I’ve often said that most property investors “fail.”
Fifty percent of those who buy an investment property sell up in the first 5 years and A.T.O Statistics show that of those who stay in the game:
- 73% of property investors (1,284,852) only own one investment property
- 18% of investors (318,295) own two investment properties
- 5% of investors (96,991) owned three investment properties
- 2% of investors (34,967) own for investment properties
- 1% of investors (14,555) own five investment properties, and
- Only 15,264 Australians own 6 or more properties
In other words, most Australians who get into property investment never achieve the financial freedom they aspire to, and worse still…
Many property investors lose a heap of money and lost opportunities along the way…
When many new or prospective clients come to Metropole for advice they bring a litany of complaints with them about their previous experiences.
And since we can all learn from such experiences, I thought it would be worth sharing some, so here are 11 of the common complaints we hear from property investors…
1. Poor property selection
Some complain about having missed the recent property boom that others, who invested in the right property markets enjoyed.
In general, they owned the wrong properties and didn’t get sufficient capital growth.
While some bought “off the plan” and overpaid for their property, others bought in regional Australia where property values didn’t increase as much as in the “big smoke.”
Sure…I know some “experts” recommend investing in regional Australia, but I avoid these locations.
All this obviously translates to lower population growth, less demand for property and few growth drivers which lead to capital growth.
2. Poor cash flow management
Another common complaint is from investors who had difficulty holding on to their properties because they hadn’t organised their finances correctly and didn’t have a cash flow buffer in place to cover their negative gearing shortfall.
My preferred financing solution to allow you to own high growth properties and service the cash flow shortfall is to set up a Line of Credit.
Then use this facility to fund your property portfolio cash flow shortfall, such as the interest on the property investment loan, or for property expenses and importantly keep it as a “rainy day financial buffer” to buy you time if the markets turn sour.
However, to be tax effective it is critical that you set up your structures correctly, so it’s important to seek professional advice.
3.Wrong ownership structure
Others have complained because they’ve come to realise that they own their investment properties in the wrong entities because they didn’t seek structuring advice prior to the purchase.
I’ve often said it’s important to begin with the end in mind – what will your property portfolio look like in 10 or 15 years time?
Will you be working then, or won’t you?
Do you want to pass a legacy on to your children?
In other words – in what entities would you like to own your properties then?
Obviously it’s important to think these things through before you buy your properties and then purchase them in the correct entities.
4. Running out of time
A complaint that is all-too-often heard is people who have left their investment run late and who are now approaching retirement age and suddenly realise they haven’t built enough of a nest egg.
The worrying reality is that more than half of Aussie baby boomers currently believe they’ll run out of money and need the aged pension, while many others will have to significantly scale back their lifestyle.
Clearly superannuation isn’t going to be enough for most Australians, and it seems like the government isn’t going to be able to fund the type of lifestyle that most of us want in retirement.
One solution is for baby boomers to use the equity in their homes to invest in residential real estate, rather than just trying to pay off their home loans.
Of course, they’ll need to buy the right type of property – they can’t make the common mistakes most investors make as their time frames are tight.
5. They missed the boat
Others come to us complaining they weren’t sure where to turn and have sat on the side lines through the latest property cycle.
I’ve found many didn’t invest because of information overload – what some would call “analysis paralysis” they didn’t know where to start.
Others tried to time the property cycle and some were waiting for conditions to be “just right.”
My advice for these would be investors is not to try too hard to time the property cycle and to remember that Australia is not one property market.
Each state is at a different stage of its own property cycle and in each state there are multiple property markets – some geographical, some related to price points and others related to different types of property.
Our on the ground knowledge of the various state property markets helps cut through the clutter of mixed messages.
6. Off-the-plan woe
Unfortunately a common complaint we see is from investors who’ve bought a property “off the plan” from a property marketer that hasn’t achieved any capital growth or rental growth in the past five years.
Do I believe that buying off the plan makes good investment sense?
If you’ve been following my blogs you’ll realise the answer is no.
While a few investors have made money buying off the plan, the landscape is littered with many, many more who’ve regretted their purchase.
Frequently they’ve found the value of their property on completion is considerably less than the contract price and some will have to wait for over a decade before they see any capital or rental growth.
In general they would have been much better off buying an established apartment rather than a new one.
7. They believed the hype
Many unfortunate investors bought the wrong property because they looked for the next “hotspot.”
While they may have enjoyed some short-term capital growth, since then property values have dropped as have rentals and they now have negative equity – especially those who bought in mining towns.
Many of Australia’s worst performing property markets over the past few years have mirrored the ups and downs of the mining sector and many investors have been burned by following the advice of the “hot spotters” who recommended them.
I’ve often warned about investing in one-industry locations, such as mining towns.
Not only because they lack multiple growth drivers, but because they tend to be dominated by investors who speculate rather than owner-occupiers who bring stability to the market.
8. Depreciation confusion
Then there are those investors who didn’t maximise their tax position because they hadn’t obtained a depreciation report.
Depreciation deductions can make a real difference for investors helping them reduce their taxable income.
9. Property management problems
Another regular complaint I’ve heard is from those who’ve tried to save money by using a cheap property manager or by self managing their properties and running into trouble.
A good business owner recognises that they can’t do it all themselves.
They hire a good team of professionals to help them effectively manage their interests and generate the best possible profits.
The same should apply for property investors.
Employing an experienced property manager will maximise your investment returns.
10. Got caught out by spruikers
The internet is littered with stories of investors who succumbed to property spruikers’ tactics including high pressure sales tactics characterised by rushed decision-making and contract signing and the payment of fees (including discounts offered to seminar attendees who sign up on the day.)
Other tactics can be claims of strong capital growth rates that may not be independent or credible, or pandering to those who haven’t got sufficient funds with claims of “no money down”.
Similarly, those who bought from property or project marketers who were working for the developer often lost out because the advice they received was far from independant .
11. Failing to gather a great team
Successful investors build a great team around them.
They realise they don’t have to be an expert in every field if they develop a good network. In fact, they know that if they’re the smartest person in their team they’re in trouble.
This network includes a good finance broker, a smart solicitor, a property savvy accountant and a knowledgeable property strategist such a Metropole Property Strategists.
There you have it….11 common complaints that I’ve heard from property investors.
I guess that’s why I often say property investment is simple – but it’s not easy.
So what’s the alternative?
Clearly many property investors fail to achieve the financial freedom they desire so the answer is not to do what the majority of property investors do, and instead invest strategically like that small group of successful investors do.
True wealth through property is built in stages, as I see it these are:
- A wealth success mindset – this is the most important layer because it is the foundation for your wealth. If you don’t get your head “right”, then anything else you do will suffer. Your wealth success mindset with consists of your beliefs, your habitual thoughts and your habitual actions in regards to money and wealth.
- Skills and knowledge – most of us are not taught how to invest, but finding the right mentors will speed up your journey.
- The correct property investment strategy – many investors fail because they follow a flawed strategy. In my mind residential real estate is a high-growth, low yield investment and to try and invest in real estate for cash flow leads to failure.
- Risk management – strategic property investors protects their assets by owning them in the right ownership structures, having sufficient financial buffers in place to buy themselves time through the ups and downs of the property cycle, insurance is to protect themselves and their assets and surrounding themselves with a professional team of advisers.
- Cash flow – while I believe it’s essential to invest for capital growth, I recognise the importance of cash flow management through rental returns and financial buffers. While capital growth gets you out of the rat race, it’s really cash flow it keeps you in the game till you’re ready to get out.
- Asset growth – this is really the aim of the game – to build a sufficiently large asset base that will one day give you sufficient cash flow to replace your personal exertion income so that you can go to work because you choose to not because you have to
What’s next for you?
If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.
Also published on Medium.