Open any page of a property investing magazine and it will likely be profiling a young couple, single guy or girl who's building a property portfolio, and now owns anywhere from 5 to 20 properties.
Well, when I say own, I don't actually mean that – and neither do they if they were honest. Their lender/s own the majority of that property for most investors.
Sure, there have been plenty of very successful property investors, who bought in the right places at the right times and were savvy with their investments. But according to data from the Australian Tax Office, less than 10% of all property investors own three or more properties.
But there's a whole bunch of property investors that no one ever hears about. They're the ones that thought they were on a good thing, buying houses in mining towns before the boom times hit, renting them out at monster yields. The problem was when the boom time passed, their houses are worth less than they owe the banks and their rent is a third or a quarter of that during the boom times (if they are lucky enough to be able to rent it out) and doesn't cover the repayments and other expenses.
Now these people are looking at a potentially lifelong battle to repay those debts, not to mention the risks of depression, anxiety and threat of self-harm or suicide.
The other property investors you won't hear about are the vast majority – around 90% who own just one or two investment properties. Some might be making some money, others might be on the road to owning several properties. But again, the vast majority are making a loss on their investment – otherwise known as negative gearing – in the hope the capital gains will more than compensate them when they come to sell.
But that's all it is. Hope. Most will probably sell out within 5 years for a small capital gain, without realising how much their investment property has actually cost them if they include their all the property expenses. If instead of buying an investment property, they'd stuck the cash in the bank, they'd probably be better off.
Most people don't have the patience required to invest, particularly in property. We're talking a timeframe of 10 years or more, and being able to ride out the market downturns, which inevitably occur. Except in mining towns – which may never see the boom times again.
You won't read about those ordinary investors in the magazines – seems it's not good for sales.
Foolish takeaway
There are many investors who can and will make a motza through property, but most are likely doomed to fail – like many investors/speculators in the stockmarket. There are ways to make money in both stocks and property – and a right and wrong way to approach both. Thinking you can get rich quick is definitely the wrong way – despite what the property magazines say.
