Why Do Most Investors Stop Purchasing After Two Properties?

I think your right mate that many just don't want anymore. But i strongly suspect the 'not wanting more ' is based on inaccurate assumptions by at least a portion of them eg no deposit, all market will crash, can't afford it, Isn't 2 enough to make me wealthy when I retire, etc etc. From talking to people, often what i hear is they don't want more because they actually think they can't get anymore. And when I dig further it's quite clear that they can but they simply lacked the knowledge of what to do to keep moving forward.

 

Probably one of the below:
Family changes - dont want to take on more 'risk'
New partner - different goals
First 1 or2 weren't great for them and turned them off
Negative stories from their family / friends deters them
Aren't thinking big / goals are too small

 

Because they never had the hunger or the drive.

Or they realised it's easier to make a billion dollars selling infant formula.

Probably more the former. Although it's ironic my mates either have 3 or more, or have 0. No in betweeners

 

I think its a range of things really that makes most stop at 2 properties-Finance Structures,Bad Purchases decisions,cash flow,kids,risk etc.
I have stalled at this magic number due to a number of events in the last 12 months but as mentioned above still have the hunger to continue and move forward..last 12 months in my mind have been a coma not a full stop to my investment journey.

 

Also need to keep in mind that it's impossible for everyone to be a property investor.
If every person had 3+ IP's, who would be renting all of these places?

 

I think i fall in this category, but then again its about quality, not quantity.
Sometimes one just needs to chill out and enjoy life a little.

For me, there has been approximately 3-4 year gap between each purchase. Yes I lazed around a bit, but it allowed me to take time to spend time with my wife. Had i gone on a spending spree earlier my situation may have looked like:

• 3 or 4 properties (probably in Sydney)
• Split with my wife
• Worried about whether the next person is interested in me or money
• Probably be single due to my cautious nature and trust issues.

I was in a position to purchase more properties towards the end of 2013, made a promise to my wife not to. Had i done so, I could have been retired by now (but having to split the assets due to a divorce would probably set me back), I probably would also be paying child support too.

Its not a race, its not about how many properties you got, its about understanding what you want and why and whether the vehicle selected gets you there.

Perhaps the stress of property ownership vs family happiness doesn't stack up well for them... maybe that's why they are stuck at 1 or 2.

 

I have some investors cum developers own several but either the 'enough' point in the strategy is reached or they haven't committed to the next step of jv's .

You can eek out an existence on $X00,000 pa

 

Think there are many reasons...

1. Holding in different entities - The serious investors are going to hold across multiple entities, especially in states where this allows land tax to be avoided/minimised. Those who can afford multiple properties are probably buying in trusts straight up anyway.

2. Negative gearing - An awful lot of people actually buy with this as one of the top reasons, obviously doing this sets a cap pretty quick on serviceability but you can also only negative gear so much before it becomes unnecessary and this point is 2 properties for the vast majority of people (remember that only 10% of the population are even above the 80k of income mark).

3. Financing - Again, when you consider that less than 10% of the population earn more than 100k gross per annum the serviceability starts to get real tight after 2 properties in any quick time frame.

4. Capital growth - If a significant amount are buying for negative gearing it goes in hand that they're also speculating on capital growth, everyone else is also keeping a close eye on this. As such a lot of people will profit take when they see 100k or 200k or whatever their threshold is in capital gains, meaning they turnover what are their best investments. I dare say a decent proportion of these use it to pay off the PPOR and live mortgage free and see the rental as having done its job.

5. Life - Weddings (50k+ for most), kids and their schooling, travel and the life come along, people might buy one or two in their late 20s and early 30s but by the late 30s the household budget doesn't have a lot of room for buying more properties. Then they get to 50 when they're through with the kids and all of a sudden their deposit/equity is used to help the kids buy a house or to buy a caravan or to do all the travelling they couldn't do before, the idea of a 30 year mortgage that expands into retirement/death isn't that appealing. Then of course you have the divorce that happens to 1 in 3 marriages which will completely derail investment...

6. Sufficient income - 2 good rental properties will provide probably 60k in income a year, throw in 30k of super and do you really need more than that, a lot of people really don't and are perfectly happy to not take on anymore debt from that point and just pay down what they have.

7. Administration - It starts to get a bit overbearing for the average person to manage more than 2 properties (on top of the PPOR and life in general!). They buy the second and get sick of the paperwork with it. Then you have that the Land Tax starts to get a bit higher with each one and become more and more of a burden.

Plenty of other reasons, people with no strategy, fear and the like are huge reasons also.

 

Another.........not everyone makes money with property, I know some who have actually gone backwards.

Also many get disillusioned because they have the slow and steady strategy which is buy and hold and no insight into property cycles and buy at peak taking years for growth. They watch their friends who have day jobs enjoy life today while they have a noose around their neck, easy to do nothing.

Just my thoughts, because when I started I was on the slow and steady road, watching my friends enjoying life and wondering what a fool I was. I saw the light and the easier road....

Marisa

 

You make an important point @neK :
What's the point of working too hard and stressing out to provide for your family, if working too hard and stressing out causes the break up of your family?
Definitely need balance, take some time and enjoy the ride.

 

Nice points. I’ve been arguing with my second-half lately over housing. She wants to buy an expensive PPOR, whilst I want to purchase a cheaper PPOR. I’ve tried explaining that it’s not just the upfront cost and higher deposits that are involved. Besides the interest being significantly more there is also higher council rates, higher insurance premiums etc. All that stuff adds up and none of it is tax deductible. Other than that it also hamstrings any investment progress for a significant time (relying on capital growth since savings will be negligible and our servicing will be significantly impacted), and will force us to be a lot tighter with money. For her she just wants to live in a nice area/home and doesn’t think much beyond that. For me I view housing more as a commodity rather than just a place to stay.

Perhaps that’s the other reason why most people don’t surpass 2 houses- expectations on where they want to live. How many doctors or corporate lawyers live in low socio-economic areas? I know not everyone is a fan of ‘Rich Dad Poor Dad’ but I remember distinctly the author discussing how PPOR are technically assets, but they are just as much liabilities as they are not putting any money into your pockets. At the same time when people get pay rises instead of investing many people will decide to upgrade their PPOR.

 

Try to start with a cheaper home... when you have a much better financial situation (which i'm sure you'll get to with your investing) then upgrade. I'll be on my 3rd PPOR very soon... the first property was a 2br unit, barely larger than 50sqm internally, living area and car space much too narrow for my liking (helped me figure out what I didn't like!). Current place is decent and in a great neighbourhood but the house itself is not amazing in any way. Next place will be an amazing stunner in a brilliant neighbourhood....

No need to start off with an above average place. It's also nice to see my current PPOR loan virtually paid off more or less in 7 years of ownership too, and that would have been difficult if we had taken out a larger loan. (Thank low interest rates too!)
The next place we shouldn't have much loan... so happy! But I see Sydneysiders having PPOR loans to service of over $1mill.... omg... while rates are low I hope they are able to save... I think some people may get caught out if/when rates go back up (it will present buying opportunities for the prepared)...

Any chance she'll come to a property meetup?