After thinking that I need to reduce my Tax I'm paying and seeing a couple of these property investment companies who's whole business is getting people be invest in property. I really dug into their business model and clients they sell their services.
I crunched the numbers I got over the weekend and I was shocked that these companies for example have 700 clients on the books and they are mainly the average Mum & Dad investors who are taking 80% interest only loans over 20 years, who haven't paid off their own mortgagee. Their take home combined salary in most cases is sub $120,000!
The buffer amount they advise is was too low, the growth rates they are factoring is 6% growth each year and interest rates being 4.7% for the 20 year loan period. They also use figures that state rent increases at $45 week after 3 years increasing by that rate every year after to cater for the loss of depreciation on the fittings. They also don't advise that if you sell you need to undo that depreciation! Of course the place has to be rented constantly for the rubbery figures to work.
I'm sure that many on here will be shocked like I was at the above information, some of these people apparently have 3-4 properties all leveraged in the same manner. This is just two of these dodgy property investment places, there are many more out there all doing the same thing. It really makes you wonder about the economics of it all... if demand drops, rents don't go up, interest rates go up in 5+ years time etc.
Please note that there are many smart well financed property people out there that could make this work well and do, I just didn't reliase how dodgy these companies are selling this story with rubbery figures to the average mum and dad. It really helped me too decide to not invest in property and will look for other ways to reduce my tax bill (shares are just as bad I know) .
