Make Sure You’re Not A Property Investing ‘Loser’

By Kris Sayce
Editor, The Pursuit of Happiness

‘In Prahran, a single-fronted brick terrace house at 40 Chatsworth Road sold for $1.325 million, 38 per cent above its $960,000 reserve.

‘Woodards director John Piccolo was taking a long time over his auction preamble and was hurried up by an unsolicited $900,000 bid from the 200-strong crowd.

‘Seven bidders competed for the property, which last changed hands in 1986 for $140,000.

‘Mr Piccolo said the owners had been advised not to buy the house in the 1980s because the price was too high.

‘It was one of the top five most expensive properties sold over the weekend.

‘“For a single-fronted property, that’s just extraordinary. All the fundamentals – low interest rates; stable employment; and lack of quality stock – contribute to consumer confidence and that’s reflected in the pricing,” he said.‘ – Age

That’s a nice return. It’s an average 31.3% gain over 27 years.

It’s the kind of return anyone would love.

And if controversial analyst Phillip J Anderson is right, the Australian housing market could be about to embark on a 14-year bull run that could result in a repeat of those gains.

Of course, that’s the gross return. As you’ll know from speaking to property investors, they’ll never reveal the net return.

In other words, they won’t tell you the mortgage costs, maintenance costs, improvement costs, and ongoing costs (rates, utilities, etc.).

This is why I don’t consider property to be a real investment. Property is a wannabe investment. And property investors are wannabe investors.

No real investor would claim something is an investment without knowing the cost base of an investment. And yet all you ever hear from the property crowd is, ‘I bought it for X in 1980 and sold it for Y in 2012.’

But if you’re thinking about getting into property investment today, the latest numbers from the Australian Taxation Office (ATO) should give you pause for thought…

Now, I get it that property ownership and property investment are different.

Just because you own a home or have a mortgage on a home doesn’t mean you’re a property investor. And yet, ask most people about how they view their home and they’ll say the same thing – they say it’s part of their retirement savings plan.

That attitude is a big mistake.

As I’ve long said, housing isn’t so much of an asset as an expensive consumption item.

That’s not to say that owning a house won’t benefit you in retirement, but rather it’s important to make sure you’ve got much more to your name than just a house.

Let me use the Albert Park neighbourhood of Melbourne as an example…

Read the rest of this article at The Pursuit of Happiness