Wrong Advice !??

[carolvw]

Hi everyone

I would appreciate your thoughts regarding my situaiton which I have found myself in.

I first stumbled into buying an IP about twelve years ago - the rent pretty much paid for the mortgage, rates etc. I was advised by my Accountant that the best thing I could you was pay off the Mortgage (I was flatting at the time). I have recently learnt through reading books, talking with others etc that this was probably the worst thing I could've done! I didn't reliase the power of equity and being able to buy more IPs at little cost.

So for the next ten years I flatted and put any extra money onto the rental mortgage. Three years ago when the market moved I thought I should look at buying another property and was really surprised to learn about equity etc. - subsequently I brought four properties. However, even though I did reasonalby well out of this I feel totally despondent that I had not been given correct information when I brought my first home twelve years ago - I could've used the equity in it, plus the $10K a year I was also putting on the mortgage to much greater benefit with significant gains being made since the property boom also.

To say I'm feeling pretty despondent at the moment is an understatement as I have worked so hard, and gone without so much to reduce the mortgage when it seems it was totally the wrong thing to do and I could have saved my self alot of stress and be in a much better financial position now if I had reinvested the money.

I am still flatting but looking to buy my own house and putting all the properties into an LAQC - this had never been explained to me either. I haven't asked the relevant questions over the years as I didn't know they even existed and were needed to be asked and was relying on my Accountant too much - a hard lesson learnt I feel and have learnt that I need to be alot more involved and aware of my investments.

Any suggestions or thought would be gratefully appreciated as I feel I've mucked up big time and lost on some great opporutnies over the years while thinking I was doing the right thing. Also, can anyone suggest a good Accountant in Nelson or Blenheim who specialises in Investment Properties?
Many thanks in advance.

[zensei]

Hi carolvw,

my first suggestion is stop feeling that you've mucked up big time, stop feeling that you've done it the wrong way.

I firmly believe that in this life everything that happens (or doesn't happen) are what's necessary for you to learn. You need to go through all those experiences to get to where you are now.

Don't regret, just get the lessons, evolve and move on ...

And when you are ready to move on... this forum is a good start. Many experienced investors in this forum, lots of sage investing wisdom you can tap into!

Happy investing!
Andre

[carolvw]

Thanks Andre fpr your encouragement - its good to be reminded that I need to focus on looking forwared and not on the past.

However, am I correct that I was given poor advice? Can you see any advantages in doing it the way I've ended up doing it - at the moment I feel like chucking the whole lot in which may be somewhat over dramatic but I feel extremely disillusioned especially when I had placed my trust in an Accountant who specialises in property investment and really done the hard yards and gone without for so many years to get the mortgage down. I am on my own and it seems I've worked unnecessarily hard for a long time when my money could have been put to a lot better use.

Today, one house is mortgage free, with one IP having $110K and the other two having $35K equity in them. It seems to me I should have been advised to put the first property into an LAQC (which I only learnt about recently), put the $10K I was putting into the rental property towards my own home while capitalising on the benefits from the LAQC while continuing to buy more properties.

I am still flatting and looking at buying my own house finally, but will be ending up with a big mortgage and need at least one flatmate to help out with mortgage repayments all which could have been avoided if I had received correct advice twelve years ago, especially when house prices were still low - I'm finding it pretty hard to feel ok at the moment about it all especially when it could have been so easily avoided.

[fudosan]

Hi carolvw,

Congratulate yourself on what you have achieved! Many people spend their whole life without achieving anything. Accept your past and move on. You have done well.

I can blame my parents for instilling me with the fear of good debts. I can blame my professors at the business school for not teaching me how to invest. I can even blame myself for spending years pursuing other dreams and not buying aggressively during the last slump. But, you and I should be happy that we have started investing.
Good time is coming again as we are entering the slump phase. You can do it BIG, this time.

[drelly]

Hi Carol,

I think this is one of those "20/20 hindsight" things... like wishing I'd bought every house I'd ever looked at 4 years ago.

I really don't think that the accountant was wrong in telling you to pay the mortgage off. After all, someone has to! Paying down your debt was reducing your level of risk - never a bad thing.

Another point is that it sounds like time has significantly changed your own knowledge, attitude and ambitions. Your accountant was dealing with someone who "stumbled into buying an IP" and was so unfocussed on PI that it took 12 years to learn about using equity to raise more finance. I'm not saying that to get at you but to point out that from your accountants point of view you weren't taking it seriously. I think accountants often find themselves in a difficult situation where their clients really don't know as much as they should about what they are doing.

I can relate to how you feel as I'd own a lot more property than I do if I'd understood the rules of finance more and taken the time to research rather than just listening to the one bank mortgage adviser (who owned no IP's) I spoke to. However, I can't blame them for my lack of initiative.

So what now? Firstly, don't feel despondent about what has been, feel energised about what can still be. We can't let past mistakes hold us back. Keep learning and keep moving forward. As far as buying your own home... if you're set on doing that, don't get a mortgage - consider selling the IP's or discuss with an accountant alternative ways to shuffle your equity to keep your debt tax deductible.

Good luck!

[zensei]

Hi Carol,

I don't see anything bad with having a mortgage free house! You got heaps of equity from that one and your other 3 to play with. The advice you got might not be the best if you look at it now, but if it were not for that advice you might not probably have a mortgage free house by now.

Totally agree with Fudosan and Drelly. You have actually done well. Congratulate yourself, let go of all blame, take responsibility of your life, move forward!

Happy investing!!!

Andre

[Julian]

carolvw,

Sorry to hear the Nelson and Blenheim bookshops and libraries have had no books on property investing for the last 12 years, not to mention the newspapers and television stations down there never running any pieces on property investment like they have been doing all over the rest of the country.

Great that you have someone other than yourself to blame (your accountant) for your lack of understanding. I suggest you don't look in the mirror or you might find the actual person who has been holding you back.

I applaud your idea of throwing the towel in - it is right up there with cutting off your nose to spite your face, holding your breathe until you turn blue, and banging your head on the floor. Suicide might be better for dramatic effect, but that begs the question of which method to use. I suggest the train wheel decapitation, but I'm sure a few train drivers around the country might think differently.

Julian

[essence]

Welcome to PT

Hi Carolvw

Welcome to PT forums. We're a diverse and varied lot (ie quirky and strange!!) that are here to help each other.

Some comments make us think and some make us laugh.

ABout your situation - everyone has had a time in their life when they have made, not wrong decisions, just not the best correct decisions.

My advice - move on. Don't look backwards, because you'll fall over your feet. Turn around front, take a deep breath and make informed (and sometimes hard) decisions.

Life is not a dress rehearsal (unless you're a buddhist), grab it by the short and curlies and go for it.

Good luck

[carolvw]

Thanks!

Hi Zensei, Andre, Fudosan & Drelly ... thanks alot for your encouragement, words of wisdom and also for reminding me to let go the past / self blame and to stop blaming others and to focus on moving forward - I agree that the poor old Accountant probably was a bit confused as what I wanted to do re. IP but he unfortunately never explained what I could do (there being the difference).

Anyway, what's done is done, and although I'm still feeling somewhat discouraged, I'm trying to focus on moving forward, being grateful for what I've achieved and focus on doing things better this next time round.
These forums are great and I really appreciate peoples time and willingness to share their wisdom and experiences. There's so many questions I need to ask e.g.

The Accountant has suggested that if I want to buy my own home that I set up an LAQC for the four properties and then take the benefits from the Company and also put any spare cash onto my own Mortgage. Do you think this is the best option, or is there a way I can 'remortgage' the mortgage free property - I had asked my Bank Manager about doing this and he said no.

Unfortunately, I cannot sell any of my IPs as I had brought and sold/subdivided a property about a year ago and the Accountant believes if I sell a property now then the Tax man may become overally interested in me - he has advised me not to sell anything for at least 3 years.

Should I be paying interest only on my rental Mortgages and over what term - at the moment they're paying off both the principle and the interest with terms of 30 years. (My salary is about $50K).

As I am single does an LAQC or a Trust provide the most protection in the event I find myself in a long-term relationship?

I am really keen to find a Mentor - people mention the benefits of having one, but where do you find these folk and also can anyone suggest a good Course to attend which can help me upskill on Investing / Money Management etc which isn't going to cost zillions? I know reliase the importance of setting long-term goals and working backwards to achieve these and someone to help me ensure I'm on the right path would be great.

I think that's all (for the moment!) once again, thank you all very much for your time and input - it's much appreciated.

Regards
Carolvw

[CJ]

You did not get the wrong advice. You got advice that has suited you well as you are well of compared to much of the country. Could you have done it differently - yes. Could you hvae had a better result - yes. Could you have had a worse result - YES. Imagine if your accountant told you to maximum gear, things went a little wrong and you lost it all - would you be blaming your accountant then?? To do what you think you should have been doing takes a lot of commitment and effort. That is why, I am currently doing what your accountant told you to do (as it suits my current situation better at the moment). Maybe they teach us that at Uni.

Drellys post was a good one so read it again. ignore Julians because until you understand his sense of humour and blunt truth telling he seems, well ....

[fudosan]

Hi Carolvw,

Glad to hear that you are enjoying this forum. For general informaton and advice, use this forum as your port of first call. Keep asking questions. You'll be surprised how much valuable information you can get. I sure have learned a lot from this forum, which has turned out to be the best source of my knowlege at the least cost.

[zensei]

You're very welcome Carol, glad if we all can help each other!

Re: mentor, there are a number of them who are active in this forum. Dean Letfus, Andrew King, and I think Kieran Trass offer mentoring service. I'm sure there are others too.

Have a search, ask questions, find the right one for you.

Good luck!!

[carolvw]

Thanks CJ for your encouragement and also for your input Julian although as has been suggested I think I need time to get used to your sense of humour as your feedback was somewhat stingy especially at the moment - however, I take on board the truths you've highlighed.

Ironically, although information was available I didn't think I needed to find out anything more about IP as I only had the one property and was told I was doing well and believed I didn't need to ask any 'questions' as there were none to be asked! (I thought I would have to pay off the mortgage before I could buy another property) This was purely based on my lack of understanding and nievaty and putting too much trust in my Accountant whom I met with regualary.

This might sound really strange and extremely niaeve to you more experienced investors but that's the way it was and I thought I was just doing the right thing as advised. Anyway, as suggested where to from here is the most important thing so I'm going to give myself a swift kick in the pants, avoid the train tracks and take more responsibility in looking after my own investments.

Any further support, information would be great.

Best wishes to you all.

[BusyLizzy]

Carol,
You're getting lots of 'look forward, not backward' encouragement, which is great. But I suspect you want more specific information and advice on where to go to from here.

I'm not in a position to offer advice (no experience yet!!) but the one thing that jumped out to me was perhaps the need to speak to a another accountant. In other words, get a second opinion from a respected accountant in your area who specialises in IP, and who can review your specific financial position and current structure and advise you on where to go from here. They might charge you for a consultation, but ask them if they will deduct the fee if you switch your business over to them!

Likewise, speak to one or more respected mortgage brokers for their advice. (I assumed from one of your comments you have a bank manager at present) in terms of what you can do moving forward.

The fact that you have at least one property paid off is an enviable position to be in (regardless of whether it is your own home OR an IP). You are now well setup to use that equity to buy more - as long as they are smart purchase decision!

Honestly, I don't think you should have too many regrets about yoru current position. It all sounds rather enviable to me!

Best of luck,

[drelly]

Heya again Carol,

You're actually in a good position! Since you haven't put your properties into an LAQC from the start, you can now SELL them to the LAQC which will give you as an individual, cash in the hand (the equity in the IP's) to buy your own home. The IP's are then 100% financed which will maximise your tax deductions. It sounds like you have more than enough equity to buy your own home mortgage free, depending on where and how you live. Buy your house, get valuations and sell the IP's to the LAQC and then pay off your home mortgage with the proceeds. I did exactly this with my first home turning it into an IP. You'd need to check tax issues of course.

My lawyer says that businesses and investments initiated prior to a relationship are generally safe from a claim by a bitter ex although I will eventually transfer the LAQC to my family trust for added protection. You could also consider a pre-nup. The trick is to not have any involvement by a partner in your property investments that they could later claim a financial interest with.