Too many mistakes in huge money

Australians looking for safe havens waste their investment in this simple mistake. Image: Jason Edwards

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Australians who invest in property are usually risk-averse people, viewing bricks and mortar as safer and simpler investments than stocks, bonds and other assets, according to a new study.

The Australian Housing and Urban Research Institute (AHURI) has just published a research paper on the characteristics and behavior of landlords based on two decades of data from 2001 to 2021.

Ahuri found that the main motivation for investment is to generate wealth through capital gains, rental income and tax advantages of negative gears, and a 50% capital gains tax discount. Most landlords view their investment as a cornerstone asset for long-term retirement.

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Australians who invest in property are usually risk-averse people. Image: Newswire / Max Mason-Hubers

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In terms of timing, Australians are more motivated to buy investment properties when the economy is strong or interest rates are low. Landlords often avoid poor economic conditions, as interest rates tend to drop, reducing the maximum cost of holding property.

There has been a moderate upward trend in the number of Australians who purchase investment properties in two decades. By 2021, there will be 2.2 million landlords, accounting for about 8.7% of the population. About 72% of them own one.

Ahuri attempts to identify typical Australian landlords through demographic data. It found that Australian investors were more likely to be older in the late 1940s or early 1950s and were educated in the third level, employed full-time, and earned more than average income. They are usually married and own their own homes, which are below the average home mortgage. Geographically, they are spread all over the country, but there are more in Sydney and Melbourne.

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Australians are more motivated to buy investment properties when the economy is strong or interest rates are low. Image: Newswire / Max Mason-Hubers

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A huge mistake many landlords are making

Ahuri also found two queues between the landlords. The first cohort tends to buy and hold its investment properties for a long time, while the second cohort is for sale within a year or two.

Twenty years of data show that about one-fifth of investment properties are sold in the first year or within the ownership, while 28% of investment properties are held for more than 20 years.

The median investment period is only two years, which is very worrying. This is because the key to building wealth through property is capital growth, which takes time. This means you have to stick with it for a few years to really get the return on your investment.

In addition, the property also involves considerable transaction costs, such as stamp duty for purchases, which can be tens of thousands of dollars. Selling within a year or two means you are likely to cause a net loss to your investment.

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It found that Australian investors were more likely to be older in the late 1940s or early 1950s and were educated in the third level, employed full-time, and earned more than average income. Image: Richard Dobson

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hold on

Time in the market is crucial.

That’s why it’s important to do everything you can to ensure you can stick to your investment during tough times, such as when high interest rates are higher. Ahuri study found that people who sell investments quickly are usually younger investors, with lower incomes under 35 years of age, unemployed or insufficient hours of working hours.

Some investors sell their assets due to divorce, while others are unable to maintain loans to their homes and investments, perhaps because of rising interest rates. Other typical real estate investment sellers are retired Australians aged 45 to 54. The report shows that some of these investors sell to acquire their equity so they can help their adult children buy a home. Some people transfer their investment properties directly to their children.

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Other financial drivers used for sales include the increased cost of maintaining investment, as we have been in recent years due to surges in inflation, and changes in tax changes, such as the massive increase in land taxes in Victoria.

Importantly, Ahuri found that negative gears help landlords manage the costs of their investments over the long term. This not only benefits landlords, but also benefits tenants to real estate by ensuring that more and more Australians are available to rent.