RE Buy n Hold Stupid Purchases

[Dan H.]

There was a recent thread "Do People Ever Learn (Memphis Market Observation)" that was mostly about what appeared to the OP to be poor purchase decisions in Memphis.  The poor purchase decisions he was citing were largely OOS purchasers that did not fully vet the neighborhood and was purchasing in lower class neighborhoods. 

My contribution to the thread was a post that indicated that there are under educated RE investors in virtually every market making what appear to be questionable purchases.

There are threads like Stupid things perspective tenants say.  Some of the posts in this thread I find entertaining.

So I thought it could be entertaining to have a thread on poor buy n hold purchase decisions in hopes that it provides some entertainment.  These could be poor purchases you have made or poor purchases made by others.  It could also be of interest looking back on these "poor" purchase decisions and see how many in hindsight look poor.    For example, we have purchased near market highs twice and the REs dropped ~20% in value within a few years of the purchase.  Both those "poor" purchase decisions look like good decisions today.

I will start it off with one of our purchases. It was a beautiful duplex on the beach of Gulf Shores, Alabama (it was actually on the sand). It was the type of property that does not exist in CA. We were going to STR it using a local PM.

The first issue was the property tax based on value was going up faster than our rent.  Our cash flow was declining but at least the property was appreciating.  Maybe the rents will catch up with the property appreciation. 

Then it got hit by the first hurricane.  Many of the neighboring units were tagged as destroyed and would need to be rebuilt with a further setback from the ocean but we got lucky and our unit was not destroyed but it was heavily damaged.  Our PM hired contractors to do the repairs but the repairs were not getting done.  We had to go to the property and oversee the repairs to get any progress.  The RE got repaired and was renting fine but with significantly higher insurance rates which further reduces the cash flow.  

It then gets hit by a second hurricane.  Again not destroyed.  Again not getting repaired.  Another trip to oversee the repairs.  Enough.  List the RE to sell but a lot of other investors had also experienced enough and were selling.  We did not loose much money but it sold for a lot less than some of the property tax valuations and the RE took a lot or time (overseeing the repairs from 2 hurricanes).

I still love the location of the property and may go back there to vacation but as an RE investment it did not work for us.  Did we get unlucky (2 hurricanes)?  Did we hire the wrong PM?  What I do know is that it provided our worst buy n hold RE return.  I also think we were not fully aware of the risks and how difficult it would be to get repairs done from OOS after such a large disaster.