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Ben Kingsley Blog post by Ben Kingsley

Challenging the top five roadblocks to property investing

Many people WISH they could be property investors, but for whatever reason, don’t commit to the journey. In our industry we see the objections and roadblocks which people put up when it comes to property investing. Sadly, many of these roadblocks are either artificial or ill-founded. In this article I will workshop the top five objections so that readers can decide for themselves whether in fact they have put up the same barrier, and if it is worth challenging that logic once and for all….

 

1.       Only the wealthy can invest

Starting out is often the hardest part for any budding property investor. If you don’t hold equity in a property asset (ie. your own home) then you have to go through the ‘saving up a deposit’ process; akin to what first home buyers face when they save their initial deposit to enter the market. But once this part is achieved, buying an investment property need not be a debilitating process. The key is actually being familiar the market, knowing where the good entry level markets may be, or understanding cashflows and finding properties which meet your investment requirements. For example, a $195,000 house in a strong regional town offering a rental income of $260pw could be a perfect asset for some. It equates to very modest out-of-pocket expenses (if any) and in this low interest rate climate, can represent a ‘set and forget’ asset.

The most important aspect of successful property investing is knowing your cashflows. Once you have established this, you can provision for the costs of property ownership and buy with a ‘long term hold’ philosophy.

 2.       Successful investors were taught young by savvy parents

Most parents especially the baby boomers like to teach their children to be frugal and be careful with their money. The usual saying, “spend only when you need to” and “save your money in the banks where it is safe” are often convey across the dinner tables. Understandably, at that time when the war has just ended and earning an income to support a family is not an easy task, these advices are crucial. But in this age, simply saving your money in the bank or superannuation is not likely to be be sufficient to support your retirement age. If you have a savvy parents who taught you to spend wisely but at the same time, to be smart with your investment and to be able to leverage on your financial position, then you are one of the lucky ones. But like any interest or passion, an investor can’t expect their parents to relate to them or understand their property investment decisions. Investors are best assisted by talking to independent professionals and also tapping into like-minded groups of people.

 

 3.       Property investing is really expensive to get into

Property investing is expensive, but if you get the asset selection right, the duty and purchase costs should only be a one-time expense. Property investing becomes really expensive (and takes some investors into a deficit) when they trade too often. For example, if the purchase costs in Victoria represent roughly five per cent of the purchase price, and then if subsequent agent’s fees then represent a further 3-4% (inclusive of marketing collateral), a quick profit can be eroded by the purchase costs, the selling agent’s costs, the marketing expenses… and then to compound the costs… the Capital Gains Tax. Property is not a short term asset class, nor is it easy in a stable market to make a quick dollar. The best property gains are those which are purchased and held for the long term. Just ask any older investor.

 

 4.       All investments are negatively geared

This is unfortunately the least understood element to property investing. In fact, it’s often the one which can cause the biggest mistakes and upsets. Not only do investors make mistakes when it comes to asset selection, they often make the mistake of talking to spruikers or marketing agents who have a ‘negatively geared’ model to sell. For most investments in metro areas, the properties start out as negatively geared assets, but it’s the magnitude of the negative gearing and the suitability for that given client’s strategy that needs to be better understood. I have been to slick presentations where the marketer’s take a blanket approach and show prospective investors how they could own the property “for as little as X dollars per week”. This information is of no use to the investor if the numbers don’t actually work for their own personal situation. Afterall, how can one cookie-cut approach work for different clients with different cashflows, tax positions and time until retirement? Every investor is unique and the development of their strategy should be treated this way.

 

 5.       You must start when you are young

There is no doubt about it – the younger an investor can start, the better. However we work with first time investors in their forties, fifties and even sixties. It is never too late to begin… the investor just needs to factor in their current cashflows and time until retirement. They may find that their strategy is more ‘yield driven’ than a younger high income earner, or they may find that they have a more aggressive capital growth strategy with the need to sell down asset(s) upon retirement. Careful planning and cashflow analysis will determine this.

The most important message out of all of this is that any investor should seek independent advice if they are looking for any advice.

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