Why Do Most Investors Stop Purchasing After Two Properties??

[Rixter]

Continuing on a new thread from here..

Guess just defending why many stop at 2 IPs and don't go on to have more even if they have been successfull with these first two. It is not necessarily a lack of ambition.

In the beginning it may not be a lack of ambition. However as they progress they will begin to come up against more and more issues (walls) that may prevent or inhibit from progressing further. This is the vital time that if they are not truly committed to their 'reason' for investing in the first instance then they tend to flounder and not continue on their investment journey. This is commonly referred to as, hitting the wall.

Over the years I've been actively investing I've come up against lots of walls that may have prevented myself and others from continuing on.

Some of the common ones (in no particular order) being ....

No defined investment plan.
Lack of knowledge to overcome perceived issues.
Not being able to access further finance
Selling up Realising profits.
Sick of day to day Property management issues

The list is endless...feel free to add others.

Basically all these 'perceived walls' comes down to ones mindset or head space. There is a classic quote I read a while ago that IMHO sums up why most investors do not continue on. It went something like this.... "To over come a problem requires a higher level of thinking than the thinking that created the problem in the instance".

Its a sad to say unfortunately most investors start out fine with the one or two properties however when the inevitable walls do start showing up they tend to splat instead of finding a way around.

Why do you think they never continue purchasing?

 

[Peter_Tersteeg]

For singles, there's definitely a pattern of affordability and access to deposits creating a barrier to more than 2 IPs.

Goals in life also change. I've seen plenty of people who started out with big dreams, then they met someone and life took them down a totally different path.

 

[devank]

I’m going broadly assume that all three props are bought between age 20-30 at 400K each. If each property doubles every ten years then in 30 years it would be worth about 9.6Mil. That is more than 8 mil profit. Why take more risk and stress if that 8 mil is enough. I think I must have made mistake with my calculation because 8Mil doesn’t sound right

Anyway, here are few smaller points which may restrict more buys:

- taxable income may drop below a tax bracket after 2 IP’s negative gearing.
- land tax especially in NSW
- kids
- job insecurity as we get older

 

[Ausprop]

resi IPs generally cost money and you can only afford so much. The upside, being the capital growth, may only occur in 7 out of 21 years, so if you buy in year 1 you may have to wait 14 years to tap equity. Worse still if you buy in a decling market.

resi IP in a nutshell is about being able to sustain cashflow whilst deflating your debt to someone else. and some real cap growth is always welcome too if you can get it.

 

[turk]

This thread seems to founded on the presumption that investors only invest in property.

Two properties along with other classes of investments plus super may suit more investors.

 

[travelbug]

The average person buys negatively geared property and you can only hold so many of those as servicability is an issue.

Yes Devank your clalcs are out.
$400K doubles every 10 years = $1.6mill.
So if you had 3 that would be $4.8mill. But you wouldn't buy them all at the beginning so more like $4.2mill in assets. Assuming the DO double every 10 years.

In 30 years $4.8 mill would be worth a lot less. Why stop? What IS enough? Do rich people say I'll stop because I have enough? I don't think so.

 

[devank]

Yes Devank your clalcs are out.
$400K doubles every 10 years = $1.6mill.
So if you had 3 that would be $4.8mill. But you wouldn't buy them all at the beginning so more like $4.2mill in assets.

I calcualted as..
@ Age 30 - 400 x 3 = 1.2Mil
@ Age 40 - double it = 2.4 Mil
@ Age 50 - double it = 4.8 Mil
@ Age 60 - double it = 9.6 Mil

 

[Rixter]

The break down of Multiple Property Rental Owners as of 2007-08 financial year, thanks to Little Stranger.

 

[our obsession]

...and also I think there are quite a few 'accidental' investors to begin with too.

Eg: A cousin of a friend. His mum died, he owns his own home, inherited hers, 'oh, okay school offered to rent it off him for new teachers to the town' -he decides not to sell it.

Same guy, -->an ''orphan' elderly guy he had helped all the time they knew each other passed away, left him the house, someone else asked if they could rent it, 'okay mate.'

So, that kind of scenario 'arriving at property'.

His son rented a unit in a regional city, the person who owned the unit was selling to buy herself a house, he decided to buy it, shifted to Melbourne with a new job he wanted, (got), and is now buying a unit around Melbourne. BUT, may end up shifting to Sydney to live with his girlfriend! End game, he has 2 x IP's. (Potentially).

I have more stories.... Similar 'accidentals'. Or is it, 'incidental?'

 

[jaycee]

Cause for a lot of people they don't know enough to be interested in doing much more than that... I know I questioned would it actually work out enough times in my mind and I'm till not that convinced.

 

[Orchard Grove]

We are currently at 3 IP's... Renting at the moment so number 3 was a PPOR before an interstate move, which would happen to a fair few that fall in the 'accidental investor' bracket I assume. Would like to increase that number but when you see not many around you with IP's - a bit of "I'm doing alright, no need to be greedy"and guilt kicks in... Not an investor attitude I know, which has been discussed on other threads.

I think another issue would be the psychology of large debt, once above a comfortable level doubts creep in eg. can't believe we have x million dollars of debt!

 

[Indifference]

Well, how about this..... because maybe 2 IPs is enough for some people...

Also, maybe some people "discover" other asset classes and "diversify" their capital.......

Perhaps some people realize that if they already "own" 2 IPs, have other investments as well, they can live well enough "now" not to bother with growing capital anymore and prefer to simply preserve it and continue on their merry way....

We are all different and we all have our own goals, aspirations and expectations for "what is enough"....

For many though, I acknowledge it is all of those things previously posted...

 

[Deltaberry]

Because when you have 2 properties at 95% LVR, yielding at 4% and paying 7% interest rates, you're losing ~$35k+ per year on a $1m portfolio (inclusive of council rates and LMI).

So if you're an average household on gross national income of $65k per year, you're as good as Centrelink people.

If one of your houses was not an IP but a PPOR, you may as well be homeless in Africa?

 

[Rixter]

Because when you have 2 properties at 95% LVR, yielding at 4% and paying 7% interest rates, you're losing ~$35k+ per year on a $1m portfolio (inclusive of council rates and LMI).

So if you're an average household on gross national income of $65k per year, you're as good as Centrelink people.

If one of your houses was not an IP but a PPOR, you may as well be homeless in Africa?

So how do investors build multi $million property portfolio's on average and below incomes

If they can do it why cant others ?

 

[jingo]

Continuing on a new thread from here..


No defined investment plan.
Lack of knowledge to overcome perceived issues.
Not being able to access further finance
Selling up Realising profits.
Sick of day to day Property management issues

The list is endless...feel free to add others.

Illness, unemployment, family members and friends who become 'worried' and discourage investors from buying any more property.

Being over geared (ie too -ve geared) can lead to discouragement, particularly if money is being taken from the family budget to support the portfolio.

I've read of people making a lot of personal sacrifices to hold their investments. No doubt, this can take it's toll after a while, causing some investors to stop investing.

Regards Jason.

 

[joanmc]

Perhaps some of it is the pressure from friends and family. You know how in the beginning you are really excited about getting one and your friends and family give you the "good on you for having a go" .

But then as you learn more and see some real potential and buy another they start to question you "are you sure you know what you're doing", "that's a bit risky isn't it?".

Then if you persevere and go for number three, well, "who do you think you are?", " getting a bit up yourself aren't you?", ""you one of those rich landlords now are ya?".This has been our experience.

and then the social isolation gets you. It can be daunting if you are not really determined. Some of this can be cultural too I think. Other than that all of the above (other posts) can be true too.

 

[skater]

Then if you persevere and go for number three, well, "who do you think you are?", " getting a bit up yourself aren't you?", ""you one of those rich landlords now are ya?".This has been our experience.

LOL! The good ol' Tall Poppy Syndrome.

We experienced this from a relative in the early days. Bought 1st IP and we get congratulations all round. "Glad to see you're doing well for yourselves" etc. Bought the second one and the mood changes to "Oh, so soon?", number three and the response changes again to "Aren't you just being greedy now?"

The solution: Don't tell 'em.

There is not one member of our extended family that knows how many we own. They just can not comprehend. The only people that can really relate to matters concerning IPs are other Landlords, and then only a minority of them, because most Landlords only have one IP.

Hubby does have one brother who has one IP. We can discuss minor stuff with him, but we are careful not to overstep the line. His wife is lovely, but "feels" for the tenant, so struggles with rent rises. If the tenant asks for something (non maintenance stuff), they will try to give it to them, etc.

They call us (tongue in cheek) "Capitalist pig-dogs" because they know that we treat out IP's as a business. I think that is the crucial part. To progress further than a couple of IP's you do have to treat it as a business rather than a hobby and get serious about making money from your IP's.

If you have two IP's and they are both $50pw below market rent because "they're good tenants", or "they can't afford it" then you are losing $100pw. That $100pw could be the difference between you holding 2 or 3 IP's, especially if you are on a low income.

To grow a large portfolio, you HAVE to treat it as a business. Rent rises as often as possible (helps with serviceability), maintenance done promptly, no over capitalisation, no upgrades that won't translate into more $$, good management (whether by a PM or self manage), no personal relationships with tenants (and no emotions).

Because IP's are homes to our tenants, I think many Landlords struggle to find a balance between trying to improve their own wealth (through IP's) and keeping a tenant happy. Emotions are often involved especially where the Landlord feels that the 'poor' tenant is struggling.

 

[locko24]

The break down of Multiple Property Rental Owners as of 2007-08 financial year, thanks to Little Stranger.

Hi Rick,

Any ideas where to find these details in greater depth? ie. how many people own 7, 8, 9, etc?
Would be very interesting!

 

[Deltaberry]

So how do investors build multi $million property portfolio's on average and below incomes

If they can do it why cant others ?

Not sure if you're genuinely confused or whether you're just one of those blind bulls. The key is timing and time.

Some people move ahead because, after a while, they experience rental growth and salary growth and possibly even capital growth. For some people this can take only 2-3 years (eg if you bought in 1997 or 1998). For others they may have to wait a decade before the economy booms sufficiently that all 3 things happen.

Oh and a multi-million dollar portfolio is not very impressive when you have a multi-million dollar loan.

 

[our obsession]

So how do investors build multi $million property portfolio's on average and below incomes

If they can do it why cant others ?

Speaking only for myself, buying what suits 'my needs/situation'. Buying well (again, for my needs), getting 'the deal'. I've been able to, (in some cases) buy well under (land/house) comparable sales..

Determination. Motivation. The 'Why'.

I am determined I will have as much financial independence as there possibly can be, through wealth building, (property[-------]).

I'm not the next person, they have different wants, expectations, situation, motivations..we are diverse creatures.