Why do most property investors find it hard to get past their initial investment property?

In recent years there have been many people in the property sector promoting the importance of building a successful property portfolio to create wealth for retirement.

However, the reality is that very few people succeed in building a large property portfolio.

The fact that only a tiny portion of people ever go on to build a successful property portfolio is revealed by Australian Tax Office (ATO) figures.

ATO figures show that 72.8 per cent of individuals who owned an investment property owned just one while 18.9 per cent of individuals owned two. Only 0.9 per cent individuals or less than one in a hundred owned six properties or more.

The ATO figures also reveal that for the more than 1.2 million of these individuals, two out of every three were negatively geared or reported a loss on their income.

Generating strong cash flow is therefore critical in the process of building a successful property portfolio especially if you are just starting off in the property investment market.

The main reason why so many individuals fail to own several properties is that they make mistakes with their very first property purchase. This then prevents them from moving on to buying additional properties.

However, individuals who do make the correct decisions at the start off stage in property investment can go on to amass a highly successful property portfolio which will help fund a comfortable retirement.

This is why is it critical to undertake extensive research before buying your first investment property to avoid simple mistakes that can undermine a long term strategy of creating wealth through property investment.

Property still remains one of the best ways for mum and dad investors to create wealth and this has been proven over many years with Perth real estate achieving high level of capital growth consistently over several decades.

Many first time investors never buy more than one investment property because they make simple mistakes which include:

  • Not claiming their full tax entitlements relating to negative gear and tax depreciation. Tax depreciation benefits alone can add up to 60% of the total purchase price of the property over time.

  • Deciding to buy an investment property close to their owner occupier home rather than looking at investment opportunities throughout Australia.

  • Over estimating rental returns and failing to get independent information on potential return returns.

  • Selecting a property based upon advice of friends or family rather than seeking independent information.

  • Buying into an area that is heavily marketed rather than focusing on overlooked suburbs that might present better long term capital growth – i.e. sleeper suburbs.

  • Not undertaking a full assessment of the true cost of buying and holding the property. For example, if the property an apartment, there are additional cost issues such as strata fees, compared to buying a stand-alone house.

  • Selecting the wrong home loan i.e. principal and interest rather than interest only which will help increase cash flow.

  • Buying a property in a location which is not attractive to tenants i.e. not close to amenities such as shops or transport.

  • Purchasing a property in an area where there is an oversupply of properties meaning rents will be low and capital growth rates limited.

  • Trying to select the tenant themselves rather than using the services of a number of reliable property management companies.

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