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Bouncing back from a bad investment

By Emma Smith

As the saying goes, ‘risk it to get the biscuit’. But what happens when your gamble on an investment property doesn’t pay off? Since nobody has a crystal ball to see into the future, this is sadly the reality to some property investors. Making a bad investment decision can hurt your pride as well as your pocket, but bouncing back doesn’t have to be as complicated as you might think. Here are some actionable tips to help minimise the impact.

Assess the situation
There are a number of reasons why investment properties fail, and it might not be your fault. Even the best plans fall through sometimes. So when it is time to commence damage control, take a sensible approach and be objective. Take a good look at the situation and determine what the best and worst case scenarios are. Always look for solutions that reduce the financial impact on your portfolio and begin weighing up your options.

Don’t get emotional
Building an investment property portfolio is all about numbers and strategy. when you make decisions based on emotion rather than facts, you put yourself at greater financial risk, as emotions can easily cloud your judgement. For this reason, it is vital that you focus on logic and don’t get caught up in the emotional aspect of your decision.

Ask for advice
Making important decisions for the future can be a daunting task, so sometimes it helps to seek professional advice. A different perspective or a little bit of guidance is never a bad thing, even if you choose your own path in the end. Just make sure you’ve exhausted all avenues before signing yourself up for another potential mistake.

Stop digging
Once you’ve objectively assessed the potential damage and determined the problem, it is time to stop digging further into that hole. If your investment property has significantly dropped in value and is reducing your cash flow, it is important to ask yourself what the future course of the investment is likely to be. A bad purchase is not the end of the word and you can recover from it, but the key is to cut your losses early and move on. Stop throwing away money on a  bad investment – if it is burning a hole in your pocket and offers little prospect for the future, why hold on any longer?

Make an informed decision
A good decision is an educated one and while answers are not always black and white,a  little research can go a long way to better inform your decision. If you are considering selling, do you sell now or later, or perhaps even not selling at all? What are the implications of either decision? Take your time and think it through. These are some questions to ask yourself:

  • If my investments performing badly now, what are the chances of it going up in value?
  • If growth is likely in the future, how much will it need to go up in order to break even in cash-flow and capital?
  • Is this a short-term glitch due to slump in the market, or is it more long-term?
  • What is the feel in the area?
  • Are there past indicators to look into to determine the current market situation?
  • Are there similar market situations in other areas that could determine possible scenarios?

A doomed investment property is a high price to pay for a lesson, but a lesson nonetheless. Do your numbers, make sure they stack up and always purchase in-line with your goals.

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