Property is neither the only or best asset class to invest in. It simply forms part of an overall investment strategy and for this reason it is wise to seek advice about how and if property is suitable for your individual circumstances.
However many of Australia’s largest financial planning institutions put onerous restrictions on the level of advice their advisors can give relating to residential property investment.
Lets take a look at an example of how many advisors have their hands tied.
An investor has a house worth $600,000 with $100,000 debt. They are in a strong income-earning phase of their lives and want to build a diversified portfolio with property and shares.
The idea is to leverage off their equity and buy an investment property. For their personal situation the preferred structure is to borrow 100% of the investment property debt and make interest only repayments. This leaves any additional disposable income to be applied to reducing the debt on their home.
Seems pretty straight forward but many financial advisors are barred from considering this kind of strategy. The system they must adhere to says for the investment to comply with the strict internal policies, 20% -30% of the property value must be contributed in cash and not borrowed.
For most investors this is not a viable option. Further for many financial advisers it means this kind of property investment cannot form an overall part of the plan.
A cynic might suggest this is to direct more investment dollars into managed funds where a commission is paid but regardless of the reasoning it leaves a gaping whole in the clients investment plans.
It is not my intention to point the finger at financial planners for this strange situation. It is the system they are forced to work under that is at fault. As a result many property investors are exposed to an unregulated industry to seek specific advice.
Over one million Australians invest in direct property and, in dollars terms, the market is the biggest in the country.
I think is time for the financial planning industry to face the reality that direct property investment forms part of a diversified investment strategy and embrace it rather than turn its back.
Mark Armstrong
Chief Executive Officer of Property Planning Australia. www.propertyplanning.com.au
