There was a great article in the Australian Financial Review on the weekend by Christopher Joye (you can read it here) who is an economist and director at Yellow Brick Road funds management and Rismark on just how risky owning a single property is. The problem is that 75% of all property investors do just that – own a single investment property. So, what are the lessons to be learnt here?
Firstly we need to remember that in wealth creation there is no room for blind optimism or uneducated negativity. Both are destined for failure. When making any investment decision we need to look at the facts, challenges and risks and the identify the best way to achieve our goals leveraging our current circumstances to provide solutions to the challenges and mitigate risk. Easy right?! Well of course not, but that is why so few succeed.
So, what was it that got me so excited about the article by the brilliant Mr Joye? It was that it clearly detailed why we need to ‘unlearn’ much of what we have been taught or read about property. The problem with the general media is they use broad comparisons and this doesn’t help investors identify where the likely future areas of high growth and/or yield are to help them build their portfolio. As Joye says ‘A single home with all its manifest idiosyncrasies – including its street address, build quality, attributes, aspect, and the vagaries of local-area GDP – is a radically different investment prospect to an index that tracks the national market.’
He does go onto say the ‘typical’ investor did well however. If we break the stats down to the old adgage that all property doubles every 7-10 years then even the broad numbers in the article support this. However, half of property fell short of this mark so the adage is statistically correct but not helpful, in fact counterproductive, when it comes to identifying assets that will provide the best opportunity for return with the least amount of risk. This is why Joye’s chart outlining the risk increases significantly when we introduce debt. Joye suggests ‘The key to mitigating risk is diversification. This ideally means a portfolio comprising multiple assets situated in unrelated regions. Hard to achieve, I know.’ And that, right there, is why Investor Property was founded in the first place. It’s what we do.
Just owning property in and of itself won’t make you wealthy. We meet many clients who come to us owning lots of property but have no equity. It is the property investment plan, based on your personal circumstances and goals, that is core. Executing that plan with a balanced (read self-funding) and diversified portfolio utilising different property types across different (growth) regions over time – property that is based on research to ensure those ‘manifest idiosyncrasies’ Joye talks about are addressed to further mitigate risk and then correctly managed to maximise cash flow and growth.
So what’s the takeaway from this? Owning a single property is a risky business whereas building a well balanced and diversified portfolio actually reduces your risk and gives you a much better chance of success.
For access to property in Queensland’s growth regions with diversity in location, type (detached housing, townhouses, villa’s, serviced apartments) and strategy and with guaranteed returns or a minimum rental assurance (no vacancy or arrears for up to 10 years!*), at or below market valuation and all at no cost to you*, talk to us today for your free property Pathway to Wealth.
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