By Victor Kumar
Do you know how many Australians own an investment property?
Depending on which side of the fence you sit on, you might be surprised by how many or how few investors there really are – and especially when it comes to how many properties they own.
According to the ATO, there are about 2.05 million property investors in Australia – now that is about eight per cent of our 25 million population.
The thing is of those 2.05 million, about 71 per cent only own one investment property.
And while we read plenty of scary media stories about “greedy property investors” the fact is that less than 20,000 own six or more investment properties.
Here is what I’m talking about…
|6 or more properties
The question, of course, is why do so few investors own more than one property?
- Beware of the noise
One of the main reasons why most investors only buy one property is because they are unable to look past market or political noise.
Take the current political instability with Peter Dutton vying for the prime minister’s job, many novice investors will use this as a reason to not buy another one or even purchase their first property.
Others, still, will look at stories coming out of the banking Royal Commission and use that as a justification for sitting on their hands because they fear something that they probably can’t explain in the first place.
Smart investors, on the other hand, have the ability to ignore situations which have little bearing on whether investment opportunities exist.
In fact, it’s akin to the chicken running around thinking the sky is falling.
At the end of the day, if you stick to the basics, none of these matter, because it always comes back to asset selection, in line with the end goal.
Another similar reason why most investors only own one is because it is not considered “normal” in Australia to be a property investor.
It’s an unusual behaviour because only eight per cent of the population do it.
And that means that peer pressure, or the herd mentality, will prevent most investors from buying more than one property.
- Poor research
The next reason is that most investors buy property without having any goals in place from the outset.
They know that it’s a “good idea” but they don’t give it much more thought than that.
They want to make money, but they don’t know how much, or even which properties, will help them achieve that. There is no clarity on the result they are after.
So, they generally pick the wrong property, which impacts their lifestyle because of cash flow issues or it’s just too hard so they end up stopping at one.
Many also lean towards more expensive properties, which are unaffordable for them to hold over the long-term, cashflow wise, and that means they often sell within a few years.
They also haven’t selected the best property to help them grow their portfolio.
Australia is fundamentally a middle-class nation, which means most of the population is comfortable but that also means they are also kind of numb to what they can strive for financially.
One of my favourite sayings is “People need to get comfortable being uncomfortable if they want to be financially successful.”
And most people are unable to do this because of societal norms as well as an inability to look past the market noise.
Many people are also not comfortable talking about money because our education system is not geared to financial literacy, let alone financial savviness.
- Short-term mindset
Most investors sell within the first five years because they’ve selected the wrong property or perhaps their goals have changed.
However, the main reason why they sell so quickly is that they are not thinking of the long-term cash flow and capital growth potential of property.
They are not thinking about how property investment can improve their life down the track when they are older or retired.
Instead, when they get about $150,000 equity in their investment property, they often sell it because they are focused more on paying down the debt on their home than on creating an income stream or wealth.
They just want to get to the money now rather than having the willpower to let it compound over time.
Their focus is too much on the equity, plus they have an irrational fear of losing it because of the noise that I mentioned earlier.
However, if they had flipped that around and created an income stream first and then concentrated on paying down the home loan much later, their quality of lifestyle would vastly improve.
They don’t understand that if they reach retirement with a home paid off, but with no other income, they’re highly likely to still have to exist on the pension and their probably, meagre superannuation in their twilight years.
That is the situation for most Australians now and it’s one that most of us would probably rather avoid given half the chance.