{"id":8343,"date":"2016-06-27T01:00:23","date_gmt":"2016-06-26T15:00:23","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=8343"},"modified":"2016-06-27T01:00:23","modified_gmt":"2016-06-26T15:00:23","slug":"why-property-investors-fail-part-1","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/why-property-investors-fail-part-1\/","title":{"rendered":"Why property investors fail – Part 1 – Michael Yardney"},"content":{"rendered":"

 
\nFifty percent of those who buy an investment property sell up in the first 5 years. Put another way – 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.\u00a0Michael Yardney<\/strong><\/a> shares some thoughts on how not to fall into that category.
\n <\/p>\n

Transcript:<\/strong><\/h4>\n

Kevin:<\/b>\u00a0 I sometimes wonder, what are the common investor concerns? What are the concerns that most investors have about the market and investing in property? So I asked Michael Yardney whether he could think back and talk to his team about what they see as those common investor concerns. What\u2019s coming up time and time again?
\nGood day, Michael.
\nMichael:<\/b>\u00a0 Hello Kevin.
\nKevin:<\/b>\u00a0 How did you go with the team? Did you put it together?
\nMichael:<\/b>\u00a0 Yes, I did. Interestingly there were common concerns that when people came to us and said, \u201cLook, I want to get involved in property,\u201d common concerns they had, reasons why they hadn\u2019t achieved the financial freedom that they wanted or gotten to where they had hoped to get to, considering that in our markets recently, property values have risen considerably, Kevin.
\nKevin:<\/b>\u00a0 I imagine there would be a bit of duplication in some of those, too, where they cross over lines. But you\u2019ve actually been able to identify 11 core concerns; is that right?
\nMichael:<\/b>\u00a0 Eleven common complaints people come and say, \u201cGee, I wish I knew that before.\u201d
\nKevin:<\/b> Okay, let\u2019s deal with them. We\u2019ll deal with all 11 today in the show and we\u2019ll break it into two parts, Michael. So let\u2019s deal with the first five or six.
\nWhat was the first one?
\nMichael:<\/b>\u00a0 Kevin, the first one was that they feel they\u2019ve missed the recent property boom while they\u2019ve seen others have managed to grow their property portfolio. In general, it was because of poor property selection. They owned the wrong properties. They didn\u2019t get the sufficient capital growth.
\nSome bought off the plan and overpaid for their property; others bought in regional Australia where property values didn\u2019t increase much \u2013 not as much as in the Big Smoke. I know there are some experts who recommended investing in regional Australia, but I\u2019ve avoided those locations because we had more jobs growth, more employment, and more wages growth in the capital cities where there was a shortage of land, and that caused population growth and capital growth in property values.
\nKevin:<\/b>\u00a0 Great. What was the second one, Michael?
\nMichael:<\/b>\u00a0 Many had concerns because they had difficulty holding onto their properties because they hadn\u2019t organized their finance correctly, didn\u2019t have a cash flow buffer in place, many of them because they were hoping to get a level of negative gearing but they couldn\u2019t cover the shortfall.
\nA lesson from this is get your finances set up correctly. Cash flow is important, even if you\u2019re investing for capital growth because cash flow keeps the wolves away from the door and keeps the banks happy.
\nKevin:<\/b>\u00a0 And line of credit, Michael?
\nMichael:<\/b>\u00a0 Either a line of credit or an offset account. You really need to have some sort of financial rainy-day buffer, not just for a shortfall in your mortgages but also for all of those little things that go wrong and the unexpected expenses you have, Kevin.
\nKevin:<\/b>\u00a0 Yes. These are not necessarily in any order, Michael, are they? These are just the concerns as you see them.
\nMichael:<\/b>\u00a0 No, they\u2019re not. But interestingly, I think that the first two I mentioned \u2013 the poor property selection and the poor cash flow management \u2013 are really still among the most common issues that investors who haven\u2019t done well have.
\nKevin:<\/b>\u00a0 And the third one for us?
\nMichael:<\/b>\u00a0 A lot of them were concerned that maybe they bought the property in the wrong structure, they bought it in their own name, or maybe they should have bought it in a family trust or their self-managed super fund.
\nIt\u2019s important to begin with the end in mind. Therefore, if you are planning that in 10 or 15 years\u2019 time when you retire you\u2019re going to have a substantial portfolio, work back from then and understand what you would like it to look like then more than what it is that you need today because it\u2019s too hard to change ownership structures down the track.
\nAnd that really involves sitting down with a property strategist and an accountant who can give you correct advice, Kevin.
\nKevin:<\/b>\u00a0 Yes, get the right people on your team.
\nWhat was the fourth one, Michael?
\nMichael:<\/b>\u00a0 I found that people were concerned that they\u2019d left their investment run too late. They were now approaching retirement age and suddenly they realized that they hadn\u2019t built enough of a nest egg. The worrying reality is that for most Australian Baby Boomers, they believe they are going to run out of money and need the pension or need to be dependent upon the government, and we\u2019re not sure that the pension is going to be there in the future.
\nClearly, superannuation isn\u2019t going to be enough for most Australians because most Baby Boomers nearing retirement didn\u2019t have compulsory superannuation when they were young. So the concern really is \u201cGee, have I got enough time to still build a good enough cash machine?\u201d
\nKevin:<\/b>\u00a0 Of course, many people sat on the sidelines, didn\u2019t they? Does that lead us into the fifth one?
\nMichael:<\/b>\u00a0 Life got in the way for a lot of people. They had their family, they had their kids, and they just didn\u2019t think of investing.
\nThe other one considers \u201cHave I missed the boat?\u201d They weren\u2019t sure whether it was too late now considering that we\u2019re at a more mature stage of the property cycle. I found that many investors didn\u2019t invest because of information overload. Some were stuck with what we call analysis paralysis. They just didn\u2019t know where to start or which way to go.
\nI guess my advice for those investors would be not to try too hard to time the property markets. Also remember that Australia is not just one property market; each state is at its own stage in its own property cycle. Sure, it\u2019s a bit hard to work out where we are in the cycle with all the messages there, and again, that\u2019s probably a good reason to get some good advisors on your side who have some \u201con the ground\u201d knowledge in those property markets, Kevin.
\nKevin:<\/b>\u00a0 Michael, I think before we take a break, we have time for just one more, if we could.
\nMichael:<\/b>\u00a0 A very common complaint we\u2019re seeing is investors who have bought off the plan. This has caused concerns now because when they are coming to settle, sometimes they don\u2019t have enough finance \u2013 the banks aren\u2019t lending as much; they were hoping not to put any more down thinking that the value of their property would increase but it hasn\u2019t. Others are finding that the properties aren\u2019t valuing up for what their contract price was. Others were lured by various incentives.
\nIn general, they would have been much better off buying an established property than a new or off the plan one, Kevin.
\nKevin:<\/b>\u00a0 Michael, that is six you\u2019ve given us now. We have another five to go. We\u2019ll come back later in the show and have a look at those with Michael Yardney.
\nThanks, Michael. We\u2019ll catch you later in the show.
\nMichael:<\/b>\u00a0 Great. Look forward to it, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"

  Fifty percent of those who buy an investment property sell up in the first 5 years. 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