Property winners outnumber losers

Property investors are getting belted. U-huh, I know what that means. Property prices are on the march, aren’t they?

The anti-investor screams are no longer like the distant roar of an ocean crashing from behind a sand dune, but the screaming headlines in a media article, which sound more like a hungry six-month old in the middle of the night.

“Negative gearing should be killed off”. “Ban lending to foreign investors”. “Discourage investors from the market”. That’s the general theme.

It misses a single, important, point.

The thing about investment property is this. Over time, no matter what markets do, roughly one-third of all property will be rented.

The actual percentages ebb and flow through the decades. Perhaps 60 per cent sometimes, 70 per cent at others.

The reason there will always be renters is partly because some people don’t want to buy, partly because some people can’t afford to buy, and partly because some people choose to live in locations they couldn’t afford to buy and are happy to rent.

Those people still need homes – a place to store their stuff. (There’s no escaping that. It’s fact.)

And the people who provide those places to live are, predominantly, “property investors”.

Contrary to popular opinion, property investors weren’t born with horns. They are simply prepared to take a risk – heck, some of them will lose a lot of money on this punt – to borrow money from a bank to buy an asset to provide a home that others will want to rent.

Property investors do lose money. They are taking a risk. Some of them, in my opinion, take absolutely stupid risks and do things that I can almost guarantee them will lose them money.

Many will lose bucket loads of dough buying rubbish property. Many will lose simply because they bought at the wrong time in the property cycle. Some will lose money because of unfortunate circumstances, such as losing their job and needing to sell the property at a less than optimal time.

Investors take risks. It’s the definition of being an investor. Taking a calculated risk in the hope of achieving a greater return than they could get for making an investment with less risk.

But some of them bugger it right up. Completely. And they do their dough on the investment, and possibly do further damage to their wider finances (perhaps losing their own home or going bankrupt).

And there are winners when investors stuff it up! Yes, over the course of history, everyday homebuyers have won big off the back of investors losing their shirts.

Who wins? Essentially, two groups of people.

Either the person the investor bought the property from, who received more money than they really should have otherwise been paid. Or the person who buys it from them when they’re being forced to take that bath, who potentially gets a property for a steal.

But these occasions never seem to be remembered.

Why does it only seem to be when property markets are running well, that there are calls of “off with their heads!”?

Don’t be so short-sighted.

Yes, property markets are running. Sydney seems out of control. Melbourne might be only a smidgeon behind. If those statements are true – and it’s a risky if – then Perth seems roughly on the money and Brisbane has to be in bargain basement bin.

And if property investors are making “paper” profits that would make your eyes sparkle, understand that they won’t keep doing so forever.

All investment markets are cyclical.

All property is, at one stage or another, subject to corrections.

No-one invested in property (or shares) always makes money.

Sometimes they lose. Big time. Absolute bucketloads.

We don’t cry for them when that happens. And neither should we, not for a second.

But to moan and complain and bitch and blame them when property prices are rising? Oh, come on.

You’ll get your chance to laugh. In any property market downturn, investors lose their shirts. I’m not saying it should be celebrated. But, next time it happens, buy the property they are taking a bath on and be thankful for what it is.

They lost. And you won.

And in the meantime, let me know when property investors really own more than 30-40 per cent of all property.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au.