Investors of the year go from boom to bust

Some of you may have heard of the Maloney’s. A couple crowned investors of the year in 2014s ‘Your Investment Property Magazine’, they are now in the troubling position of owing $3.5 million more than what their properties are worth today. I remember reading their Investors of the Year article — at the time it was a title that many would have envied.

The Maloney’s fell victim to the mining boom fall out and the impact of concentration risk (see our article on concentration risk by clicking here). Poorly diversified, they also bit off more debt than they could sustain, in periods where lower rental demand and price depreciation ensued.

I genuinely feel for these people. In business I’ve met others over the years who have pursued property success, unaware of the risks that can often lead to unintended stress. Property is an unregulated asset and, as such, people have few places they can go for a holistic discussion about their objectives. Personalised advice is integral to understanding how property can fit into your financial plans.

In my experience, most people have not come undone to the point of bankruptcy from being overly weighted to the property market. However, the knock-on ‘unexpected’ implications of being heavily geared can often make investors slaves to their work, because without their income they can no longer support their debt commitments. This is typical of people who pursue property acquisition too aggressively and can often happen while property values are growing. Ironically, the stress of meeting debt commitments results in the opposite outcome of what investors like the Maloney’s were trying to achieve — rental income covering all property costs and providing an income top up for total financial freedom.

Read more for the full details of the Maloney’s plight:

James McFall is the Founding Director of Yield Financial Planning. James has dedicated his career to financial planning and is an active member in the industry.

Originally published on the Yield Financial Planning website.

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