Wednesday, June 24 2015
Investing should be viewed like a business. At the end of the day it's all about the numbers. But I often meet with people who are wanting their investment to act as a solution for personal issues. When you start doing this you end up with an underperforming investment.
The one I often hear is people wanting to buy an investment property that someone they know can live in. Often it's parents wanting to buy something for the kids. Or it can be for a family member or friend.
There are a range of issues with this. The most significant is you are using a long term investment vehicle to solve a short term problem or issue. You are picking an area based on where the kids want to live or near where they work without actually researching to see whether the area is a good place to invest - what are the growth prospects like? what is the employment outlook? what are the supply side risks? what's happening with vacancies? what is rental growth like? what point of the price cycle is it at?
So what happens? A year or so down the track the kids change jobs, meet someone, move interstate or oversees, or just decide they want to live somewhere else. And you're left with a property that is meant to perform for you over the next 20 or 30 years. And if boughta based on emotion and personal reasons there's a good chance you've bought something that is an underperformer.
Investing and personal purposes should be keep strictly seperate. Let the kids sort it out for themselves the same way you did. They'll whinge about how expensive property is - just like you did. And whether you believe it or not they will still find a way to buy their own home the same way you did.
If you want to help your kids encourage them save and budget and give them the skills.