In a recent report property analyst Michael Matusik gave his insight into the makeup of property investors in Australia.
Reading between the lines one can see why many beginning investors get it wrong and have to sell up in the first few years.
In his report Matusik said:
“Not surprisingly, most are between 35 and 54 years of age, with just one in five being under 35 years old and just 7% over 65. Many older residents look to rebalance their wealth portfolios toward more liquid assets. On average, the typical Australian investor holds 1.5 residential investment properties. The vast majority are of average means.
Three out of five borrow money to invest and most of these negatively gear. Another quarter actually rent out their previous principal place of residence. Just ten percent buy an investment property outright and very few, just 4%, inherent an investment property.
Over 80% buy for long-term capital gain. Yet, interestingly one in four investment properties are withdrawn (mostly sold) within twelve months, with half sold off within five years. A third sell because they need the money; about a quarter liquidate because of unsatisfactory capital growth; a further 20% because of lower than anticipated rental returns and one in six because it is too much hassle.
Most investors, our survey work suggests, anticipate values to double every ten years and a gross rental yield over 5%. Such performance figures might have been the norm last decade but are unlikely “moving forward”. Pun intended.
Four out of five investors reside in a detached home, yet just half buy a detached house as an investment. Investors seem to like apartments, not to live in as such but as an investment, with just 12% living in an apartment but over a third of them holding an investment apartment.
They also like to stick close to home, with half buying in the same city and even same suburb. Nine out of ten investors stick to buying in their own state or territory. In addition, most seem to like the bright lights of the city, with two-thirds buying an investment within a capital city. In Queensland this capital-centric behaviour is less, with Brisbane attracting a 50% market share.
Within the capitals themselves, inner city locations are more favoured, followed by other areas supported by infrastructure such as railway stations, regional shopping and places of work.”
Matusik’s insights concur with what I have found as being three of the biggest mistakes property investors make are:
- buying the wrong property
- buying the right property at the wrong time in the cycle
- not getting the right type of finance – in particular not setting enough finds aside in financial buffers to buy themselves time.
In many ways your first investment property is the most important one.
If you get it right it will it will provide the springboard to leverage against it and buy further properties. If you get it wrong, you end up the way of many investors…selling up or owning only one property.
And as you read through Matusik’s finding you can see why so many investors end up selling up. They’ve bought their investment properties emotionally – like they would buy their home – they bought with their “heart” rather than their calculator.
Then they get disappointed in their property’s capital growth and give up and sell up saying it’s all too hard.
Isn’t it interesting that at the same time there is a small group of educated investors buy the right type of property that increases in value strongly helping them and slowly amassing significant wealth.