Letter from the editor: A festive season and a sobering experience
It was a great visit back to busy Sydney over the festive break, but I had a somewhat sobering conversation with a new friend about his mother's investing experience.
It really hit home for me why sites offering impartial information that anyone can access is so important. We started off just talking about Christmas and seeing our families, and he told me about his beautiful childhood home - fondly saying how much he enjoyed living there and reminiscing.
Then we talked about when we moved out of home and the reasons for it. He is 23 and late-2013 was the first time he moved out of home, however he said it wasn't from lack of desire to move earlier. His father had died when he was young, and his mum had remarried. His stepdad decided to do something about their income, and bought an investment property using a significant amount of equity from the family home. Although he didn't know much about his parents' affairs, he believed that the advice came from their broker (who originally got them the loan for their family home).
This was a few years ago, and when his stepfather passed away, his mother, who did not work, was left unable to make the repayments on the overall loans. In a long story cut short, they ended up selling the home they loved so much and moving into the smaller investment property that they were still struggling to pay and that hadn't had much luck in the way of capital gains. My friend ended up staying at home so that they could, with his income as well, keep paying the mortgage. And it was only recently that he could then move out as he wanted to, behind in the money he could have saved otherwise. He said that he could have probably afforded a deposit by this point had he not been using it for the mortgage and for board.
Spending the rest of Christmas with family, property was also a common topic. A number of family members of mine investment in property and other asset classes - some I didn't even know about until I began writing about it - and hearing a number of different arguments for and against different types of investments, I was painfully aware of what happens when it goes wrong. But I was also aware of the 'other' argument - that if you do nothing at all to invest and look after yourself then you will end up financially destitute through your own inaction. Some were investing in their SMSF - a topic of regular coverage on Property Observer and other property media, particularly when it comes to the negative side and the warnings being presented by ASIC - and others were considering buying a property through Defence Housing.
I'm regularly asked for my opinions on different investment properties, locations, structures and basically every topic under the property umbrella (it's huge), and I generally try to steer clear as much as possible from providing it unless I really think it's crucial. I don't give "advice" (not even to family members) as I do not feel qualified to advise, and I usually err on the side of caution with every investment topic - preferring to say "Have you asked about this?" and "Have you thought about that?". The absolutely worst situation in the world would be to carelessly say to someone 'This property looks like it could be good' and have them take that opinion onboard and watch their financial future suffer as a result. Even worse - what if a property is a good investment, but they are ill-prepared to manage a portfolio or to take on the investment? Are we really qualified to tell those people how to run their future?
I don't know the stats on it, but I'd argue that for every property 'success' story, there's a 'not so successful' one too, and another one saying 'I wish I'd done something'.
If there is one opinion I am happy to give, however, then it would be this. If you haven't thought about what happens if you pass away, or someone else involved in the investment does, then it might be time to consider it and what insurances or plans you need to have in place. It may be the non-glamorous part of property investing, but it's absolutely essential. Just as property can drop in value, and tenants can (although not as often as we might assume) trash the place and disappear, anyone involved with you, or directly related to you financially, can suffer if you die unexpectedly. The last thing anyone wants is to put their loved ones through further pain should they pass away - particularly when it involves their future plans and the roof over their heads.
There are too many less than reputable characters out there, in the property space and every other space, that will take money from yourself and your loved ones if you let them. So don't leave them open to tricky financial situations from yourself just through neglecting to think of the less-than-pleasant possibilities.
I don't know if the advice in my friend's situation really did come from their broker, or a financial adviser or maybe they actually did decide themselves and just made poor decisions. Regardless, property can make, and it can break, futures, no matter the "property doubles every ten years" mantra that might be doled out on a regular basis. Think about every eventuality, and be ready in case the worst happens.
How do you protect your investments and your loved ones?