This snippet is from one of our previous episodes: Top Tips for Home Buyers.

A listener asked a question many property investors quietly worry about: “We’ve bought a lemon… should we sell and move on, or hold?

It’s a tough spot to be in.

You’ve made the purchase, but something doesn’t feel quite right. And now you’re wondering whether to cut your losses or stay the course.

In this throwback episode, Bryce and Ben unpack how to determine whether a property is truly a “lemon”… and more importantly, what to do next.

You’ll learn:

  • How to calculate your equity recycling position before making any move
  • Why selling isn’t always the best option (even if the property underperforms)
  • The role of cash flow vs growth, especially early in your journey
  • Common characteristics of underperforming properties
  • Why not every “low-growth” property is actually a lemon

Thinking About Selling… or Holding On?

Before making any decisions, it’s critical to understand your numbers.

Things like: What would you walk away with after selling? Can that equity be redeployed effectively? Or are you better off holding until your position improves?

Because selling (without a clear plan) can sometimes set you back further than staying put.

If you’re unsure what your next move should be, a tailored Property Portfolio Plan can help you weigh up your options and guide you towards a decision that aligns with your long-term goals — not just how things feel right now.

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If You Enjoyed TPC Gold | Bought a Lemon? How to Tell and What to Do About It, You Might Also Like:

Transcript

Bryce Holdaway
So we bought, not a zoo, Ben, but we bought a lemon.

Ben Kingsley
Oh no Jake!

Bryce Holdaway
We bought a lemon, Jake. We’ve purchased a lemon… it’s been fantastic. Well, oxymoron. It’s been fantastic, here we go, as it’s high yielding and we have a low income as I’m still studying. But I’m about to graduate and I’m unsure if we should move the money into a more balanced property or if the cost of selling etc., will just lose too much money. The struggle is even more that when I graduate, we will both be on fairly low incomes. So is a high cashflow possibility a benefit for us? Thanks for your time. I love the podcast, I’ve read the book and I’m excited for what the future holds, Ben. From Jake.

Ben Kingsley
Okay, so because we don’t have all the numbers, we’re gonna sort of start at 30,000 feet. So the first thing anyone who has bought a lemon needs to work out is their equity recycling cost, Bryce. So to work out your equity recycling costs, what you’ve gotta do is you’ve gotta work out obviously the value of the property. And then you’re working out all the costs of getting out of that property, paying off the existing loan that you may have and what is left over. Now if that amount is not sufficient enough to then have reinvested, then now may not be the time. Even if you may want to get out, it may not be the time. So the first thing is you look at that.

The three big things you always look at is: recycled equity and then look at (there was a couple of clues in here about) cash flow. So what can my cash flow allow us, given we’re both gonna be on lower incomes? That might only be for the short term. So he’s studying, so they might be graduating and then moving up the ranks and then earning higher incomes later. I’m very happy, Bryce, for people to buy higher yielding properties with some growth prospects, not something that’s just going to be higher yielding like a studio apartment but never grow in value. And then borrowing power comes into that story, right? So I started when I was 23 and that property did set me up for the future properties that I bought. Now I made the big mistake, I sold that property from some bad tax advice.

Bryce Holdaway
Come on Ben.

Ben Kingsley
Just listen to a previous episode on that. I’m up to about $700,000 in losses on that property from advice for selling that beauty when I didn’t need to, and no one told me about basically releasing a property when I was quite young and naive. So that’s why we’re sharing this message with you. So my view is if it is an absolute lemon and you’re in a position where you can recycle out of that because the prospects of future capital growth in that location are poor, then it would be part of that story. But if my situation is I cannot then do anything with the money that I have after that, then it may be worth holding onto it until there is potentially a spike in values in that location.

Bryce Holdaway
Well said, Ben. So then Jake, I wanna know why is it a lemon? If it’s high yielding and there’s no information here about it’s gone down in value or it’s on a major road or it’s a student accommodation. I just wanna make sure we haven’t misled you to think it’s a lemon…  because for the avoidance of doubt, we do not believe that everyone should always chase growth. All things being equal, you should chase growth as early as you possibly can. But at some point in time, we will want our clients and listeners to actually have a high yielding property in their portfolio. So if this property stacks up on a couple of the things that Ben just talked about…

Ben Kingsley
Yeap.

Bryce Holdaway
And you’re judging it a lemon just because the growth isn’t compared to a capital growth property, it’s not serving you as well. I’d say just cool the jets on that because there are people who have scenarios like you where they need more income because of their serviceability early on and they might reverse it. They might be getting income properties that then turn into balanced properties. Once they’ve got the balance in place, they then can chase the growth property. So I would say to you, Jake: why is it a lemon? Has it got irrefutable facts that it’s a lemon? Or are you benchmarking it against a friend, a peer; maybe something that we might have said where you think: ooh just because it’s not chasing the growth early, therefore it’s not a good property to have in my portfolio. So that’s what I’d wanna know.

Ben Kingsley
Bryce, question without notice for you… but what is one usual characteristic that you would find in the lemon property? I’m just questioning without notice. So what is one of the usual characteristics you’ll find in a lemon property?

Bryce Holdaway
I would say a lemon property is a property that the banks don’t like, Ben.

Ben Kingsley
Nice, I like that. So less buyer demand. What we found in the evidence, and you can’t say this blanket… but usually it’s new. if a property is new usually that is the strongest characteristic we find in its underperformance. So we know we talk on about it, but it’s usually off-the-plan or house and land packages.

Bryce Holdaway
We said that before?

Ben Kingsley
Just a couple times. So that’s what it is. So a great question, how do you know it’s a lemon? Because if it’s an existing property that you’ve bought, it may not be a lemon. It may not be priced at that premium end of the market, which is where most new properties are priced. Or again, most people who chase you into buying assets that have no owner-occupier appeal. So it’s only going to be ever resold to another investor. And that means it’s usually going to have poor capital growth.

Bryce Holdaway
Yeah, because I’ve got a property in my portfolio that fits that description. It’s high yielding. And it does have moderate growth too. But I don’t necessarily think it’s a lemon.

Ben Kingsley
There you go.

Bryce Holdaway
So there you go, Jake. Something for you to think about. And folks, maybe that’s something that you may want to think about as well. But some good insights there.