Do you know how many people own more than one investment property in Australia?
Trust me – the answer will surprise you!
You see, while there are about two million investors in Australia, about 75 per cent of them own just one investment property.
Only about 18 per cent own two, which rapidly drops down to about five per cent of investors who own three properties.
But what do these statistics really mean?
Are most Australians simply happy owning their home and one investment property?
Or would they have preferred to own more, but never got past their first one?
Well, to answer that question, here are seven reasons why many investors have no choice but to stop at one property.
1. They don’t start out on the right foot
The selection of your first investment property will ultimately determine whether you can afford to buy anymore.
If you buy an investment grade property in the right area at the right price at the outset, as it increases in value, you’ll have another deposit and be able to get right back in the market again.
Following a time proven strategy is the key to growing your portfolio.
The thing is your first property is what will propel your portfolio forward, helping you to reach the magic number of properties that you need.
Or not, if you buy the wrong one!
If the experience was horrible (you lose money, you don’t get significant capital growth) you may never want, or be able, to buy again.
2. They don’t understand their financial situation or goals
Before you even start searching for your first investment property, you must understand your financial situation.
And you must be brutally honest about it, too!
Far too many Australians live beyond their financial means and then are too scared to face the reality of their situation.
You need to understand where you are at now financially and work backwards to see what changes you need to make in order to start investing successfully.
3. They don’t really know what they’re doing
Because about 70 per cent of Australians own a property or they’ve lived in or rented a property everyone thinks they’re a property expert.
But buying an investment property is far different to buying a house.
One is always emotional, while the other needs to be devoid of emotion altogether.
You should study every aspect of property investing – from drivers of property price growth and knowing how and where to do your due diligence, to being tuned into economic trends and property cycles.
You need to immerse yourself in real estate until you understand every aspect of the game and you should surround yourself with an expert team who can help you achieve your property goals, too.
4. They don’t have a clear idea about how they’re going to make money
One of the strangest things about property investment is that not enough people treat like a business, when it is one!
At the end of the day property investing is about making money, so it makes sense that before rushing in and buying up real estate, to understand the investment fundamentals of property.
Let me explain: Building a portfolio requires planning your fourth and fifth purchase while still on your first.
So, you need to treat real estate like a business and ask the tough questions such as:
- When will I make money from the property?
- How will I fund the next property?
- Where is the next deposit coming from and how much will I need?
- Is the property I’m purchasing now going to help me with my next purchase or will it set me back?
5. They don’t have a written detailed investment plan
If you want to be successful at property investing, then you should have a written business plan before you even get started.
You need a clear idea on how are you going to manage your household budget to ensure you have the available cash to secure the loan for that new property.
Your investment plan should also include your overall financial goals and also your personal goals to ensure that your property investments will deliver those for you.
Having an investment plan ensures that you’ll be able to factor in the impact of unforeseen scenarios as a landlord.
What successful investors do differently is that they plan to manage these types of situations in advance, so they won’t be vulnerable and caught off guard if and when the situation occurs.
6. They’re not willing to reassess their situation
If you’re stuck with an underperforming property and are unable to move forward, it can be difficult to turn things around without making some significant decisions.
Some investors get stuck with a property that ties them up financially because it hasn’t grown in value much and is also not offering a great yield, either.
So, if they don’t have the equity or cash to buy a second property, then clearly something needs to change.
You could sit on your hands and hope and pray that the markets turns in your favour, but that is mostly a futile exercise.
So, what you may have to do is….
7. Sell and start again
If you want to get it right and be able to move forward, you may need to sell and start all over again.
While I always advocate a buy and hold long-term strategy, sometimes a property can be like a financial millstone around your neck and needs to be jettisoned ASAP!
That way, once you sell it, you can release the equity, free up your borrowing capacity, learn from the error in judgment, and buy the next property in such a way as to not get hamstrung again.
And the next time around, you would have the wisdom of what not to do and not have to pay such a high learning fee.
That’s the thing with property investment…
When you get it right, you have the potential to achieve spectacular capital growth over the years.
But if you get it wrong, you could end up with a property that drains your finances as well as your chances of ever becoming part of that small group of Australians who own multiple properties.
I know which group I prefer being in.
Published in Michael Yardney’s Property Update by Kate Forbes, 6th July 2017