Either they have been investing by themselves and have made a few bad decisions, which has cost them dearly, or they may have been involved with a “property investment” company that gave them poor or biased advice that resulted in an under-performing portfolio. When these new clients come to Metropole they often bring a litany of complaints with them about their previous experiences.Of course, we can all learn from such experiences, so I thought it might be worthwhile to share the most common complaints received by Metropole Property Strategists with you.
1. Poor property selectionSome complaints we hear at Metropole Property Strategists about having missed the recent property boom because they owned the wrong properties and didn’t get sufficient capital growth. Some bought off the plan and overpaid for their property. Others bought in regional Australia where property values didn’t increase as much as in the “big smoke.” I know some “experts” recommend investing in regional Australia, but I generally don’t. While some regional centres are great places to live and bring up your kids, they are not the right locations to invest in property. Jobs growth is slower there, unemployment is higher, wages growth is generally lower and there is no shortage of land. And this obviously translates to lower population growth, less demand for property and few growth drivers which lead to capital growth. At Metropole we strongly advise against investing in regional areas, and certainly not in boom/bust locations like holiday spots and mining regions.
2. Poor cash flow managementAnother common complaint is they had difficulty holding on to their properties because they hadn’t organised their finances correctly and didn’t have a cash flow buffer in place to cover the negative gearing shortfall. However, there is a financing solution that will allow you to own high growth properties and service the cash flow shortfall. The loan structure I’ve recommended for years to manage negative gearing is to set up a Line of Credit. You only use it to pay to the negative shortfall of your property portfolio each month such as the interest on the property investment loan, or for property expenses and most importantly to have as a “rainy day financial buffer” to buy you time if the markets turn sour. However, it’s important that you set up your structures correctly to ensure you can claim the tax deduction, so it’s critical to seek professional advice.
3. Wrong ownership structureOthers have complained because they’ve come to realise that they own their investment properties in the wrong entities because they didn’t seek structuring advice prior to the purchase. It’s important to begin with the end in mind – what will your property portfolio look like in 10 or 15 years time? Will you be working then, or won’t you? Do you want to pass your legacy on to your children? In what entities would you like to own your properties then? It’s important to think these things through before you buy your properties and then purchase them in the correct entities.
4. Running out of timeA complaint that is all-too-often heard is people who have left their investment run late (often because of fear) and who are now approaching retirement age and suddenly realise they haven’t built enough of a nest egg. The worrying reality is that more than half of Aussie baby boomers currently believe they’ll run out of money and need the aged pension, while many others will have to significantly scale back their lifestyle. Clearly superannuation isn’t going to be enough for most Australians, and it seems like the government isn’t going to be able to fund the type of lifestyle that most Australians want in retirement. That’s why I think more baby boomers should use the equity in their homes to invest in residential real estate, rather than just trying to pay off their home loans. Of course, they need to buy the right type of property, which is one that has a level of scarcity, in the right location, at the right time in the property cycle and for the right price. And to achieve this it would be good idea to access impartial advice.
5. They missed the boatOthers come to us complaining they weren’t sure where to turn and have sat on the side lines through the latest property cycle. Most of these people didn’t invest because of information overload – analysis paralysis – trying to time the property cycle or waiting for conditions to be “just right.” The problem is that the property cycle isn’t easy to read. The various phases of property cycles arn’t clearly defined nor is the length of each cycle and the various stages varies from cycle to cycle. Cycles don’t occur simply because a certain number of years have passed, they occur because of a combination of macro and micro economic factors and the interplay of several social and political issues. But even if you feel you’ve “missed out” on buying in the last few years, the beauty of Australia is that we have a number of capital cities that are worth investing in and each are at different stages of the property clock. Of course, you must do your research of course and understand the relevant markets, or perhaps engage an independent property strategist to guide you.
6. Off-the-plan woeAnother common complaint we see at Metropole Property Strategists is from investors we see is from investors who’ve bought a property off the plan from a property marketer that hasn’t achieved any capital growth or rental growth in the past five years. Do I believe that buying off the plan makes good investment sense? The answer is usually no. While a few investors have made money buying off the plan, the landscape is littered with many more who have regretted their purchase. Frequently they’ve found the value of their property on completion is considerably less than they paidand some will have to wait for over a decade before they see any capital growth. In general they would have been much better off buying an established apartment rather than a new one.
7. They believed the hypeMany unfortunate investors bought the wrong property because they looked to the next hotspot. While they may have enjoyed some short-term capital growth, since then property values have dropped as have rentals and they now have negative equity – especially those who bought in mining towns. Many of Australia’s worst performing property markets over the past few years have mirrored the ups and downs of the mining sector and many investors have been burned by following the advice of the “hot spotters” who recommended them. Most qualified experts generally don’t recommend investing in one-industry locations, such as mining towns, because they lack multiple growth drivers and they’re dominated by investors rather than owner-occupiers who bring stability to the market.
8. Depreciation confusionThen there are those investors who didn’t maximise their tax position because they hadn’t obtained a depreciation report. For investors, depreciation deductions can make a real difference to reducing your taxable income and also make a property cash flow positive sooner. The average first year residential property depreciation claim sees investors receiving between $5,000 and $10,000 in deductions. This is no small amount and really doesn’t cost you anything out of pocket, so the benefit of obtaining a depreciation schedule should never be underestimated.
9. Property management problemsAnother regular complaint I’ve seen is from those who’ve tried to save money by using a cheap property manager or by self managing their properties and running into trouble. A good business owner recognises that they can’t do it all themselves. They hire a good team of professionals to help them effectively manage their interests and generate the best possible profits. The same should apply for property investors. Employing an experienced property manager who intimately knows the area your property is in will be of great benefit in the long-term.
10. Got caught out by spruikersSome spruiker tactics include high pressure sales tactics characterised by rushed decision-making and contract signing and the payment of fees (including discounts offered to seminar attendees who sign up on the day). Other tactics can be claims of capital growth rates that may not be independent or credible, or spruikers not allowing questions, or who ignore or downplay the risks and costs involved in property investment. It is vital that before buying an investment property from a property promoter, investors should conduct their own research and always obtain independent financial and legal advice.
11. Failing to gather a great teamSuccessful investors build a great team around them. They realise they don’t have to be an expert in every field if they develop a good network. In fact they know that if they’re the smartest person in their team they’re in trouble. This network includes a good finance broker, a smart solicitor, a property savvy accountant and a knowledgeable property strategist such a Metropole Property Strategists.
There you have it – 11 common complaints that we’ve heard at Metropole Property Strategists from property investors. I guess that’s why I often say property investment is simple – but it’s not easy.
So what’s the alternative?Clearly many property investors fail to achieve the financial freedom they desire so the answer is not to do what the majority of property investors do, and instead invest strategically like that small group of successful investors do. In Australia the facts are (A.T.O Stats):
- 73% of property investors (1,284,852) only own one investment property
- 18% of investors (318,295) own two investment properties
- 5% of investors (96,991) owned three investment properties
- 2% of investors (34,967) own for investment properties
- 1% of investors (14,555) own five investment properties, and another
- 1% of investors (15,264) own six or more investment properties
- A wealth success mindset – this is the most important layer because it is the foundation for your wealth. If you don’t get your head “right”, then anything else you do will suffer. Your wealth success mindset with consists of your beliefs, your habitual thoughts and your habitual actions in regards to money and wealth.
- Skills and knowledge – most of us are not taught how to invest, but finding the right mentors will speed up your journey.
- The correct property investment strategy – many investors fail because they follow a flawed strategy. In my mind residential real estate is a high-growth, low yield investment and to try and invest in real estate for cash flow leads to failure.
- Risk management – strategic property investors protects their assets by owning them in the right ownership structures, having sufficient financial buffers in place to buy themselves time through the ups and downs of the property cycle, insurance is to protect themselves and their assets and surrounding themselves with a professional team of advisers.
- Cash flow – while I believe it’s essential to invest for capital growth, I recognise the importance of cash flow management through rental returns and financial buffers. While capital growth gets you out of the rat race, it’s really cash flow it keeps you in the game till you’re ready to get out.
- Asset growth – this is really the aim of the game – to build a sufficiently large asset base that will one day give you sufficient cash flow to replace your personal exertion income so that you can go to work because you choose to not because you have to.
What’s next for you?
If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole. The multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased. Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level. Click here to organise a time for a chat. Or call us on 1300 20 30 30.When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.
Metropole Property Management Reviews.
“The service we received from Christina has been excellent. During our initial meeting she took the time to understand our reasons for investing, and what we what we wanted to get out of it. She answered all of our unasked questions about property management, and then some. As a client having purchased the property from interstate, we had comfort in knowing that Christina has invested in property herself, and throughout the property leasing campaign we felt as though Christina was dealing with our property as if she would have done if it was her own. The leasing strategy was considered and professional, and we were kept updated with regular reports and phone calls. Ultimately we achieved a good rental outcome. Christina is an asset to the Metropole team.”
Tristan D’Aloia, QLD
“Due to working in a professional business and having very high expectations on service, communication, professionalism and taking the time to understand our clients and care, Sophie has demonstrated this beyond my expectations. This is one of the reasons we decided to be a tenant for 7 years. As she made it easy when something came up through life requirements, changes and personal scenarios. Sophie worked with us and with the landlord and we cannot thank you enough. She delivered the highest standard of service and came back to us promptly when we called. I would like to thank you personally for everything and hope she can be recognized through the business for exceptional service. Good property managers are hard to come by and the smallest response is sometimes all we need. I highly recommend Metropole when people are looking to invest or rent. It is so important to treat all your clients as future clients tomorrow as there circumstances can change and Sophie never treated us any different for renting. It was sad to close the door on Olympian Avenue and thank you to Sophie and Metropole for everything.”
Emma Pearce, VIC
“Thank you for checking in and yes we are both well, very hectic period over December but things have settled down. I have been meaning to drop Metropole an email in regards to Chris so it’s good timing. As you are probably aware our previous tenants decided to vacate in December, probably not the best time to be trying to find new tenants. But Chris did a great job and we had new tenants in with a vacancy of just a few days. He was in constant contact with us in relation to works that were required in the apartment and always got back to me when he said he would. So yes, we are very happy with the service from Chris.”
Robert Lucas, ViC