As it turns out, not all property investors are the same. While buying property is one thing they all have in common, that’s where the similarities can end.
Every type of investor has a different approach to real estate; Some are hungry to make the big bucks off a town that’s just about to hit the map, while others have their eye on a quick DIY flipping project.
But most fall into one of five categories. Which of these are you most like?
Mining town investor
You may or may not be keen on mining towns specifically, but if you have a get-rich-quick mentality then you’re a mining town investor.
Jumping on the bandwagon to buy in any latest hot spot or “creative” development, they’re one of the most likely to take a high risk to chase promises of eye watering rental yields and quarterly surges in median price.
They’ll often buy at the peak of the cycle, believe all the hype they read and are suckered into the schemes of property sharks at an alarming rate. Their insatiable appetite for risk makes them a magnet for less-than-scrupulous spruikers and for markets where prices fall 50 per cent.
Their first investment property experience is likely to be their last, warned Wakelin Property Advisory director Paul Nugent.
“They’re looking for the goose with the golden egg, borrowing their father’s friend’s money and looking for 12 per cent returns. It’s all half-baked and silly stuff,” he said.
Where you’ll find them: On a tour of Moranbah or at a real estate millionaire’s seminar.
What they buy: Sight unseen in one-horse towns.
While they are considered by the Australian Tax Office to be an investor, that term probably takes them by surprise. They are characterised by their ownership of just one investment property.
Most home owners will sell their home when they buy another property to live in or move elsewhere. But some will decide to keep their former home and rent it out. Whether they’re intending to wait for capital growth before selling, or they want to move back in at some point, they’re still our ‘accidental’ investor.
They can negatively gear the property, claim depreciation and get income from a tenant, but they haven’t done any research about whether their property is a decent investment.
Cohen Handler general manager Jordan Navybox said these investors typically have a strong equity position when they are looking to buy their next home.
“This method saves them from paying stamp duty, as well as other fees and charges,” Mr Navybox said.
“This investment option is a very smart move if the investor is in a position to do it, and it’ll also depend on where their house is based.”
Most mum-and-dad investors fall into this category.
Where you’ll find them: Out with friends who “wish they’d done the same thing”.
What they buy: A home. That they keep.
The Block-inspired DIYer
Some investors want to give everything a go themselves. They’ve watchedThe Block one too many times and are ready to turn the doer-upper they’ve bought into a palace.
They’ll use terms like “cosmetic renovation” and “good bones”, but rarely do they have the qualifications or experience needed to turn these words into a profit.
The personality drawn to this style of investment is also more prone to consider DIYing other parts of the investment process. Using a buyer’s agent? No thanks. Paying for a property manager? Pfft.
Unfortunately, it doesn’t always pay off. At best, even the most hardworking DIYers will be learning as they go, leaving themselves vulnerable to making expensive mistakes.
Where you’ll find them: Swearing in the aisles at Bunnings or in Tribunal again.
What they buy: The “worst” home on what they think is the best street.
Heavily trolled online and usually seen in “bucking the trend” articles, the young twenty- or thirty-something investor is one of the rarest but most publicised property buyers.
Similar to the “rags-to-riches” investors, but a decade earlier, they usually have a portfolio of four or more homes. With less money to spend than their older counterparts, they’re often highly leveraged.
Their story will be filled with details of how they worked hard, with their parents’ help, and their solemn belief that Anyone Can Do It Too If They Want It Bad Enough.
They’ll likely extol the virtues of rentvesting and never buying coffees or visiting Europe.
In five years, you’ll see them trying to start a property advisory firm.
Where you’ll find them: With their arms folded on the front pages of investment magazines and in property forums.
What they buy: Cheap homes in “up and coming” areas, with decent rental yields.
The armchair investor
This investor is no couch potato, but their “set-and-forget” strategy has many convinced real estate is an easy asset to invest in.
They’ll be tight with the purse strings when buying property, despite being high-earning professionals in advanced stages of their career, but have cash to spend on advice and outsourcing the day-to-day management of their portfolio.
These are usually the most successful investors in every asset class, ready to reap the benefits of paying for high-end professionals as their accountants, financial planners, property managers and buyer’s agents.
Often they’ll be investing as a “tax minimisation” technique, and they’ll likely have a portfolio in their self-managed super fund. And even those in their inner circle won’t know how many properties they own.
Because of their unemotional approach to investing they are highly likely to be successful at it, Mr Nugent said.
“From my point of view, the armchair investors are some of the most successful clients. They’re usually professionals willing to hire experts to find the property. They look for the right people to advise them,” he said.
Where you’ll find them: Doing their day job or on the phone to a buyer’s agent bidding at auction for them.
What they buy: Blue-chip properties for capital growth.