I lost $3,000 on my first property deal that never went through. Why did I lose so much?
Today’s question comes from a conversation I have been having with an On Property Plus member Sophia. She asked me “Why did I lose $3000 on my first property deal?”
With my first property deal, I had the deposit, I had the contracts ready and we were going to go forward and it actually fell through.
It fell through because when the valuation came through it was $10,000 less than the purchase price of that property. I didn’t have the money to be able to come up with that extra $10,000 in order to fund that property, and the person who was selling it wasn’t going to budge down an extra $10,000.
So why did I lose $3,000 on that deal?
I paid for building inspection which was about $350.
I also paid for pest inspection which was $300.
I also had to pay for my valuation which was $350. Now some banks and some loans may actually pay for the valuation for you in order to be more likely to get your loan. But in this situation I had to pay for the valuation myself. My finances were so bad that a couple of mortgage brokers wouldn’t actually deal with me. So I went to banks myself and found someone who would. I was very young, I think I was 21 at the time.
But then when it really cost me money I had read and I had research and learnt that by investing through a trust fund with a company acting as the director of the trust and myself as the beneficiary could be a way to protect myself against any lawsuits.
At that time all the accountants were all saying to me, “Ryan, just buy in your own name. What the heck are you doing? You don’t have anything in your name that the people who sued you would actually get, so what’s the point?”
But at the time I was thinking of building a large property portfolio and didn’t want to have that risk. So I paid – it was somewhere around $2000 in accounting fees – to get a trust set up, to get a company set and pay for names and all that sort of stuff.
All up I spent around $3,000 or a bit more than that for a property I didn’t even end up purchasing!
That’s how I lost $3,000 in my first property deal. So Sophia, I hope that answers your question.