More than 5 properties?

The following was taken from “Today’s Tip” on July 23:

Only 1 in 200 property investors owns more than 5 properties.

If owning property was such a great idea then wouldn’t it make sense to own as many as possible?

Yet when you consider that only 1 in 200 property investors owns more than five investment properties, you have to conclude that something is horribly wrong.

And it is!

Many investors are fooled into buying property that was created specifically to lose money. They are duped into buying when these property dogs are sold as was to save tax.

Of course not all property investments lose money. Great deals still exist that will allow you to make money from day one.

But you’re going to have to think a little differently from the pack and seek education that isn’t provided by the mainstream wealth educators.

If you’re looking for something that will reveal the truth about property investing and why so many investors end up with much less then you’ve come to the right place!

Interesting. But let’s think about it for a second. Let’s just say that 5% of the population (just 5%, no more) were interested in investing in property. They read a few books and go to Steve’s seminars. They decide that property is their investment vehicle.

So they hit the streets and buy some properties. They each buy two properties (a reasonable assumption, they may have saved one deposit, and then use the equity from their own home for the other). After a while with the positive cashflow from these first two properties, and their increased confidence, they buy another two. Each now has four properties. With the market steadily rising, it’s not impossible for these property investors to buy ten investment properties in a few years. Fair enough?

But let’s do some numbers. Out of 20 people, 1 person invests in property (1/20 = 5%). He now has 11 properties (including his own house), and with the substantial cashflow from these he is able to keep investing in more properties. He already owns 55% of the properties (11/20 = 55%), and this value is increasing. One of the original 20 people decides to buy property, but finds out that there simply isn’t enough for him now. Just like the properties on a Monopoly board, there is only a finite number, and it’s impossible for everyone can own ‘more than five’. (Imagine if just 10% of the population owned 10 properties each?) There is no right or wrong about it, it’s simple maths.

Whilst I’m in the mood, let’s also look at the concept of ‘positive gearing’. This was the main strategy in Steve’s first highly-advertised book.

If I want to buy a place to live in, I’ll most likely go a bank and get a mortgage. For every $100,000 I borrow, I’m going to pay back around $8,500 per year in principle and interest (assuming an interest rate of about 7%). So if I lived in a $100,000 house, my repayments would be about $8,500 per year (rough figures, but appreciate the concept). But wait, if I were to rent a ‘positively geared’ property, it’ll cost me $9,000 or more to rent, for every $100,000 the property is worth (or $10,400 according to Steve’s 11 second solution). So my money goes straight to the bank never to be seen again, and then straight to the landlord never to be seen again. How appealing.

So when people wonder why so many people own so few properties, do some simple maths to find the answers.

But I could be wrong, so tell me

What do you believe?