Why Do Most Investors Stop Purchasing After Two Properties?

The number of investors that have more than 2 investment properties really drops off. (as per rpdata, ATO stats below). IMHO these maybe the serious real investors who are investing towards the goal of total financial freedom & independence.



In the beginning it may not be a lack of ambition. However as they progress they will begin to come up against more and more issues (walls) that may prevent or inhibit from progressing further. This is the vital time that if they are not truly committed to their 'reason' for investing in the first instance then they tend to flounder and not continue on their investment journey. This is commonly referred to as, hitting the wall.

Over the years I've been actively investing I've come up against lots of walls that may have prevented myself and others from continuing on.

Some of the common ones (in no particular order) being ....

• No defined investment strategy plan.

• Lack of knowledge to overcome perceived issues.

• Not being able to access further finance

• Selling up to Realise profits.

• Sick of any day to day type Property management issues

The list is endless...feel free to add others.

Basically all these 'perceived walls' comes down to ones mindset or head space. There is a classic quote I read a while ago that IMHO sums up why most investors do not continue on.

It went something like this.... "To over come a problem requires a higher level of thinking than the thinking that created the problem in the instance".

Its a sad to say unfortunately most investors start out fine with the one or two properties however when the inevitable walls do start showing up they tend to splat instead of finding a way around.

I hope this provides others, food for thought.

 

Good post Rixter, I was searching for ages for these stats. Just to clarify, does a ppor count as an ip? (when you think about it it's still an "investment ")

 

It is interesting. In my limited experience things are getting easier and the time between IPs should continue to decrease.

Surely lack of focus would be the #1 thing holding people back. If you have one or two waiting a few years is going to provide enough equity to really get some momentum happening if that's still what you want to do.

 

Not in the eyes of the ATO who made the stats.

 

No Hodge.....the stats are for 'rental' properties over and above PPOR.

 

Thanks for clarifying. I think fear is the biggest one and not believing in yourself.

 

How are IPs under a trust treated in that stats?

 

Maybe due to fear, more paper work, more loans with more banks, keeping track with the properties, land tax and maybe due to feeling comfortable. For myself I know that I have to eventually look at other states for possible deals but at the moment I am ok with still looking at NSW. My property mentor buys 1 IP a year as a personal rule for himself simply because he buys a house which requires work and guess he spends so much energy on completing the project that he feels thats enough.

 

The statistics will be slightly misleading as the will not account for spouses owning in different names, trustees, companies (including trustees of SMSF, custodian trusts etc)

 

Running out of deposit is the big one. Its been great in a rising market where people have been able to pull out equity after a few months but this is changing.

Also people have been reluctant to invest in regionals but this is changing with education and investors being priced out of some of the capital cities.

 

In my experience with investors outside the SS/PC world, I think many buy their first IP because they feel they 'should', not because they're passionate about investing or have any real interest in it. Often happens once they have a family, around the mid - late 30's. It can be a box tick, with no real plan for a specific outcome.

Because there's no plan for a specific outcome, the debt can be a burden, and combined with a 'must pay down debt' mindset, the second loan can feel like a millstone around their neck. There's no fun, and when there's no fun who in their right mind will go back for more?

Like you say Rixter, it's all about the mindset behind the action.

 

Rix,

I am in the 18% of investors that has 2 investment properties,plan is to buy another 2 this year which will put me top 2% of investors..that will seem strange!!

Main issue moving past IP2 for most would be due to either finance or previous property selection not performing..

coota9

 

A lot of first-time investors make the mistake of buying an IP using P+I terms instead of IO. If they already have a PPOR mortgage they are unlikely to have funds or the serviceability to buy more IPs.

I also think it comes down to lack of education and bad advice.

 

They arent included in those stats....the stats are for rental properties held by individuals.

 

i agree with jess. its a common thought for middle class mum/dad investors to be that "next step" in career and middle class life. but not really undetstanding the power of property investing.
another factor would be finance and poor advisors in that dept. my credit union i was with struggled with refinancing and the thougjt of investing above 1 ip.

 

Looks pretty normal to me.
Everybody is at a different stage of investing.

Look at the numbers this way.
25% of single IP owners have 2 IP's
30% of dual IP owners have 3 IP's
36% of triple IP owners have 4 IP's
41% of quad IP owners have 5 IP's

If we take it further, if 100 people have 90 IP's, there's probably at least 90 people who have 100 IP's

It's like reverse compounding.

 

You've hit the nail on the head there as all the Finance Brokers who frequent this forum will be aware of in relation to investors who plan to build substantial size portfolio's. Property investing is not about property - Its about finance! .... always looking to place one self in a position to continue accessing funds for future investment/business and/or pleasure.

 

Definitely financing was my hurdle after #2. I had the deposit but not the serviceability.

Here's what has changed for me:

• Interest rates went down, everything is now easy to hold
• Being a bit creative to increase yields (no slum lord here, but using other techniques, fully furnishing and Airbnbing)
• PPOR loan is really really low (yes I could pull equity out of here, but partner wouldn't allow me)... value of PPOR is now double what we paid .... I was doing my calcs thinking of the day it would hit $1mill at the time we bought it, and now its well and truly smashed that. The loan amount... the daily interest currently being paid by each of us is not even equivalent to a cup of coffee or a short bus fare
• Getting an amazing, brilliant, responsive "can do" mortgage broker (Shahin) on board --> there is a way!!

Now I have very good equity thanks to the Sydney boom, and a brilliant mortgage broker who knows exactly what can be done so i'm making hay while the sun shines (and might not be much longer either thanks to APRA).

I hope I could pull out a second purchase in Brisbane but with APRA changes, i'm really not sure its possible. Just hoping the financing on this first one will go through, no issues!

 

May be the thought of having huge debt against their name scares them.

 

I think most people look at property investing as a way to boost their income or to help them when they retire. It is not seen as an alternate way to make a full time wage.
So, 1 or 2 properties will do what they are looking for.
Also, a lot of people have inherited their second property and have no interest in investing. Others just want a holiday home.