Less than 1 per cent of investors succeed in building a property portfolio, mainly due to one particular reason.
Blogger: Paul Bennion, managing director, DEPPRO
In recent years there have been many people in the property sector promoting the importance of building a successful property portfolio to create wealth for retirement.
However, the reality is that few people succeed in building a large property portfolio.
The fact that only a tiny portion of people ever go on to build a successful property portfolio is highlighted by Australian Tax Office (ATO) figures.
ATO figures show that 72.8 per cent of individuals who own an investment property own just one, while 18.9 per cent of individuals own two. Only 0.9 per cent individuals or less than one in 100 own six properties or more.
The ATO figures also revealed that for the more than 1.2 million of these individuals, two out of every three were negatively geared or reported a loss on their income.
Generating strong cash flow is therefore critical in the process of building a successful property portfolio, especially if you are just starting off in the property investment market.
The main reason why so many individuals fail to own several properties is that they make mistakes with their first property purchase. This then prevents them from moving on to buy additional properties.
However, individuals who do make the correct decisions at the start-off stage in property investment can go on to amass a highly successful property portfolio that will help fund a comfortable retirement.
This is why is it critical to undertake extensive research before buying your first investment property to avoid simple mistakes that can undermine a long-term strategy of creating wealth through property investment.
Property still remains one of the best ways for mum and dad investors to create wealth, and this has been proven over many years with Perth real estate achieving high level of capital growth consistently over several decades.
Many first-time investors never buy more than one investment property because they make simple mistakes, which include:
- Not claiming their full tax entitlements relating to negative gear and tax depreciation. Tax depreciation benefits alone can add up to 60 per cent of the total purchase price of the property over time.
- Deciding to buy an investment property close to their owner-occupier home rather than looking at investment opportunities throughout Australia.
- Over-estimating rental returns and failing to get independent information on potential returns.
- Selecting a property based upon advice of friends or family rather than seeking independent information.
- Buying into an area that is heavily marketed rather than focusing on overlooked suburbs that might present better long-term capital growth – ie, sleeper suburbs.
- Not undertaking a full assessment of the true cost of buying and holding the property. For example, if the property is an apartment, there are additional cost issues compared to buying a stand-alone house, such as strata fees.
- Selecting the wrong home loan: i.e. principal and interest rather than interest-only, which will help increase cash flow.
- Buying a property in a location that is not attractive to tenants, ie not close to amenities like shops or transport.
- Purchasing a property in an area where there is an oversupply of properties, meaning rents will be low and capital growth rates limited.
- Trying to select the tenant themselves rather than using the services of a number of reliable property management companies.
About the Blogger
Paul Bennion is the managing director of DEPPRO tax depreciation specialists.
DEPPRO Pty Ltd is Australia’s leading property depreciation company, specialising solely in the preparation of tax depreciation reports for residential, commercial, industrial and leisure investment properties.