{"id":5064,"date":"2017-05-26T22:57:00","date_gmt":"2017-05-26T12:57:00","guid":{"rendered":"https:\/\/murrayslatter.me\/?p=5064"},"modified":"2025-01-27T14:55:43","modified_gmt":"2025-01-27T03:55:43","slug":"why-investment-properties-are-not-the-holy-grail","status":"publish","type":"post","link":"https:\/\/murrayslatter.me\/?p=5064","title":{"rendered":"Why Investment Properties Are Not the Holy Grail"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\">The insanity of the model &#8211; Loose cash consistency, to make capital gains.<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The Australian narrative around investment properties has become almost folklore: negative gear a house, magnify your returns by offsetting tax, and sit back while the market delivers perpetual capital gains. It sounds simple, doesn\u2019t it? <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But as with most stories that sound too good to be true, there\u2019s more to this tale than meets the eye. For those in my cohort who have already caught the \u201cAussie investment property bug,\u201d let me provide some critical insights that challenge this mindset\u2014not to discourage investing altogether but to open your eyes to the risks and alternatives.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The hidden construct that you may have unknowingly enjoyed for the past 30 years lies in 3 key secrets that are as evident as the nose on your face, however almost never seen. <a href=\"https:\/\/outlook-sdf.office.com\/bookwithme\/user\/ffef0aaaf9ce4fa9bc29e062d1cb0d0f@qfactor.com.au\/meetingtype\/Pm-jEq3270-FEyHgAHjEmw2?anonymous&amp;ep=mcard\">Download the Playbook and connect to tailor <\/a>or <a href=\"https:\/\/share.hsforms.com\/1BOVrPBN0SZSyE6N4ppjRqAeiskf\"><strong>Connect to learn these secrets<\/strong><\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hint: 1) the growth in the % of homes with Dual incomes +++ (and there are two more)  <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Extreme Risk with Extreme Gearing<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Let\u2019s start with the foundation of this strategy: <strong>leverage<\/strong>. Negative gearing is essentially borrowing to invest in a loss-making asset, with the hope that future capital gains will make up for the shortfall. On paper, it looks clever. In reality, it\u2019s a house of cards &#8211; in fact, I will be more pointed: its a <strong>ponzi scheme<\/strong>.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>High Leverage Magnifies Risk:<\/strong> If property prices fall by even a modest percentage, the highly leveraged investor could see their equity wiped out entirely. Unlike equities, where losses are capped at 100% of your investment, gearing amplifies both gains and losses\u2014and in a downturn, the consequences can be catastrophic.<\/li>\n\n\n\n<li><strong>Illiquidity Compounds Problems:<\/strong> Unlike stocks, which can be sold relatively quickly, real estate transactions are slow, costly, and complex. In a financial crunch, you\u2019re stuck.<\/li>\n\n\n\n<li><strong>Market Dependency:<\/strong> Most property investors in Australia rely on continued growth fueled by credit expansion, population increases, and favorable tax policies. If any of these pillars falter, the \u201choly grail\u201d turns into a poisoned chalice.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Ponzi scheme<\/strong>, this model will only keep working, when there are new entrants into the market that overstretch themselves and keep pushing prices higher. Remarkably the impacts only need small movements at the margin to have significant impact. Take a moment to think about the alternative scenarios&#8217;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Higher than normal proportion of New supply of new homes\/units into the market for a sustained period<\/li>\n\n\n\n<li>Increase in the number of share housing (reducing demand at the margin)<\/li>\n\n\n\n<li>Increase in the number of Baby Boomer generation deaths triggering new houses ready for sale, at recoverable prices not necessity prices.   <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Timing the Credit Cycle<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Do you know what the Credit Cycle it is? Do you know how the credit cycle influences the market dynamics.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">More so, how many property investors truly understand where we sit in the credit cycle? The answer is: very few. Most are unwitting participants in a market driven not by fundamentals but by cheap debt and speculative fervor.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Top of the Cycle:<\/strong> If you\u2019re investing when credit is cheap, widely available, and property prices are peaking, you\u2019re effectively buying high. This is not a strategy; it\u2019s gambling.<\/li>\n\n\n\n<li><strong>Bottom of the Cycle Investing:<\/strong> Savvy investors in any asset class understand that the best opportunities arise during moments of panic, when credit is tight, and assets are undervalued. How does the property investor benefit from such moments? They usually can\u2019t\u2014because their existing leverage makes them ill-prepared to seize opportunities.<\/li>\n\n\n\n<li><strong>Cycles Are Inevitable:<\/strong> All markets move in cycles. Betting on endless appreciation without accounting for downturns is akin to ignoring gravity.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Fixation on Tax Avoidance (Evasion)<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">One of the most pervasive myths fueling Australia\u2019s property obsession is the belief that negative gearing and other tax incentives make property the ultimate investment. While tax considerations are important, building a strategy around avoiding tax often leads to poor decision-making.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Tax Incentives Are Temporary:<\/strong>\u00a0Governments can and do change tax laws. Negative gearing, for example, has faced repeated scrutiny and may not always be available. Building an investment strategy reliant on favorable tax treatment is inherently risky.<\/li>\n\n\n\n<li><strong>Wealth Is Built on Growth, Not Deductions:<\/strong>\u00a0Avoiding tax doesn\u2019t create wealth; growth does. Negative gearing means you\u2019re losing money to save on tax, which is counterproductive unless the asset appreciates significantly\u2014and even then, it\u2019s not guaranteed.<\/li>\n\n\n\n<li><strong>Moral Hazard:<\/strong>\u00a0Focusing on tax avoidance can encourage risky behavior. Investors may over-leverage themselves or buy suboptimal properties simply because the tax deduction looks attractive on paper.<\/li>\n\n\n\n<li><strong>Opportunity Cost:<\/strong>\u00a0Money tied up in a negatively geared property could often be better deployed elsewhere, such as equities, where returns are driven by innovation, growth, and scalability rather than tax breaks.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">If you understood the alternative<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Equities Offer Asymmetric Risk and Reward<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The argument that property is a safer, more predictable investment falls apart when you consider the alternatives. Equities, for example, offer something that property never can: unlimited upside with capped downside.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Homes are for living in and creating families, not as financial instruments to benefit from the most vulnerable in our society. Equities (Shares) on the other hand are financial instruments! When you invest in companies your are measuring the benefits of innovation, progress, engineering, problem solving etc. Companies that find innovations that reshape how things get done, with efficiency and value, benefit from demand and benefits of product pricing power, driving scale and therefore: <\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Downside Risk Is Limited:<\/strong> When you buy shares in a company, your maximum loss is 100% of your initial investment. This is a finite risk. Compare this to property, where leverage can result in losses that exceed your original investment.<\/li>\n\n\n\n<li><strong>Unlimited Upside:<\/strong> The world\u2019s most successful companies have delivered exponential returns to shareholders. Consider these examples:\n<ol start=\"1\" class=\"wp-block-list\">\n<li><strong>Amazon (AMZN):<\/strong> In the early 2000s, Amazon was still a fledgling e-commerce platform. Despite skepticism about its ability to compete with brick-and-mortar giants, Amazon revolutionized retail and expanded into cloud computing with AWS. An investor who put $10,000 into Amazon in 2001 would now have over $12 million as the company\u2019s stock appreciated more than 1,200x in value.<\/li>\n\n\n\n<li><strong>Apple (AAPL):<\/strong> In the late 1990s, Apple was on the verge of bankruptcy. Fast forward to today, and it\u2019s the world\u2019s most valuable company, with innovations like the iPhone, iPad, and App Store reshaping entire industries. A $10,000 investment in Apple in 2003 would now be worth over $6 million, representing a 600x return.<\/li>\n\n\n\n<li><strong>Tesla (TSLA):<\/strong> Tesla disrupted the automotive industry by proving that electric vehicles could be desirable, high-performing, and profitable. Its stock price skyrocketed from under $10 in 2010 to over $1,000 in 2023, delivering a 100x return for early investors.<\/li>\n\n\n\n<li><strong>Microsoft (MSFT):<\/strong> Since the 1990s, Microsoft has been at the forefront of technology innovation, from Windows to Office to Azure. Despite facing competition and regulatory challenges, it has consistently adapted and thrived. A $10,000 investment in Microsoft in 1990 would now be worth over $8 million, representing an 800x return.<\/li>\n\n\n\n<li><strong>NVIDIA (NVDA):<\/strong> Once considered just a niche graphics card company, NVIDIA is now a leader in AI and data processing. Its dominance in GPU technology has made it indispensable in industries ranging from gaming to autonomous vehicles. NVIDIA\u2019s stock has delivered over 100x returns in the last two decades.<\/li>\n\n\n\n<li><strong>Axon Enterprises (AXON):<\/strong> Formerly known as Taser, Axon expanded from its initial product line into body cameras and cloud-based evidence management. An investor who backed Axon in 2010 has seen their investment grow over 200x as the company\u2019s solutions became integral to law enforcement worldwide.<\/li>\n\n\n\n<li><strong>Index funds<\/strong>: my preferred index fund is the QQQ or NDQ on the ASX. Both are index\u2019 of the top 100 companies of the NASDAQ exchange. If you are like me and investing for the long term, this is an ideal way to Dollar Cost Average into a life without the bumps. In the case of the NDQ over the last 10 years is up 416% or 15% CAGR which beats the property markets 5%CAGR over the same period.<\/li>\n<\/ol>\n<\/li>\n\n\n\n<li><strong>Liquidity and Diversification:<\/strong> Unlike property, equities can be traded quickly, allowing investors to adapt to changing market conditions. Furthermore, stocks offer unparalleled opportunities for diversification\u2014across sectors, geographies, and industries\u2014mitigating risk and enhancing returns.<\/li>\n\n\n\n<li><strong>Developing Your Circle of Competence:<\/strong> One common barrier to investing in equities is a lack of understanding. However, the concept of the &#8220;circle of competence,&#8221; popularized by Warren Buffett, provides a framework to address this. Start by investing in areas or industries you already understand\u2014whether it\u2019s technology, healthcare, or consumer goods. Expand your knowledge through research, reading annual reports, and studying successful companies. Over time, as your competence grows, so will your confidence in identifying opportunities and managing risk. Unlike property, where the market often dictates terms, equities reward those who invest in their own education and decision-making abilities.<br><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">The Emotional Bias of Property<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Why, then, do so many Australians cling to the belief that property is the ultimate investment? The answer lies in history and psychology:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Tangible Asset Bias:<\/strong> People feel more comfortable investing in something they can see and touch. But tangibility does not equal security.<\/li>\n\n\n\n<li><strong>Cultural Narratives:<\/strong> The \u201cGreat Australian Dream\u201d of homeownership has morphed into a belief that property is a guaranteed path to wealth. This narrative persists despite clear evidence of market cycles and risks.<\/li>\n\n\n\n<li><strong>Social Proof:<\/strong> When everyone around you is investing in property, it\u2019s hard to go against the tide. But as Warren Buffett famously said, \u201cBe fearful when others are greedy and greedy when others are fearful.\u201d<\/li>\n\n\n\n<li><strong>History:<\/strong> Australia has a had a long history of cheap land, growing population, distinct centres of growth (Sydney, Melbourne, Brisbane) and most recently new supply of new income capacity, in the addition of more women entering the employment market contributing to the &#8216;assessable income&#8217;<\/li>\n\n\n\n<li><strong>Poor History<\/strong>: Historically, due to the cyclical nature of the most prominant and well known Australian Equities industries, many people have grown a psycological aversion to equities (shares), this has been a sacrifiece at their cost\/wealth.    <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Rethinking the Australian Obsession<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">To those indoctrinated into the \u201cproperty-at-all-costs\u201d mindset, I urge you to take a step back. Investing is not about following the crowd; it\u2019s about understanding risk, reward, and market dynamics. Property, when over-leveraged and poorly timed, represents extreme risk masquerading as a safe bet.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Equities, on the other hand, offer asymmetric returns and a level of flexibility that property can never match. While no investment is without risk, the key is to invest with eyes wide open\u2014and not to buy into myths perpetuated by cultural narratives.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The time to challenge your assumptions is now. The stakes are too high for blind faith in a single asset class. Diversify your thinking, do your research, and invest in opportunities that align with a sound, long-term strategy. The \u201cAussie investment property bug\u201d may be contagious, but it\u2019s a disease you\u2019re better off avoiding.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The insanity of the model &#8211; Loose cash consistency, to make capital gains. The Australian narrative around investment properties has become almost folklore: negative gear a house, magnify your returns by offsetting tax, and sit back while the market delivers [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":5066,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[11],"tags":[],"class_list":["post-5064","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","clearfix"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Why Investment Properties Are Not the Holy Grail - Murray Slatter<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/murrayslatter.me\/?p=5064\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why Investment Properties Are Not the Holy Grail - Murray Slatter\" \/>\n<meta property=\"og:description\" content=\"The insanity of the model &#8211; Loose cash consistency, to make capital gains. 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