What’s going on guys It's Jordan de Jong here and today I want to talk about one of my biggest pet hates when it comes to the property investment game, I love talking to property investors, it’s my absolute passion, but the one thing that annoys me the most is that first question we all want to know is how many properties they own. It’s completely understandable, those headlines are what sells news articles, and gets people listening to your podcast, you know 10 properties in 10 years, 20 properties under 30, and although it’s a great accomplishment for the individual, even they may be hot on the chase for the number of properties rather than a good asset in itself. I think the way this gets reported doesn’t help out much either, like these statics released from CoreLogic in 2018, stating that 18% of investors owned two properties, 5.5% of investors owned three properties, 2% of investors have four properties, 0.8% of investors owned five properties and 0.9% of investors owned 6 or more investment properties. If you have the competitive mindset that I do, I instantly want to be in that top category, or at least in that top 5% with three or more investment properties, but I don’t think the way this data is represented is correctly correlated with the performance of any one individual investor. Take someone with 6 properties all worth $250,000, I’ve met plenty of people who have bought properties in this price range, it’s not unheard of and probably more common than you think, there total portfolio value would be 1.5 million. Now let’s take another investor with two properties valued at $750,000, their total portfolio value would also be 1.5 Million, so although these two investors could be categorized completely separately based on the example before, in another light they are on the completely same level. I guess this brings in the whole cashflow vs capital growth discussion here, where generally cheaper properties have a higher rental yield and typically pay more of their running costs off, and therefore cost less to hold. And on the more expensive property side, they are typically in areas or types of properties that have historically been driven up by demand, hence why they are more expensive and have been said to have a stronger capital growth, although, no one has a crystal ball. This typically comes at a cost though, they generally have lower rental yields and so we as investors have to put more into the property annually, due to those higher holding costs. In the specific example from before though, I would much rather deal with only two tenants that have strong incomes and can afford to live in these more expensive properties than 6 tenants that could all up and go at once, and if this happened in both cases, I would rather only find 2 new tenants than go through the whole tenant selection process on 6 individual properties. It's critical to note here, that we aren’t buying the Australian property market, in fact, no such thing even exists, there are thousands of submarkets within Australia, and they all perform differently at different times, so although you may have 3 years of strong capital growth initially, the next 7 years maybe very stagnant. This is why property commentators bang on about a minimum 10-year approach, which essentially means we can’t accurately assess the growth performance of an asset until they have gone through a full growth cycle, which typically takes 7-10 years. So, our second contestant for the measure of performance of a property investor is their total portfolio value, and although this does have some good indication, it can also bring in bias from investors who have done successfully outside of the property, such as business or shares, and dumped a lump sum into their investments. So, the total portfolio value is no good, what about equity? Well, that’s kind of the same thing, equity is how much of the portfolio we own, and again this can be diluted by an injection of a large amount of capital. Same for LVR, I use to drop on my knees and bow before younger investors that told me they had an LVR lower than 50%, what an achievement! But really, how much capital have the put in to begin with? These things will never know, whether they got a large sum as an inheritance, or have built a family portfolio. And unfortunately, a lot of “Wealth Advisors”, “Property Coach’s” and even buyers agents sell their services to their clients based on this “Success”, but if they were that successful, would they really still be working, I guess that’s for you to judge, acknowledge if they have your best interest at heart rather than trying to make a sale. So, what can we use to measure an investor's performance, well I think we have touched on one part of the formula, being total portfolio equity, which if you recall is the total amount of the portfolio that we own. So in the 1.5M dollar example before, say we still owed the bank 1M in debt, then our total equity would be $500,000, the other side to this equation would be the total amount of capital invested, which is essentially how much we have put in, compared to how much we have got out. The third element to consider is the total cashflow of the property, how much in additional payments have we had to put towards the property, or in a positive cash flow scenario, how much has the property paid the investor over the holding period. So to make a fair assumption on a leader board, we would need total capital invested, this would include deposit amounts, stamp duty, professional costs, we would need all the in and outgoings such as interest repayments, property manager fees, repair costs, rental income, and then finally an accurate property valuation and the total outstanding debt amount. But really, who’s going to provide this much personal information, so that it can be reported on in a more accurate reading of the performance of an individual investor, not many, so this is why they come up with these uncorrelated categories that in my opinion just encourage the wrong investing behavior. At the end of the day what I failed to mention at the start is that only 7.9% of Australians are property investors, so even if you have one, that’s an outstanding achievement and you should be proud of yourself rather than comparing your portfolio to these news headlines that are only written to make a sale. If you do the math and have 2 investment properties, that means you’re one of the 1.42% of Australians that have achieved the same outcome, you’ve set yourself up for finically for the rest of your life and have accomplished a huge milestone, and that’s why it's ok to be in the bottom 95%. As always, seek your own professional financial, legal, taxation & property investment advice for your current situation, these blogs are just my opinion and general in nature and should never be considered personal advice. Until next time, happy house hunting.

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