154: Why Selling Properties at a Loss is Actually a Gain
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Let’s be honest, do you really think we can always make the right investment choices? That we’ll never make a bad call? Let’s face it, that’s just not realistic.
It’s pretty much inevitable that if you invest long enough, you’ll eventually come across a dud deal. 😵😵
But the good news is, any loss you experience can be self-contained if you use the right investment approach.
So, don’t beat yourself up too much if you do end up with a bad investment.
Instead, focus on learning from it and using that knowledge to make better decisions in the future.
We’re going to tell you a little story about our experience and how our loss eventually turned into gain.
Our B.C.R.E. (Before Commercial Real Estate)
When we first got into real estate investing, before B.C.R.E (before commercial real estate), we started off with several single-family rentals 🏡.
Now, at the time, we didn’t really know how to properly evaluate whether a deal made financial sense or not.
We were just excited about the industry and jumped in headfirst, which looking back was probably not the smartest move.
To make matters worse, those single-family homes never really generated the kind of returns we were promised.
In fact, at best, they would barely break even after accounting for inflation.
👉 It was frustrating, to say the least.
But after some long walks and talks, we finally had a breakthrough.
We realized that we were just letting our equity be tied up ⛓️ in these pitiful deals that weren’t creating any real ROI (return on investment).
So, we started to think about the opportunity cost of holding onto these homes instead of selling them and using that money towards much more lucrative investments, like apartment buildings. And that decision paid off big time.
Ripping Off the Band-Aid
We finally made the decision to sell those single-family homes and it was time to rip off the band-aid.
We had to break the news to our property management company that we wanted to sell them as quickly as possible. We knew that we weren’t going to make a huge return on investment by waiting around for the right buyer to come along. 😉😉
Instead, we were willing to break even or even lose a little bit of money if it meant we could access our funds faster.
Time was of the essence and we didn’t want to let those homes continue to tie up our equity.
Turning Loss into a Massive Gain
Let’s break down the numbers a bit, shall we? Let’s say you sold a single-family home for $100,000, which is a bit less than what you paid for it.
But, you didn’t let that get you down.
Instead, you took that money and invested it in a 🏢 multifamily apartment that had a cash flow return of 8% per year.
Not too shabby, right?
Now, let’s assume that you held onto that multifamily apartment for 5 years.
➡️ Here’s how much you would have made compared to if you had kept the 🏡 single-family home:
If you had kept the single-family home, you wouldn’t have had any cash flow to speak of, as we talked about earlier.
So after 5 years, you would still only have $100,000.
But, if you had sold the single-family home and invested that $100,000 in the multifamily property, you would have earned $8,000 per year in cash flow.
So over the course of 5 years, that would be a total of $40,000 in cash flow.
And that’s not all, after the 5 years when you sold the multifamily apartment property, you would have earned an additional $60,000 in profit from appreciation or capital gains.
In this example that means your total return over 5 years would be 100%! We like that kind of math! 🤟❤️
Even if you took a slight loss on the sale of the single-family home, you would still come out ahead by investing that money in a more lucrative opportunity like multifamily real estate.
The cash flow generated from the multifamily apartment would more than makeup for any loss incurred on the sale of the single-family home.
So, if you’re considering selling a single-family home at a loss, don’t be discouraged. It might just be the smartest move you make if you reinvest that money into a more profitable opportunity. There’s even examples from history to back this up.
Take, for example, Warren Buffett, our bff Buffy 😍😍, and his investment in American Express.
In the early 1960s, American Express faced a scandal that led to a significant drop in their stock price.
Many investors sold their shares, but Buffett saw an opportunity.
He purchased a large stake in the company, believing that the scandal would eventually blow over and that the company would recover.
Buffett’s investment paid off big time. American Express did recover from the scandal and their stock price skyrocketed. Buffett ended up making a massive profit and American Express became one of his most successful investments. 😲😲
This is a great example of how a smart investor can turn a potential loss into a huge gain by being patient and having faith in their investment strategy.
Making bad investment choices is inevitable, but what really counts is how you learn from those experiences and use them to make better decisions in the future. The key is to keep learning, keep growing, and keep looking for new opportunities to make your money work harder for you.
We hope you found this informative and helpful in your own investment decisions.
We will be the first to tell you that mistakes happen to all of us, they are a natural part of the learning process, and all we can do is learn from them (and in our case share them with you) so that you don’t make the same mistakes we did! ❤️
Happy investing!
Make sure to tune in to all of our podcast episodes, check out our website, drop us a line on social, and become part of the Kitti Freedom Club for even more insider investment tips.
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