Property investing is often seen as a golden ticket to wealth. Buy a few properties, let tenants pay off your mortgage, and retire comfortably on the rental income – sounds easy, right? Well, after 15 years of hands-on experience, Dave is ready to share his take on some of those myths.
In this episode of Aussie FIRE, Dave and Hayden pull back the curtain on the harsh realities of property investing. From unreliable price growth to the hidden pitfalls of negative gearing, Dave shares the lessons he wishes he had known earlier.
If you’ve ever considered diving into property investment, this is one episode you don’t want to miss.
Property price growth is not always reliable
One of the biggest misconceptions about property investing is that prices will always go up over time. While this can be true on a long-term scale, it’s the in-between periods that can make or break an investor.
“Every single market will go through periods of poor performance, very flat performance, and even years where property actually declines in value,” Dave explains.
Even in what many consider "safe" markets like Sydney, there have been long periods of stagnation. The mid-2000s saw Sydney house prices remain flat for about 6-8 years. Meanwhile, Perth, which boomed in the early 2010s, saw a prolonged downturn that lasted longer than Dave had expected.
“The problem with a strategy that’s reliant on capital growth is that you need some level of growth just to break even,” Dave says.
The unpredictability of growth means investors must prepare for longer holding periods than they might initially expect.
Negative gearing: not always as glamorous as it sounds
Many property investors are drawn to negative gearing – the idea that you can offset losses against your taxable income. But Dave warns that while it sounds good in theory, in practice, it’s a different story.
“Negative gearing sounds pretty good in terms of paying less tax. But it can often be quite frustrating,” he says. Having thousands of dollars leave your account every month with no certain return is a tough position to be in.
The risk becomes even greater when interest rates rise. “If interest rates go up, you're more exposed, and then those losses become bigger and bigger," he says.
"Then you might face a period in which property's falling – so it kind of amplifies the negativity of the situation."
For investors considering this approach, it can pay to have a buffer in place. Otherwise, they may find themselves selling at the wrong time simply because they can’t afford to hold on to the property.
Every property performs differently
Many investors diversify their property portfolios across different locations, thinking this will protect them from risk. While diversification can be beneficial, Dave points out that it doesn’t always work as expected.
“You might have one property in a specific city that is experiencing a boom market that is performing really, really well. You might have another property over here doing absolutely nothing at all, or performing not as well, or maybe even performing terribly," he says.
A key challenge in property investing is that market cycles do not move in sync. While one city might be surging, another could be stuck in a downturn for years. Even highly regarded "blue-chip" markets like Sydney aren't immune to prolonged stagnation or downturns.
For investors relying on capital growth , this kind of inconsistency can be frustrating. As Dave’s experience shows, success in property investing isn’t just about choosing the right location – it can also involve being prepared for long periods of stagnation.
The ups and downs of dealing with tenants
When people think about property investing, they often forget about one key element: tenants. And not all tenants are created equal.
“Some tenants are amazing – they might ask for one thing every three years or something. Other tenants will complain about the smallest things, or miss rental payments,” Dave says.
Having a great tenant can result in consistent rental income, minimal damage to the property, and fewer headaches. A problematic tenant, on the other hand, could lead to late payments, unreasonable requests, and costly maintenance issues.
Dave has been relatively lucky – he’s never had a nightmare tenant situation. But he acknowledges that tenant quality is one of the biggest variables in property investing. While some tenants treat rentals as their own home, others don’t, making it crucial to screen applicants properly and have a solid property manager in place.
Property is a poor income generator
One of the most surprising realisations for Dave was just how inefficient property is at generating passive income .
“Even on $2 million worth of paid-off property, you’re probably looking at something like $40,000 in net rental income. But if you had that in shares, you might be getting double that,” he says.
This is because rental properties come with a range of ongoing expenses – maintenance, insurance, property management fees, rates, and occasional vacancies.
“You can have as much capital growth as you like," Dave says. "But when it comes to actually living on the portfolio and leaving work, you’re probably going to need to invest elsewhere.”
For investors focused on early retirement , shares and ETFs may provide a more efficient income stream.
What Dave would do differently
Looking back, there are several things Dave would change about his approach to property investing:
- Invest less in property overall – “I probably wouldn’t build a full portfolio again. Maybe one or two properties, but not seven.”
- Pay more attention to property cycles – “I'd probably pay more attention to cycles and especially to history... rather than just buying somewhere because it's my home state."
- Diversify sooner – “In my scenario, where half the portfolio was in Perth, that turned out to not be very good, to put it mildly. Obviously, it would have been better to invest more in the eastern states."
While property can be a powerful wealth-building tool, Dave now believes a balanced portfolio – including shares – is a better way to achieve Financial Independence .
The reality check: What we can learn
Dave’s journey highlights some of the lesser-discussed realities of property investing. His key takeaways include:
- Property prices don’t always rise – Long periods of stagnation or declines can impact returns.
- Negative gearing isn’t a magic bullet – It’s a tax benefit, not an investing strategy.
- Not all properties perform equally – Market cycles vary across different locations.
- Managing tenants can be unpredictable – Some tenants are great; others can be a headache.
- Property isn’t an income machine – Shares may provide better cash flow.
For those considering property investing, Dave’s experiences serve as a valuable food for thought. Property can still be a great asset, but it requires careful planning, patience, and a solid understanding of market cycles. If Financial Independence is the goal, it’s worth considering a mix of assets to build a well-rounded, stress-free portfolio. But, at the end of the day, no two people's financial circumstances are the same, and your experience may differ to Dave's. For tailored guidance, speak to a licensed financial adviser .
We're always keen to hear your thoughts and topic suggestions, so hit us up at hello@aussiefirepod.com . Head over to Pearler for resources, calculators, and community insights that complement what we chat about on the show.
Until next time, keep dreaming big and living on your terms. Catch you on the next one, and happy long-term investing.
Dave and Hayden
