I’ve met a number of people who’ve made a decent amount of money from property investment. I tip my hat to each and every one of them.

Below is a consciously arbitrary, tongue-in-cheek, categorisation of three different types of property investors.

The professional property investor

Most of the people I’d consider to be “professional” property investors tend to share a lot of similarities. They’ve read books, joined local property investment associations, participate in active online forums, and are extremely well-informed about property investment.

They have pre-existing skills, such as a trade, or have dedicated the time and effort to maintain and develop their properties – or at least, to be able to manage their properties and projects in a very informed way.

They’re usually well-versed with the risks associated with property investment, and they are open and candid about these risks.

They dedicate a lot of time to their investments, and in my view, they add a lot of value.

They also often find and develop one or two unique strategies in relation to property which work well for them – for example, specific types of commercial property, or having an in-depth understanding of relocatable buildings.

This type of property investor tends to be very wealthy. They also don’t tend to spruik property as a way for others to make their fortune.

The accidental property investor

Another type of property investor is what I call the “accidental” property investor.

Most of these investors are on very high incomes. They like property, and they pour their excess income into property. They buy one property, then, two, then three, and so on. Over time, they build up a lot of equity in their property portfolio.

They don’t pay a lot of attention to the counterfactuals – ie, what their financial position might have been had they invested in some other way.

Unlike the “professional” property investor, they also tend to be dismissive of the risks associated with their investments.

I’d characterise many of these clients as “wealthy”, but I would put this down to their income-earning potential and not their investment strategies. In fact, for many of these people, I’d say they’re wealthy despite their approach to investing.

The casual property investor

Another type of property investor is the investor who invested in a single property and/or kept their old home before moving into their new house. Sometimes they have more than one investment property, and they have usually done this by leveraging the equity in their other properties to buy their subsequent investment properties.

When I ask them about how they invest, there doesn’t seem to be a lot of thought or strategy in relation to their investments. They didn’t tend to add value to their investments. Their key advisers are people who stand to benefit from people buying and selling properties.

For many of these investors, they’ve had the happy timing of buying when property prices across the board were rising. These people of investors tend to be more vocal about the benefits of investing in property than the other types of investors.

For some of these investors, which I sometimes think of as “silent” casual property investors, their experience hasn’t been so positive. Their property/ies haven’t increased in value in the way they had hoped when they invested in them. Some of them struggle to make ends meet (after topping up costs relating to their rental properties) and are especially vulnerable if their household income falls, they suffer a health issue, or there is a major expense relating to their home or one of their investment properties.

Unlike the lucky casual property investors, these less successful investors tend to be less vocal about their experience with investing in property. You don’t tend to read about them in the paper. They’re more common than you’d think.

If you’re a property investor, or intend to become a property investor, which category describes you?

Sonnie Bailey

Sonnie is an Authorised Financial Adviser (AFA) and former lawyer with experience in the financial services and trustee industries. Sonnie operates Fairhaven Wealth (www.fairhavenwealth.co.nz).

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