When I talk to people who don’t invest, they always agree that they should be investing. So what’s stopping them? Sometimes it’s because they don’t know how, they don’t have the time or they believe they don’t have enough money. The common theme here is that people always have an Excuse! This is because it’s much easier to do nothing than it is to take action.
If you have read some of my other posts you should now have a good understanding of how and why investing in property can create long term wealth. If not, you can catch up in summary here.
So if you agree that investing in property can give you the best chance of creating future wealth and financial freedom, why don’t you? What’s your Excuse?
I don’t have enough savings or equity in my existing home
Everyone has different financial situations, goals and aspirations, therefore everyone needs an investment plan that is tailored to them. Despite what some ‘bad’ investment advisers might say, there is no ‘one size fits all’ approach to property investment. Even if you have a smaller amount of savings or equity in your home there are still opportunities out there. Despite prices in metro Sydney and Melbourne rising to all new heights, you can still invest in areas elsewhere for a lower entry price and still be exposed to future growth. For example, $45k in savings or accessible equity would be enough for a 10% deposit and purchase costs on a $300,000 house in selected growth areas in Queensland, Victoria or South Australia. A good investment property doesn’t have to cost the earth, what is more important is that the investment is matched to you. A Qualified Property Investment Advisor or Financial Planner with a background in property can help you develop a personalised plan based on your individual circumstances.
What if the tenants trash my property?
I hear this one all the time and unfortunately some landlords have had a bad experience in the past with a bad tenant. Most of the time these landlords have not had sufficient insurance in place and have been left to foot the repair bill. The few people that have a bad story make sure they tell everyone about it. The reality is there are some bad tenants out there, but as long as you have good landlord insurance in place you shouldn’t be liable for any big repair costs. Across my whole portfolio the worst incident I have had is a broken toilet door! You need to put things into perspective and look at the big picture rather than worry about the small chance that something ‘could’ happen.
What about Brexit, the Federal or US Election, the next GFC, and that guy who said Australian property will crash?
No matter what day, month or year it is, there will always be someone who is pessimistic about the future and the state of the economy. There will always be doomsayers and bad news headlines in the newspapers and magazines. The media thrive on bad news rather than good news, as it creates a more dramatic story. You have to zone out from all the noise out there and look at the bigger picture. Take a long term view on everything from the economy to the property markets.
There will always be cycles and property prices will inevitably go up as well as down. But over the long term history tells us that the value of property goes up on average over time. You can see from the chart below the price index of established houses in Australia from 1986 to 2016. There have been times of stagnation and time when prices have fallen (post-GFC especially) but over the long term the projection is upwards. One thing that sets successful investors apart from the rest is the ability to hold on for the long haul. They don’t run for the hills when prices start to fall!
What if negative gearing rules change?
As I mentioned in my post about Cash Flow, negative gearing should not be viewed as a property investment strategy. Negative gearing is purely a financial outcome after your property income and expenses have been taken into account. There has been a lot of debate around negative gearing changes this year and the Labor party and the Coalition party have very different views on the matter.
Despite the big promises Labor made to scrap negative gearing, the underlying benefit wasn’t actually going to be removed. Labor only proposed to stop people claiming a loss from rental properties against their personal income. But, as with most personal investment products and businesses, if a loss is made in one year, it can be carried forward to be used against any profit in the following year. So in fact, under Labor’s proposal the benefit was still going to be there, but it would actually be deferred until your property became positively geared and you could offset the losses then.
Regardless of which party is in power, there is always a risk that the government can and will change rules around taxation, superannuation and investment. As a well informed property investor, all you can do is try to understand and work with the rules at the time. The tax outcome of your property portfolio will change over time, but again you must take a long term view. What you should not do is use this as an Excuse to not invest, as you will never take action to create long term wealth for yourself and your family.
What if interest rates go up?
Interest rates are currently at the lowest level they have ever been, around 4% on a standard variable rate loan. As a property investor, it has never been so cheap to borrow money to purchase property. Some people don’t remember a time when rates were higher than 8%, but back in 1990 interest rates were as high as 18%! It is inevitable that rates will go back up over time and so as a home owner or an investor we should be prepared for this. I don’t think we will see 18% again but the long term average of interest rates is around 7%.
Whenever I do a cash flow calculation I assess what will happen if rates go up by at least 2-3%. This does and will have an impact on your cash flow but what we also know from history is that during periods of interest rate rises, the growth in rental returns also rises. As your loan repayments go up, the amount of rent you can charge will also go up at a similar rate.
Again, as a well informed property investor you can only work with the lending rates that are offered at the time. It is how you manage your cash flow that will decide how successful you are.
What’s your Excuse?
Whether it’s savings, bad tenants, bad news, rule changes or interest rates, there will always be those who use these things as an Excuse and never take the steps to invest. The other thing that sets successful investors apart from the rest is the motivation to take action. So…what’s your Excuse?
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