that I have a pretty strong philosophy now. Flipping houses is not the greatest strategy. That's a job. You pay tax every time you flip property, and it's not really investing. So if you can buy an asset in a good location, that's a good quality asset, hold onto it. Let it go to your kids when you die, don't trade them. And there's two examples there where if I'd have stuck the course with those two houses, I'd be two and a half million dollars better off. Maybe three and a half, considering I lost that 830 with share market stuff. So I'd be three and a half million dollars better off.

Adam:: Well, thank you so much, Andrew, for sharing those disasters. I mean, this has been a very different episode, but look, I think anyone watching will have learned a lot. As much as you give a lot of advice on things that go right, it's just as important to give advice and learn from things that have gone wrong.

So please do share these episodes and give us a thumbs up and hit follow so you don't miss any more episodes. And it's, I'm really enjoying doing this series with you and I know we've got a lot of interesting topics coming up as well. So thanks once again for joining me.

Andrew:: Guess what, Adam? I didn't quit. No, quitters never win. Winners never quit. I learned from those five losses and I won't make the same mistakes again.

Adam:: Fantastic. Well done.

Andrew:: Thanks Adam. See you on the next episode.

Thanks for listening to the Andrew Wright Property podcast. This is all about building a community of like-minded investors who can share real life stories, experiences, and collaborate with a view to helping each other. Join us. Get in touch through the link in the show notes. I look forward to you joining me on the next episode.