08 Apr Why property might not be right for you – Shannon Davis
When done right, property investment can be lucrative and give the investor financial security in the long term. However, there are many reasons why property may not be right for you and these should be carefully considered before making your first investment. Shannon Davis runs us through the reasons.
Kevin: When done right, property investment can be lucrative and can give the investor financial security in the long term. However, there are many reasons why property may not be right for you, and these should be carefully considered before making your first investment. They are very wise words. They’re taken from a blog article that you’ll see in a lot more detail on our website propertytv.io. The author of that is Shannon Davis from Image Property. Good day, Shannon. How are you doing?
Shannon: Good day, Kevin. Good, thanks.
Kevin: Very wise words. I want to pick up on a few points that you’ve made in there that just make for a little bit of interesting conversation between the two of us, and great learning I think for anyone who wants to get into property investing. You make the point that prices don’t always go up, yet we look at property, don’t we? And investment in property with an expectation that it’s always going to grow.
Shannon: Yeah. There’s the old saying that they always go up, but it’s not always the case. You have times when the market peaks and the market comes back, and also you have things where there’s not really a lot of scarcity, so there’s a lot of things happening on the supply side and that can have downward pressure on your property. So, to think that it’s simply buy a property and you’ll be wealthy, there’s a lot more to the art than that.
Kevin: Yeah, there’s also a matter of holding property, and we’ll talk about that a little bit later in our conversation as well because we got very used to just buying a property and then they would go up in value over a decade or maybe 20 years. So we just got very used to thinking that was always the case.
Shannon: Yeah, definitely, and that gives the investor a false sense of confidence and the property mistakes can be big mistakes. You’ve got a lot of leverage there, and leverage either maximises your gains or maximises your losses. So it’s something to be wary.
Kevin: Another thing that you be aware of if you’re going to become a property investor is that not everyone’s going to be happy that you are a property investor because everyone naturally, well not naturally, but everyone does assume that you’re rich. You’ve only got to look at the debate over negative gearing and how that’s all centred around all investors are just greedy landlords, Shannon.
Shannon: Yeah, definitely. The governments keep on looking to property investors to prop up the budget, and they’re copping it in the neck with land rates, water usage, negative gearing, land tax, capital gains tax, and then you’ve got potentially tenant requests, QCAT, all administrations moving against the landlord or owner all the time. So, it can be a difficult task being a landlord.
Kevin: The first point we made about prices not always going up is quite relevant to the next point that we make, and that is that this a long-term play. You’ve got to have patience. Though I guess there are times and situations where you can get in and get out of a market and flip property and make a good profit, but they’re becoming fewer and fewer I would have thought, Shannon.
Shannon: Yeah, well, I think when a person makes a big, significant gain in a short time turnaround, it’s really the toppy part of the market, the top of the market. So, if you’ve absolutely timed your exit, then yeah, by all means you’ve probably done it, but that’d probably be the most dangerous part of the market to be investing, I think, when everyone’s talking about property, the crowd’s arriving late … The top of the market’s being reached, and there’s not much value to be had. That’s probably the worst time to be investing, I think.
Kevin: Another one too, and that is it’s all about risk, and this probably is worthy of a few points, but there is risk in any type of investment. If you are risk-adverse, then maybe property’s not right for you. Maybe you should leave your money in the bank, Shannon.
Shannon: Yeah, definitely. You’ve got the market risk. We’ve also got the risk of tenant injury. We’ve got risks of natural disaster. We’ve got risks of fire, and things like that, so there’s a bit of a risk attached to it, and over time, that level of risk, as long as you’re fully insured and you’ve seen out a few property cycles, you should be able to get significant gains, but it’s having the patience to do that.
Kevin: And you’ve got to be prepared too to spend money. Your property needs to be maintained. It needs to be well maintained to keep good tenants in it as well.
Shannon: Yeah, a property that is falling further and further behind, in quality starts to get more and more problems. The references of the tenants dropping from there. You’ve got other problems like collecting the rent or damage and things like that. It just becomes a cycle of obsolescence.
Kevin: I’ve seen on many occasions too, and I guess in a way, I class myself in this in my early investment journey, and that is that people who get in not understanding that it is going to be a struggle. The first few years, I think you quote seven years, are going to be the worst. You’ve got to be prepared for that.
Shannon: Yeah, definitely. When you plant a tree, you’ve got to support it at the start and give it some strength and water, and years later provide the shade. I think of property as similar to a small sapling in the beginning.
Kevin: There’s another aspect too to property investment. When we look at investment and we say, “Well, where’s my money better? Is it in shares? Is it in property? Is it in the bank?” With shares and leaving your money in the bank, it’s very liquid, but property takes some time to liquidate if you need it quickly, Shannon.
Shannon: Yeah, and that can be a good and a bad thing because prices won’t come off as quickly as much as a share market correction. But also when you need the money, like yesterday, you’ve really got to be prompt. The earliest you can see that money back into your account probably is 30 to 45 days. Even then, you might need to meet the market and accept a lot of conditions from the buyer.
Kevin: Yeah, great stuff. I guess the bottom line here is that if you treat your investment as a business, you can’t go far wrong. You’ve got to increase your chances of success if you do look at it as an investment, not going into it purely as a whim.
Shannon: Yeah, definitely. Annually check how your rent’s going and your capital growth’s been and see if it’s all been worth the while after the maintenance and all the bills that a property investor has to incur.
Kevin: Very wise words there from Shannon Davis at Image Property, and you can read Shannon’s full piece, his excellent blog currently on the site, propertytv.io. Shannon, thank you very much for your time.
Shannon: Thanks, Kevin.