A Good Property Gone Bad - Passive Income MD

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Episode #129

A Good Property Gone Bad

In this episode, Dr. Peter Kim will reflect on one of his investment losses, his mistakes, and what he learned from them. He will share the timeline, details, and the continued struggle of how a suitable property went sour, hoping you will learn from his mistakes and maximize your gains.

12 Min • October 17

Episode Highlights

Now, let’s look at what we discussed in this episode:

  • The Value of Active & Passive Real Estate
  • Description of the good investment 
  • What is a bridge loan?
  • How the deal soured quickly
  • The legal side of poor investment
  • Why due diligence is essential for a good deal

Here’s a breakdown of how this episode unfolds.

Episode Breakdown

[1:16]

There is value in having both active and passive real estate in your portfolio. Peter describes the value and drawbacks of both types of real estate investing. 

[2:15]

Peter describes the type of property he was looking for that would give him tax benefits. He also shares the circumstances around the property. In reflection, Peter shares what parts of the due diligence process that he rushed through in order to make the purchase and the decisions he made to get a loan on his own timeline. 

[8:42]

Beyond doing your own due diligence, Peter also learned the value of the bank doing their own research. What the bank uncovered about the property added more trouble to this already struggling investment. Peter would need to begin environmental clean up on his newly required property in order to complete the process with the loan. 

[10:29]

Later, the broker and Peter learned that the issue was in the records, yet hidden and not fully disclosed. In hindsight, a little more research would have uncovered the issue before investing in this property. 

[11:41]

After finding legal help, Peter went back to the broker to pursue a buy-back agreement on the property, since the problem was not fully disclosed to him in the beginning. And if things were not bad enough, the building suffered fire damage in half of the units. Now, his time, energy and efforts are divided between property litigation, immediate restoration, and securing funds from insurance. 

[14:27]

After two long years, he resolved the poor investment by selling it back to the broker at the price he originally purchased it at, and the insurance claims were paid out. When the deal was done, and he tallied it all up, from the initial investment, through environmental challenges, fire damage, and legal litigation, he broke even.

[15:21]

Looking back, Peter names three hard lessons learned from this unfortunate investment.

  1. Don’t lead an investment by rushing to receive a tax benefit… Make the time to ensure that proper due diligence is completed.
  2. Never rely on someone else doing the due diligence… Always do the research yourself to ensure the deal meets your criteria.
  3. Active real estate demands time… Know how much time, energy, and effort you want to put into new property once it is acquired. 

Final thoughts… Learn from life. Learn from the mistakes and the wins. Learn to minimize mistakes and maximize your gains. 

 

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