In fact, the latest ATO data shows that 71.5% of investors only own one property, and that drops dramatically to 18% owning 2 properties and just 9.7% owning 3-5 properties.
Why is it that so many investors never get past their first investment?
Here are 11 reasons why there aren’t more property moguls…
1. They don’t have a strategy
Investing may be simple, but it’s not easy and that’s not a play on words.
I’ve often said property investment is a game of finance with some houses thrown in the middle.
So, when it comes to building a substantial property portfolio, a time-tested, proven property investment strategy is critical and part of that is having a sound financial strategy.
Without a property strategy in place, your property investment will lack direction, and the wrong investment decision will be made at the wrong time and for the wrong reason.
How to overcome this obstacle:
Investors should ensure that they have a solid, time-tested strategy in place, know what their ultimate goal is, what stage of the journey they are at and the type of property that suits their risk profile, their strategy and their cash flow requirements.
All our clients at Metropole understand how important having a strategy is, and, with our help, all have one in place to help keep their investment decisions on track.
As a result, they don’t get distracted by the latest fad or idea and they are able to avoid distractions.
They have risk mitigation strategies in place, own the right properties in the right entities and have financial buffers in place to ensure that they can ride the market as it goes up and down through each cycle.
As a result, when it comes to our clients, our numbers are far higher than the average - 21% own more than 2 properties for example, while 7% own 6 or more properties, which is 7 times the national average.
2. They believe their income isn’t high enough
One key issue preventing many property investors from buying more properties is their perception that you need to be rich to invest.
While it’s true that a regular income is vital for securing finance and paying continued out-of-pocket expenses, that doesn’t mean a disciplined investor with a lower income is excluded from the opportunities to invest in property.
How to overcome this obstacle:
The key is developing the financial discipline to spend less than you earn, save the rest until you have a deposit and then invest or many beginning investors use the equity they build up in their homes to get into the property market.
3. They lack cash flow
Another preventative stopping many investors from becoming true property moguls is the misconception that they need to pay investment losses out of their leftover cash flow from their income.
In other words, many investors believe that they need to cover the difference between their mortgage and rental earnings from their wages.
If that equates to $10,000 and you earn around $70,000 or even $100,000 then there would fast be a limit on how many investment properties you can afford to cover on top of your day-to-day bills and expenses.
How to overcome this obstacle:
The finance strategy we provide for our clients of Metropole allows them to buy time, not just properties.
Their finance strategy allocates a financial buffer to “buy” themselves a number of years of cash flow shortfall as well as allowing them to ride the ups and downs of the property cycle.
4. Their investment lacks capital growth
Sure cash flow keeps you in the property game, but it’s really capital growth that gets you out of the rate race by allowing you to build a substantial asset base.
One of the most common mistakes that novice investors make is being fixated on rental yield instead of on capital growth, which is where the secret of investing success really lies.
Many beginning investors want cash flow-positive properties because they are looking for choices in their life, but they don’t understand they need to build an asset base first and then “buy” cash flow from their property portfolio – it must be done in the right order.
When investors own a property that lacks strong capital growth, this means they can’t then leverage upon it to buy the next investment property.
Chasing a magic property investment formula can be a fruitless exercise and if you do what most property investors do, you’re likely to get the same result – your wealth creation journey will come to a halt as well.
How to overcome this obstacle:
The best way to grow a substantial property portfolio is with good capital growth which isn’t taxed like rental income is, and the way to secure this is by only buying investment-grade properties.
This will allow them to use their equity to reinvest in more investment properties.
The best way to identify these high capital-growth investment-grade properties is by getting good advice from a knowledgeable professional.
These people will be able to advise on where the best prospects are for capital growth and not buy using historical data as most people do.
That’s looking in the rear vision mirror.
And not buy looking for the next hot spot, as this year’s hot spot becomes next year’s “not spot.”
The research department at Metropole spends a lot of time identifying areas that are going to have long-term, strong economic growth, which leads to jobs growth, which in turn leads to population growth, which in turn leads to demand for rental and housing accommodation and eventually, this pushes up rents and property values.
We recognise that strong capital growth is the key to creating wealth through property investment.
And our clients invest with the main goal of capital growth, realising that this may mean less cash flow in the short term but it enables them to buy more properties in the long term and boost their capital growth further.
5. They don’t think long term
Some property investors don’t become property moguls because they are looking for cash flow and thinking about the here and now, rather than the long-term.
They buy properties that may solve a short-term problem (cash flow) but won’t give them the long-term results they hope for.
Others invest to minimise their tax and yet others lack confidence and are concerned about accumulating debt, or are confused about the benefits of negative gearing.
Either way, they don’t think about their property investment as a long-term exercise, and this prevents them from doing it effectively.
How to overcome this obstacle:
Sure, some people are happier to take more risk than others, but essentially what is needed here is a change of mindset.
Having the right information and getting good financial and investment advice could help any investor to have the confidence to keep building on their investment opportunities and see their wealth keep growing.
As is adhering to a known, proven and trusted property investment strategy that has stood the test of time.
6. They’re impatient
It’s common for investors to lose interest when the speed at which they expect their wealth to accumulate is out of step with reality.
It’s unrealistic to expect to build a high-quality portfolio overnight - often it can take several years to build enough equity to build on a property portfolio and buy your next property.
And it takes most 20 to 30 years to build a sufficient asset base to be financially free.
Of course, this is not what most investors want to hear - they like reading stories about property moguls who now own 10 properties but only a couple of years ago were flipping burgers at McDonald's.
I know there are people out there telling you they will teach you how to do that, but in my mind, that's a bit like selling tickets to see unicorns.
How to overcome this obstacle:
Strategic investors understand that successful investing is when you give yourself choices in the future.
They’re not looking for short-term profits or an immediate cash flow but rather a legacy for their children and future generations, so their property journey often spans 20, 30 or more years.
They buy their properties in structures that are tax effective, protecting their assets, and allowing them to pass on their wealth to future generations.
They’re educated with clear long-term goals and a great strategy in place… and they’re patient.
After all, it’s more important to buy well and hold than rush purchasing underperforming assets.
7. They lack knowledge
Financial fluency and understanding of how finance, tax and the law relate to property are high on the list of things successful property investors need.
It’s archaic to think that in order to retire comfortably you need to pay off your home loan, or investment loans, in full.
Without the right knowledge or education, a property investment journey could have failed before it’s even begun.
And, of course, getting the wrong advice is detrimental to property investment success.
Lack of knowledge equates to a lack of understanding and therefore a lack of success.
How to overcome this obstacle:
It’s not just keeping up with the economy or researching the markets that are important.
It’s critical to get a team of advisors around you – people who have achieved the level of financial success you’re looking for.
Successful investors are prepared to pay for professional advice as they recognise the most expensive advice they can get is free advice that is wrong.
You see…there are a lot of enthusiastic amateurs out there who despite their best intentions, and even if they’re confident that their thoughts are correct, will steer you in the wrong direction.
And that’s not necessary because they mean to or intend to, but because they don’t have the experience or perspective to give the right advice.
So my recommendation is to be very careful to choose advisors who have achieved the level of financial success you’re looking for in whatever field you are asking for assistance with; be it property investment, business, or relationships; because there are just too many inexperienced pretenders out there.
8. They let their emotions take over
It's hard not to let your heart rule your head when buying an investment property, but letting your ‘gut feeling’ make decisions can lead to catastrophic errors.
The truth is most “gut feeling” is driven by fear or greed.
Fear of missing out, becoming emotionally attached, being too honest or trying to time the market are fast-track ways to end up making expensive and unnecessarily hasty decisions.
How to overcome this obstacle:
Keep your emotions in check.
Successful investors leave their emotions at the door - they make decisions quickly with their heads, not by using their hearts.
They commit, set goals and follow a plan so they’re accountable and they stay on track with their strategy.
They don’t succumb to FOMO (fear of missing out), becoming emotionally attached to a property or buying the wrong thing or for the wrong reason instead they treat their property investment like a business.
And they use their property strategist or buyers’ agent as an “unreasonable friend” to stop them from making emotional decisions.
9. They procrastinate
The error of moving too slowly is just as bad as moving too hastily.
Investors plagued by analysis paralysis or those who’ve had a bad experience in the past are highly likely to stop at one or two properties.
As are people who are ‘too busy’ in their businesses, and careers and focusing on the family on the weekends to action their property investment plans.
How to overcome the obstacle:
Review your lifestyle priorities and work out what you want and how to get it.
Accept past mistakes as opportunities to learn and use that knowledge to build long-term wealth.
Yes, buying an investment property, or an additional one, will take time and it’s true that research and education are vital.
But if you make the commitment sooner rather than later, those hours of research and searching will put you closer to the ultimate goal of financial freedom.
10. They make poor investment choices
Poor investment choices are a key reason so many property investors never get past the hurdle of their first investment property.
From poor advice to not understanding the advice received or even just going it alone, many property investors without a strategy or the right team find themselves making poor investment choices, which means they end up buying an underperforming property that doesn’t achieve the rental or capital growth they need to grow their portfolio.
This not only derails their future portfolio-growth ambitions but erodes their confidence in the property investing game.
How to overcome this obstacle:
Most investors are not really in a position to intimately know more than one or two property submarkets, so they really should get independent property advice to ensure their purchase choices are based on solid evidence.
It’s important to focus on investment-grade properties in A-grade locations, rather than just buying ‘cheap’ properties.
And always get sound investment advice to prevent you from making any bad moves along the way.
11. They don’t evolve
While creating a great investment strategy is an excellent way to ensure you stay on track with your financial goals, sometimes things change.
In fact, you should plan for your plan not to go to plan.
Learning how to evolve your plans and change them along the way, if and when appropriate, is just as important as formulating an initial plan.
Make sure you’re climbing up the right property ladder.
How to overcome this obstacle:
Successful property investors realise that the power is in the “planning process” more than in the plan.
Now this doesn’t mean they react to the last 30 minutes or 30 days of news – it would be silly to do so for your 30-year plans, but it means they are able to adapt and evolve throughout their property investing journey.
They also do this through continuous learning as well as by working with mentors and strategists to regularly review the performance of their portfolio.
It’s the continuous learning process that keeps them ahead of the curve in their property investment game, and almost certainly helps secure a space in the top calibre of Australia’s investors.
A key takeaway for investors…
For decades we at Metropole have recommended property as an excellent wealth-creation tool because it provides both high capital growth which grows your net worth, and a secure income which increases over time, to help you pay the mortgage.
Remember, it takes a few decades to grow a sufficient size asset base to become financially independent, using the power of leverage, although it is possible to speed it up.
It’s true that there is no “secret” to achieving significant net worth.
That’s because the path to success in property investment is multifaceted, requiring a blend of various skills and characteristics.
After all, success in property investment is not just about having money to invest; it's about having the right mindset and skills to navigate a complex and ever-changing landscape.
Perhaps, with the right combination of skills and the know-how to overcome the obstacles listed in this article, you will be able to become one of the top percentage of property investors across the country who have a portfolio of multiple investment properties.
