Property Investment: The Truth

Have you ever had someone say to you that you’ll never lose on property or that a property investment is safe as houses?

Kate and Matt Moloney are a twenty-something couple originally from country Victoria. They built an $8.5 million property empire, generating $570,000 a year in rental income, in just three years.

In 2012, Kate and Matt were recognised for their achievements, being crowned “Investors of the Year” by Your Investment Property magazine.

“These are ordinary, everyday Australians who have chosen to make a difference in their lives through property investing. By showing fortitude, the willingness to take risks and a sense of the gigantic opportunity that is Australian property, they’ve strived ahead and offer a shining example of how to succeed,” said the magazine.

Specifically and worryingly, the magazine also said: “The young couple wowed our judges with their awe-inspiring ability to get together property finance, even in times when they’ve been without savings or equity.”

“We’re heading on our first round-the-world trip — business class. We’re quitting our jobs and heading to Africa, North America and Europe for a well-earned rest,” said Matt.

Today Kate and Matt are bankrupt – just over three years after winning the crown.

That’s because they currently owe $5.8 million on their investment property portfolio. The value of these properties (mostly bought in the mining boom-and-bust town of Moranbah, Queensland) has plummeted to a paltry $2.3 million today. In other words, they’re $3.5 million in debt with no way of repaying their loans.

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To make matters worse, both Matt and Kate are currently not working. But the truth is that their road to ruin began when they paid $7000 to attend a property seminar from an outfit called Real Wealth Australia. The seminar told ordinary Australians that the only thing better than owning one investment property is to own twenty.

A few years later, Kate and Matt attended a $4000 workshop hosted by Dymphna Boholt, who says on her website that “educating on success, money, and material wealth are the things that I am best known for”. (To be fair, she’s also known for making misleading claims that have been exposed by the ACCC and Fair Trading Queensland.)

They were so motivated by Boholt’s first seminar that they ended up graduating to her platinum mentoring service, which cost $30,000. For that money, says Kate, Dymphna was recommending investing in mining towns.

Kate also alleges that some people she was dealing with throughout her buying binge were receiving kickbacks on the debts she was taking out, though she says it was never disclosed to her.

House prices in the mining town of Moranbah  saw its median house price jump by as much as $500,000 during the mining boom, then plummet by as much as $600,000 in the aftermath.

The hard truth that Kate and Matt have learned is that there’s no shortcut to any place worth going.

There are a number of truths about property investment that you should be aware of and that isn’t often mentioned by those who spruik it:

Vacancies are more common than experts want to admit

Even in the most in demand and tightest rental markets, more often than not, you will experience vacancy. Even if you buy the best property in the best location, you are not immune to this unpleasant reality.

If you invest in an area where there are a lot of rental properties, the competition is even higher and you could lose tenants who can find a cheaper rental property than your own.

Maintenance cost can eat up on your rental income

Many experts say that if you buy a new property, you’re pretty much guaranteed that your maintenance is low. This is not always true.

If you buy an older property, maintenance costs can be higher. There may be broken cupboard doors or electrical and plumbing issues on a regular basis.

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You don’t want your investment property to end up like this.

You could overpay

When it comes to investment property, becoming emotionally attached is fatal.

This is when you’d do and pay anything to get that property. Despite doing your research and due diligence, your emotion could betray you at the last minute.

Tenants disproportionately have more rights than landlords

There are so many things you can’t just do to your property if it’s tenanted. For example, you can’t do a reno, or even just casually drop in without giving your tenants ample notice period.

Tenants can also alter the property without asking you, for example, they can paint or install some fixtures without your consent. They should, but you won’t know about it until the next inspection.

Lastly, you cannot just kick out your tenants if they miss their rental repayments. You have to go through weeks (roughly a month) before you can start the eviction process. During this time, your property is held at ransom by the errant tenant.

You could have a dodgy tenant

The reality is that many landlords lose a lot of money due to damaged properties even with their landlord insurance. Often there is no way of knowing which tenant is dodgy, so it is simply a hard fact of life as a landlord.

Your property could get flooded/burned

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Properties inundated at Rocklea during the 2011 floods.

Remember the floods in Brisbane? We can’t control the weather. If your property is located in the flood-prone area, you can somehow mitigate this by paying extra to cover the flood damage. But the reality is, you would still lose income during repair or reconstruction period. The same goes with fire. Even if you’re fully covered by insurance, there will always be losses that you will have to confront.

There is no guarantee your property will go up in value

Even if you’ve done your research, got advice from the most prominent advisors, and bought in the hottest suburb forecast to soar in value, there is absolutely no guarantee that your property will go up in value every year. Unlike the share markets, property markets move very slowly and there will be years when prices will not move at all.

It’s expensive to buy and sell properties

This is one of the biggest hurdles for people trying to break into property. It cost a lot of money to buy and cash in. When you buy a property, you have to pay for stamp duty which is calculated based on the purchase price. Then there’s the legal fee, the inspection reports, property valuation and bank fees.

When it’s time to sell, you’d have to pay capital gains tax if the property goes up in value. 

To make sure you don’t get ripped off when looking at investing in property, the first thing to do is do your research and obtain advice from as many professionals as possible. Don’t get sucked into high-pressure sales pitches or seminars. And make sure you understand the risks.

Contact us today to talk about your investment needs and to understand the risks.