Factors investors should weigh up

NEGATIVE gearing, will it remain in place?

Are we heading for an oversupply of new apartments in our cities?

Do the new house and land estates out of town really represent the great Aussie dream?

Did your friends invest in a property more than five years ago, which is now worth less than what they paid?

You hear of people whose property holding costs spiral up as a result of vacancy periods, while never-ending maintenance issues, which they never allowed for in the original finance calculations, hit their bank balance hard.

You can’t buy where you want to because it seems others beat you to it.

Then overseas buyers seem to get all the deals and the percentage capital growth of past decades may never be like it once was.

Not forgetting the tenants from hell and if you actually want to buy property with your self-managed super fund (SMSF) it seems to be a logistical nightmare.

Can this all be media hype, or actual reality? In my experience just about every scenario or consideration listed is sadly based on fact.

Investing in residential property can be fraught with pitfalls – changes to tax, SMSF rules, home loan rates, holding costs are all elements out of your control.

There are genuine risks that hover over and around any property investor. These rather intimidating factors should always be at the back of any investor’s mind and considered as a possible scenario.

It’s always best to be armed and prepared just in case.

Yet despite all this negativity, the public passion for investing in property continues. But why? I found the answer at a very pleasant afternoon catch-up with family friends. The friends in question over the years have clearly amassed a fair old chunk of cash in their superannuation fund, while the advisers of said fund actually seem to be managing this very well and keeping all involved informed.

No money seems to have been lost over the years but the gain is not exactly impressive.

This is the biggest issue despite the lady of the house, we will call her Kate, tracking all the family finances very efficiently.

Kate is very bright and intelligent, but despite many attempts she just can’t get to grips with the real factors of what is happening to the family nest egg.

Of course I suggested a solution, buy some real estate and take control using a SMSF.

Kate’s reaction was of excitement and relief, for her the thought of actually being able to track the funds cent by cent and investing in a tangible scenario seemed to give her peace of mind.

She was that happy we all got offered more cake.

Investing in houses, bricks and mortar or timber and tin, although having negatives and risks, is a form of investment understood in principle.

It is also an investment you can genuinely track yourself.

In my opinion this is enhanced by the fact you can choose to opt in and out when you like, remembering investment is only about making money. This means the price you pay and price you sell for should be your focus.

Residential property as an investment is understandable and familiar to many. You can carefully consider your options, choose your attitude to risk.

Do you want actual income more than capital growth or more of a balance?

You can decide the buying and the selling time and decide what you are comfortable with spending.

All of these factors are offered to typical superannuation fund investors too, but how many of you actually understand your statements?

Even worse, how many of you simply don’t look?

I have simplified the process greatly and if it was that easy then no one would be making mistakes and losing money – but they do.

Kate and others like her would rather play a game where we understand the basic rules, deal with something familiar and take control ourselves.

Property purchasing as an investment vehicle clearly is seen by many Australians not just as a get-rich-quick scheme – and it shouldn’t be because it usually isn’t – but as a way to save for your future in a form you can understand.

While stocks and shares, commodities and all those other markets can outperform, in some cases substantially, they can also crash and burn to nothing.

Have you ever found a property worth absolutely nothing? Housing can and does crash but always bounces back eventually.

My one absolute essential tip for investing in property is research: never take anything at face value (attending a seminar when “millionaire” is mentioned is best avoided) and understand the three key elements of successful investment.

These are:

• Buy at no more than the true market value at the time.

• Ensure potential income is tangible and holding costs are affordable to you long term.

• Be in a position to sell at the right time in the market.