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By Michael Yardney

Here’s why most property investors fail to build a multi-million dollar property portfolio

Recently released statistics from Australian Tax Office show that most property investors fail to achieve the financial independence they are looking for.

You see…these ATO statistics show that:

  • There are 2,207,893 property investors in Australia
  • Seven out of every ten property investors never get past the first investment property.
  • 9 out of 10 property investors stop at one or two properties

So let’s look at some reasons why most investors don’t build a substantial property portfolio?

1. They don’t invest strategically - they treat it like a hobby rather than a business

There are 25 million property experts in Australia aren’t there?

Dumb Stupid Question Idea2Most of us think we know a bit about property, because we live in one so we have an opinion about what makes a good property investment, yet the statistics would suggest that most of us are wrong.

There are close to 10.4 million properties in Australia and while any property can become an investment property - just kick the owner out and put a tenant in place - not every property is an “investment grade” property – one that will deliver wealth producing rates of return.

In fact, I believe that less than 4% of all the properties currently on the market are “investment grade.”

Yet most investors buy a property close to where they live, close to where they want to holiday or where they want to retire, and they buy with emotion rather than strategically.

These investors don’t have a deep understanding of the various property markets around Australia, they don’t realise that searching for property on the internet is very different to researching and they don’t treat their property investing like a business by having the right finance and ownership structures in place.

Since its location will deliver 80% of the heavy lifting of your property’s capital growth, correct market research and asset allocation is critical to investment success.

2. They have no strategy, the wrong strategy or change their strategy

Problem is…owning an investment property is not a strategy.

Most people become property investors without putting much thought into it and don’t have a long term “end game” strategy to understand how they are eventually going to live off their property portfolio.

Almost as bad as having no strategy is following the wrong one.

Residential real estate is a long term, high growth low yield investment.

In my mind the best strategy is to use the capital growth of your property portfolio to grow a large asset base that will give you more choices in the future.

Yet many beginners chase cash flow or the next hot spot or try and make a quick profit by flipping. All recipes for investment disaster.

Then, some investors get spooked when markets soften and rather than sticking to a proven strategy to secure their wealth creation through capital growth, they opt for something cheap and supposedly cheerful instead.

Rather than looking at what has “always worked” over the long term they look for “what will work now.”

It’s no surprise then that their smiles turn into frowns when that inferior property underperforms down the line.

3. They get their investment advice from the wrong sources

 Most investors get their information from the general media.

They don’t realise that it’s not the media’s job to educate them.

Fake NewsThe media has the intention of entertaining or scaring its readers, listeners or viewers, so they click on links and advertisers get in front of more eyeballs and pay more.

Of course we know the media loves negative headlines and there always be people in the media who will tell you it’s the wrong time to invest and this distracts many would be invetsors.

I’ve found that the average investor asks well-meaning but inexperienced friends, family or gets “advice” from project marketers or Real Estate agents who have a vested interest looking after their clients.

The problem is most property investors don’t surround themselves with a good team of independent advisors.

On the other hand, successful investors are happy to pay for professional advice from independent consultants.

They see this is an investment, not an expense.

These successful investors understand that paying for independent strategic property advice minimises their risks and maximises their upside.

They see this as better than paying the market a hefty learning fee like most beginning investors do.

4. They see Australia as “one” property market.

Australia MarketThe media tends to talk about “the Australian property market”, or “the Sydney property market” or the “Melbourne property market.”

This leads many investors to feel that there is one property market.

They don’t realise that within each state there are multiple markets divided by price point, type of property and geographic location.

Generalised commentary is largely irrelevant as each of these markets performs differently, meaning that when researching property, one needs to look much more granularly.

5. They don’t understand how to research the property markets

One of the most commonly researched statistics by investors is the change in median house prices for a particular capital city but, as with any single measure, there are some shortcomings which can mislead investors in what’s really happening to house price values.

The median house price is essentially the sale price of the middle home in a list of sales where the sales are arranged in order from lowest to highest price.

ResearchWhile median prices are a useful tool for understanding the price changes of properties that have transacted in a market, a 10% increase does not necessarily mean that your property is worth 10% more.

In fact, your property could have dropped in value during this time.

What it does reflect, however, is activity in the market.

Median prices are really best used as an indication of the composition of sales rather than a good indicator of changing property values.

That’s why I also look at data such as sales volumes, market depth and investigate ‘like for like’ recent sales evidence to estimate current property values.

Investors should pay less attention to short term trends and understand that median prices (as with all statistics) are more useful when viewed as a change in trend over a longer time frame and not at over a month to month period.

6. They don’t have the correct finance strategies in place

Property investment is a game of finance with some houses thrown in the middle.

Strategic investors have a finance strategy which allows them not only to buy properties, but to buy time allowing them hold their properties through the ups and downs of the property cycle.

They keep a cash flow buffer in lines of credit or offset accounts knowing that there will always be unforeseen surprises and expenses.

7. They don’t understand the importance of demographics

DemographicsMost investors are concerned by the white noise the media keeps feeding us about the short-term trends in our property markets.

They don’t recognise the long-term demographic trends – how many of us there are, how we want to live and where we want to live – will be more important than the short-term ups and downs of property sentiment, interest rates or government policies.

The bottom line

The latest ATO figures reinforce my feeling that obtaining wealth through property is simple, but it’s not easy.

And that’s not really a play on words.

It’s simple if you follow a proven strategy, but it’s not easy because most people make the same mistakes.

They try to go it alone or fall prey to spruikers or marketers and soon they’re mortgaged to the hilt on a property that will struggle to grow in value enough for them to leverage from it.

On the other hand, savvy investors take responsibility for their own education, but they also understand that building a team of experts around them will help them succeed.

They know that they won’t ever know as much as the professionals and realise that it will take years and many transactions to gain true perspective.

So they formulate a strategic plan, get the right finance and ownership structures to suit their needs and only buy investment grade properties that will outperform the averages and then regularly review their portfolio’s performance to ensure they are on the path to financial freedom.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on


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About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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