The new breed of property investor: DPN's Sam Khalil
GUEST OBSERVER
A quick study of the latest property data shows that a new type of property investor has definitely emerged. We still have the other traditional kinds: like the classic, slow build investor who has built up a portfolio over decades. Then there’s the mum and dad investors who are carefully looking to dip their toes in the water after getting on top of their mortgage. However, this new breed is different.
It’s a weird amalgam: first home buyer/investor/renter. They’re the people who simply can’t afford the place of their dreams. They’re struggling with the heated urban market, especially Sydney or Melbourne. Yet they’ve scraped together a deposit and recognize the value of getting something, anything, before the market once again rises. So they’ve bought a property out in an area where they don’t want to live, usually the outer suburbs, and they are renting and living somewhere else. This is especially a phenomenon of younger couples who want to send their kids to a certain school or have a love for a certain area. For example, couples who rent in beach side Sydney or a desirable family friendly suburb in Melbourne like Camberwell or Bentleigh. They can’t buy into these places but want to live there. They can see the value in buying a place out in the sticks, but certainly aren’t thinking in terms of portfolios or multiple properties.
They’ve become unwitting, unplanned investors. Let’s call them the reluctant landlords. They’ve replaced the owner/occupiers. The owner occupiers were a classic force in Australia right up till recent times. They saw a property as long term and would quietly suffer economic downturns, feeling sure that their ultimate plan of property appreciation would eventually happen. As they generally were in it for the long haul they were never prone to alarm about sudden market twinges. However, they’ve started to disappear as first time buyers simply struggle to get into the market. So reluctant investors/landlords have their own long term approach. Priced out of their own desired area they plan to invest in a medium-short term rapid growth suburb as investors. They generally don’t plan to be doing this for too long. Their hope is to perhaps do up the property, rent it out then resell it after one-two years and take advantage of the heated market to buy the house they’ll remain in. It’s like a two phase strategy of the owner occupier plan.
Most of them are twenty somethings or thirty somethings, either renting or else living with their parents while they save up. Except instead of buying a house for themselves they’re buying an investment property.
The reluctant landlords often feel uncomfortable as investors or renting out their property. This is because it’s not their long-term goal. Consequently they can sometimes make bad decisions, such as selecting an inferior property manager or not vetting tenants properly. They also may make other poor choices like identifying a suburb that is likely to rise as an investment area but not being aware of costly strata or title issues. Essentially they’re amateur investors and prone to making mistakes.
The more savy or those partnering with service providers who can pass on their expertise, are using renting and investing as a combined long-term strategy, keeping them in their desired urban hub and investing in affordable high-growth areas maximising depreciation and tax benefits to their advantage while building a passive income for their future.
The latest figures from the Australian Bureau of Statistics showed that investor loans galloped ahead of owner-occupier loans by four times the amount. Added to this a new study by Digital Financial Analytics shows that property investors are younger than ever before. This gives credence to the theory that we’re seeing young couples being pushed into investor roles through the sheer white heat of the current property market. It’s also in part due to the slashing of first time buyer grants from the Federal Government. Conversely negative gearing and the steady stream of low interest rates have made the market very conducive to investors. First home buyers, to some extent, have been forced to become investors through a rearranging of the laws of property.
Yet we’ve seen that there’s a cooling in rentals, partly due to an oversupply of apartment buildings in cities like Melbourne. And areas such as the Gold Coast are not the booming rental markets as they used to be. This leaves the reluctant landlords on shaky ground. Property investment will never be an exact science and the stakes are too high to make the wrong choice, especially as a first time buyer. So careful analyses and researching the market is vitally important. So too is getting accurate information and seeking it out from property experts may be the first steps in the property path to success.
SAM KHALIL is founder and director of Direct Property Network.