Investopoly Property investors need to be fussier! Here's why...
Every few months, there’s a story online about an investor in their 30’s that has amassed a property portfolio of 12 properties…and how you can do it too.
Firstly, we shouldn’t be impressed by the number of properties that someone owns, as it doesn’t tell us anything about their wealth (equity). Boasting about the number of properties you own is like a business boasting about the number of employees it has. It’s often an ego trip.
Secondly, there’s nothing impressive about borrowing huge amounts of money i.e., more than what is sensible – that is a recipe for disaster.
The definition of successful investing is achieving the highest return for the lowest risk. There aren’t any shortcuts. Building wealth takes time. A perfect example of this is that Warren Buffett accumulated more than 96% of his wealth after his 60th birthday.
How do people buy 10+ properties?
It might sound impressive that an investor has amassed a larger portfolio of 10+ properties in a short time, but you can’t do that without taking risks. They probably have a lot of borrowings and dealing with 10+ properties would be time consuming (e.g., administration, maintenance requests, and so on).
There’s only two ways that someone can buy so many properties in a short space of time. Either they have a business that is generating a large amount of profit and cash flow, or they have a unethical mortgage broker or lender that has helped them borrow more than a sensible amount. Obviously, the former explanation is legitimate. But the latter is a recipe for disaster. Mortgages are wonderful servants but terrible masters. Borrow carefully. Building wealth is a marathon, not a sprint.
Property was more affordable 40 years ago
In 1980, the median house price was only $200,000 in Melbourne and $315,000 in Sydney in today’s dollars. For example, 40 years ago, a single-fronted, investment-grade, Victorian cottage in a nice street in Prahran (blue-chip suburb in Melbourne) would have cost you about $300,000 in today’s dollars. The same property today would cost circa $1.5 million.
Of course, borrowing capacities and incomes were a lot lower back then (as I discussed in January). However, arguably an investor didn’t have to be as picky as they need to be today because they could buy 2 or 3 (or more) properties in blue-chip suburbs. However, to
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