Let’s be friends
We like to get to know our clients individually… now you can get
to know us on a personal level too.
Landlords are sometimes portrayed in the media as wealthy individuals who would do anything to squeeze an extra dollar out of their tenants. But while this may be true for some, the reality is that the average landlord in Australia doesn’t match this description at all.
The first thing to note is that there are 1.7 million landlords in Australia. This means that around 1 in 7 Australians is a property investor (which goes some way into explaining why politicians might be wary of upsetting this rather large voter pool).
The ATO statistics show that 63% of investors are negatively geared, which means that their holding costs (e.g. interest payments, rates, and other costs) are greater than their rental income and made a total loss of $4.810 billion. But what is most revealing is that nearly 75% of these people earned less than $80,000 per annum.
It might be surprising that the majority of property investors in Australia are in the low-to-middle income brackets, but their age is perhaps less of a surprise. According to the 2009-10 Household Wealth and Wealth Distribution statistics from the ABS, nearly three-quarters of investment properties were held by individuals aged 45 and over. Baby Boomers held just over 55 per cent of these properties.
Retirement planning seems to be a driving factor for the majority of property investors. However, many of them are leaving it too late to start investing. The earlier you can get started the more time you have to build your equity base and the fewer risks you have to take.
Research conducted by property analyst Michael Matusik a few years back showed that three out of five investors borrow money to invest and more than 80% of investors buy for long-term capital gain. Mr Matusik also observed that most investors expect that property values will double every ten years.
Whilst historical data might suggest that this expectation isn’t unrealistic, the reality is that different properties will always perform at different rates. If the right properties aren’t purchased, investors could easily see their portfolio stagnate or even decline over a ten year period. This is why expert assistance is needed when it comes to selecting an investment property.
According to Mr Matusik’s findings, about 25% of the investors decided to sell within 12 months of purchasing the property and 50% sold within five years. The reasons for selling were varied. About one third of investors sold because they needed the money, a quarter due to disappointing capital growth, 20% because of low rental returns, and one in six because they believed owning an investment property was simply too much hassle.
Given that most investors understand that property is a long term investment, and buy with the intention of realising long term capital gains, 75% will sell within the first five years. Ironically, it is generally after 5 years that property investments begin to truly realise their capital growth potential.
What’s clear to me is that to create serious wealth, you can’t afford to be an average property investor. You need the right information, advice and opportunities to give you an edge and ensure your properties outperform the rest. Only then will you be more likely to reach your goals in a reasonable timeframe.