Do you know how many investment properties you need to retire on?
In a way, I hope you don’t have an answer to that, as the number of properties isn’t really the answer. You could have ten properties worth $200,000 on 90% interest only loans in areas with no growth. Or 3 blue chip properties worth 1.5m each returning 7% growth per year unencumbered. The true answer to the question is far more complicated than the number of properties, it depends on your goals, and is in all honesty, better answered by far cleverer people than myself.
What I do know, is that the answer is unlikely to be 1 property. Yet, according to the latest ATO stats, 71% of investors own only one investment property. Owning 5 properties, which arguably might be close to enough to achieve your retirement goals, actually puts you in the top 1% of property investors in Australia.
It begs the question, what is stopping most investors from growing their portfolio? That is a question and mission I have been on for quite a while. With my podcast I have interviewed many experts across multiple disciplines with this question at the front of my mind. As head tax depreciation expert at MCG Quantity Surveyors, I’ve spoken to thousands of clients and analysed all of the data.
The best answer I have so far as to why people are not growing their portfolio, is because they’re getting the first one wrong. Purchasing the wrong property may saddle you with equity losses, too much negative cashflow needing to be topped up, or just an underperforming property. This property either turns you off investing altogether, or at worst, impacts your financial position such that you are unable to purchase again or in the very worst case, are forced to sell.
Therefore, I believe that having the right team around you is critical. It’s very easy to look at the cost of say, hiring a buyer’s agent, but harder for people to look at the potential cost of making a poor investment choice. A good BA is a perfect example of a professional on your team that’s going to help you to avoid becoming part of the 71%. My role as a tax depreciation expert is to ensure that whatever you purchase, you are obtaining the maximum allowable depreciation deductions. Yet in our latest research, we calculated that there are over a hundred thousand investors missing an average of $20,537 worth of deductions each.
If your goal was to only ever own one property and you achieved that, then all power to you. However, I believe that most investors begin their investing journey with the idea that they’re hoping to dramatically change their financial future or the choices they have later in life. And arguably, one property is not going to get you there. So, take time building your team and feel free to ask them hard questions. However, if they answer them well and you’re satisfied with their level of expertise, then value that expertise and tradecraft and go on the investment journey together.
Mike Mortlock is a Quantity Surveyor and Managing Director of MCG Quantity Surveyors. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating. You can visit them at www.mcgqs.com.au Mike Mortlock is a Tax Depreciation expert, Quantity Surveyor and Managing Director of MCG Quantity Surveyors. He is a regular speaker and commentator having been featured in the Financial Review and Sky Business. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating for investors. You can visit them at https://www.mcgqs.com.au