Home Truths: Take one step at a time

Photo / Geoff Sloan

The $64,000 question - what does the future bring for property investors? During the strong market growth of 2001 to 2007, most investors were focused solely on building equity. That strategy has now created challenges for many investors.

The market changing has meant investors who purchased towards the end of the upward cycle have now found themselves in a position where they have very little equity in their rental properties. In a number of situations I have seen investors who would owe money on their properties if they sold now.

When you sell a rental property you also have to factor in real estate fees, legal and accounting fees, mortgage break fees, depreciation clawback and in some cases GST.

This means investors are in a situation where they either take the loss now or they keep topping up their investment and hope that the market will eventually increase so they can be in a better position. Of course, the question is how long will this take?

Another key consideration is that as of yesterday, a residential property investor can no longer claim depreciation on buildings. This can have a significant impact on the bottom-line cashflow for many investors. One I spoke with recently has a portfolio of four properties that she has had for about 10 years. From the coming tax year she has to find another $10,000 a year to cover her costs. She doesn't have this so is in the process of selling one of her properties and may have to sell a second, too.

What are the tax changes to LAQCs going to mean? Conversations I have had with accountants of late don't give a lot of clarity other than that every investor needs to have a consultation with their accountant and see how the changes will impact their individual circumstances. There still seems to be a lot of confusion. For some there will be little impact, whereas others will need to restructure their affairs as the costs may be significant.

I think there will be some investors who will sell up as soon as they can and go back to other forms of investment which they perceive have less risk and are less hassle.

Many got caught up in the hype and thought that property was the holy grail of investing.

The reality is you need to be prepared to put a lot of work in, take on risk and/or take a long-term approach otherwise you are going to be disappointed.

I've been around property investors for more than 20 years now and apart from a small number who manage to be "lucky" with their timing, this is consistently the case.

Maybe we will see rents rising more as some investors cash up whenever they get the opportunity which creates pressure on supply. It's probably fair to say rents have increased more slowly than house values so a catch-up is coming.

I have come across many investors who are still keen to buy at the moment. The catch is with banks being tougher they are not able to.

I'm no market analyst but I struggle to see how we can be very optimistic about property prices increasing in the next couple of years with what I see going on in the economy. I'm sure there will be many commentators out there who can show a number of reasons why that may not be the case. My experience is that for every expert who says one thing, there is another that says the opposite and it's very hard to get much of a consensus.

So where does that leave you? I think it's important to put one foot in front of the other and take it day by day, but at the same time constantly review where you are at.

Sometimes we can get really hung up on the future. I believe it's harder than ever to get a sense of what the future will bring.

Perhaps the outcome of all of this is that although we still need to think about what we want to achieve long term, we also need to take a shorter-term focus and constantly review how we are tracking.