When property investments go bad
Most Australians have received most of their wealth from property investments. Clearly buying your own home and buying investment properties has brought tremendous wealth, and tremendously useful wealth, to a lot of Australians. On the other hand, more Australians have been bankrupted through property than through any other investments – when property goes bad, it can go very bad.
We could simply take our chances and live by the maxim “bite off more than you can chew and then chew like crazy” as it often works out, eventually. Rising house prices make the properties more valuable and inflation makes the loans easier to handle. In the large majority of cases property is a great investment. However, what do you do when you live in an area of falling house price values? This is not common in Australia but mining towns or cities with big mining investments, or even areas like our Northern Rivers since 2004, have seen stagnant or falling house prices. In such a case and with the current low levels of inflation, the value of the loan stays high and the value of the property stays low – I have seen quite a few people go bankrupt or get themselves into strife by trying to do one more deal, or use their super funds to buy one of their commercial properties from themselves. In times of rising asset values making more deals is an excellent strategy, but when property prices drop or remain stagnant it can get quite scary and selling properties - even if we make a loss - may be the best strategy. It certainly lets us sleep easier at night.