Integra Financial Services director and financial adviser Deborah Kent appears on Secrets of the Money Masters with soccer star Kyah Simon. In this chat, she discusses what some Australians might not know about property investing.
Do you think there’s a general preference for investing in property in Australia?
Yes, definitely. Investment properties seem to be the thing for a lot of people. There can be peer pressure from families; it’s what everyone’s done all these years. The idea that the only way to get ahead is to buy property is sometimes ingrained in our consciousness.
What’s the main issue with this mindset?
One of the things I discuss with my clients a lot is the idea that if you buy an investment property it’s self-sustaining; you get a tax refund on it so it’s going to always be a great investment.
What some people forget is that negative gearing will always give you a cash-flow loss every year. For that investment to make money, it needs to increase in value by the loss plus inflation every year. And in some markets that will happen, but sometimes it won’t.
Are there other concerns?
Another issue is maintenance costs. What happens if your property has an air conditioner and it blows up? That could cost thousands, and if it does, where does the money come from? You have to have available cash to do that maintenance, even if it’s tax-deductible.
There are other issues, of course, like what happens if you have a bad tenant who decides not to leave? You might have to go to court to get them out. These things can happen.
Are a lot of people aware of these risks?
Most of the time, when I whiteboard that in front of somebody, they say, “Oh, I didn’t know that!” Insurance, maintenance – especially when the property starts to age – and so on. There’s a tax deduction, but you still have to have the cash available.
Why do you think these issues aren’t always considered?
I think those who are not in the market see it as an opportunity, and those who are, well, they say they’re not going to sell it anyway, and it will always make money. That’s the line I get a lot.
Do you think the recent shifts in the property market will change this mindset?
Not necessarily, no. I think when it comes to the average Australian, if they’re bent on property investing it’s going to take someone to convince them there might be other ways. Diversification doesn’t come to mind straight away. Basically, I think anyone who wants to get into this market should understand it first.
Thanks very much for your time, Deborah.
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