Many investors seek properties they can purchase and forget about with passive income and appreciation. However, experts warn that a "set and forget" approach often fails because property markets are dynamic. The article provides three case studies where investors lost money due to not actively monitoring their properties and markets. It emphasizes the need to annually review macroeconomic factors, potential oversupply, and ensure investment decisions are evidence-based rather than emotional. Simply assuming properties will indefinitely double in value or that all investments are passive incomes sources can lead to poor outcomes.

1. 29apimagazine.com.au | February 201728 February 2017 | apimagazine.com.au
W
e’re all busy people – and some
of us are busier than others – so
it’s not surprising that many
investors actively seek out
properties they can buy, set up with a tenant and
then effectively forget all about, as the rent rolls in
and (hopefully) the value grows.
But many experts believe that a “set-and-forget”
mentality is actually a bad thing to go in with.
Property Mavens founder Miriam Sandkuhler
has witnessed the problem firsthand.
“Many investors want to venture into the
market and buy a property that delivers high
income and strong capital growth… [but] requires
minimal maintenance and takes up little of
their time or energy. In other words, they want a
‘set and forget’ property, which will make them
wealthy with little effort on their part.”
WHY
SET-AND-
FORGET
ISN’T NECESSARILY A GOOD PLAN…
Planning to sit back and relax while your investments do all the
hard work in the background? Unfortunately, the laidback
approach might not actually pay off.
WORDS ANGELA YOUNG
CASE STUDY 1
Kim & Clare
In 2012, Kim was referred to a “property
adviser” by his own financial planner.
Unfortunately, that adviser was actually a
salesperson tied to a specific development.
What Kim didn’t know was that his planner
was being paid a commission – he’d
mistakenly assumed the referral meant his
interests were being protected.
The investment in question involved
a new house-and-land package in the
regional Queensland city of Mackay.
Having felt he’d done his homework –
reading a report written by the project
sales team, which included some
information on historical real estate prices
in Mackay – Kim paid $475,000 for the
investment.
Unfortunately, four years later, a review
by Property Mavens’ Miriam Sandkuhler
has revealed that his $475,000 house was
actually worth just $350,000.
The review also indicated that the
property was likely to experience negative
growth over the next few years, as the
macro factors for the area – such as
population growth and supply of new
property for sale – were unfavourable.
Understandably, the result is devastating
for Kim and his family.
FEATURE | SET AND FORGET

2. apimagazine.com.au | February 2017February 2017 | apimagazine.com.au30 31
include a change in local amenities,
or a change in the demand from
different buyer or tenant types,
which can affect the market
positively or negatively.
“A great example of this is where
the balance between owner-
occupiers and tenanted properties
changes,” she says.
“For investors, a crossover of the
threshold of owner-occupier ratios
to below 50 per cent is one to pay
attention to. Investors must review
these macro and micro factors
annually to ensure any decision they
make to hold or sell their property
is evidenced-based, not grounded
in emotion or a ‘she’ll be right’
attitude.”
Sandkuhler’s final word on
the matter?
“Given market conditions in any
given suburb, town or city can – and
do – change over time, investors who
want to profit from property would
be well advised to ensure the fate of
their investment isn’t trusted to the
laps of the gods.” API
to do their own research and not
rely solely on comparable sales data
or ‘pearls of wisdom’ provided by
selling agents or a well-meaning
relative or friend.”
Essentially, a well-structured
portfolio or investment property can
never be “set and forget”, because
changes to underlying conditions
can happen at any time and in many
areas, which can substantially
change the outlook.
To guard against the potential
disasters awaiting a “set and
forgetter”, Sandkuhler
recommends that
investors at the very
least review the macro
and micro economic
factors driving capital
growth in the area
where they’ve bought.
“Macro factors
drive the supply and
demand equation in
a location and so are
the most critical to
review as when they
turn from positive to
unfavourable, capital
growth can slow, stop
or reverse,” she says.
“Macro factors
include population
growth, supply of properties for sale
and rent, employment opportunities
and new infrastructure, such as
public transport and roads.
“An example of how this works is
a suburb that has a high proportion
of apartments but where houses are
in short supply and high demand.
This will see the price of houses
shoot upwards while the prices for
apartments and units remain flat.”
That type of scenario, Sandkuhler
says, often comes into play when
there’s a change to the urban
planning rules permitting higher
density developments.
“When this happens, you’re likely
to see a substantial increase in
the number of properties for rent,
resulting in the capital growth for
existing units slowing, stopping
or declining, and rents falling
over time.”
Micro factors, on the other hand,
It’s a wonderful dream, she says,
but these properties simply don’t
exist, because underlying conditions
in the market are continually
shifting in most cities around
the country.
“In the worst case scenarios, I’ve
seen investors lose tens of thousands
of dollars by not keeping an eye on
their property,” she says.
“In these cases, they’re often
forced to sell for less than
the purchase price, leaving
them burdened with debt and
broken dreams.”
Some of the reasons
for such an unhappy
ending can be an
oversupply of similar
properties in the
area, an increase in
the supply of land for
sale, or overbearing
nearby developments
that ultimately
prove detrimental to
the investor.
There’s obviously
a mindset we have to
deal with here, so what
exactly is it?
The most
common beliefs and
myths Sandkuhler
encounters are:
ɕɕ All properties double in value
every several years
ɕɕ Everyone who buys property
makes money over time
ɕɕ Property investing is easy
ɕɕ “I can skimp on
regular maintenance”
ɕɕ “I’m not buying this apartment
because I wouldn’t live in it”
ɕɕ “This property will rent easily”.
“These are generalisations and all
of them are fraught with danger,”
she says.
“Unfortunately, they’ve been
passed around by some in the
industry or used by agents to
convince investors to buy a property
that they want to sell and have
become part of folklore.
“Many investors I meet assume
these common beliefs are true, but
in most instances they’re not and
this underlines the need for buyers
CASE STUDY 2 CASE STUDY 3
Graeme & Jodie
Geelong accountant Graeme and his wife
Jodie were looking for an investment
property to secure their retirement and
thought they’d found the ideal option
when Graeme was introduced to a
two-bedroom apartment with garage in
the blue-chip inner Melbourne suburb
of Hawthorn, so they purchased it for
$445,000 in 2007.
While the suburb does have some great
options for canny investors, Graeme had
assumed his property could be a set and
forget investment, but changes to local
zoning resulted in several high-density
apartment developments being approved
around a nearby university.
Students make up a high proportion of
tenants in this section of Hawthorn and
so two of the fundamental macro factors
that drive growth – supply of properties
for sale and supply of properties for rent –
had changed.
If Graeme had been on top of his
investment and receiving annual
independent reviews, Property Mavens’
Miriam Sandkuhler says, an accredited
property adviser would have alerted him
to the fact that the supply and demand
equation in this neighbourhood had
dropped into unfavourable territory.
That, however, didn’t happen and after
nine years of only average growth and
after an independent review, Graeme has
now sold his apartment for just $616,000
in order to use his equity in a more
favourable location.
While Graeme was fortunate to make
a profit on the property, the opportunity
cost of not having invested in a stronger
performing suburb still weighs heavily on
his mind. He certainly doesn’t regret his
decision to sell.
“The idea was to hang on to it forever,”
he says, “and then the research was ‘well,
it ain’t going to work for you’, so…”
Indeed, the property had been costing
Graeme $10,000 just to hold on to it.
“It wasn’t new or off the plan, it was
established area, it was all of that stuff,”
he says.
“It’s fine if you’re going to get some
reasonable growth out of the thing,
but when they’re both [an agent and a
property adviser] saying ‘well, you’re not
going to get much capital growth out of it’,
then it’s time to go.
“How do you even know when to sell it
and when to keep it? Unless you go and
get someone to physically appraise it, how
do you ever know?”
A couple (who wish to remain anonymous)
bought a one-bedroom apartment off
the plan in Melbourne’s St Kilda East for
$410,000 in 2010.
Unfortunately, a portfolio report carried
out in 2013 indicated a valuation of just
$390,000, with little to no opportunity
for future growth (as well as identifying
a future oversupply of apartments in the
area).
As hundreds more properties came on
to the market, the pair struggled to lease
the unit and consequently had to drop the
rent. The property was thus negatively
geared and the couple’s low income didn’t
allow much benefit from tax deductions.
The apartment was sold in 2015 for just
$355,000.
Poor asset selection and the wrong
strategy cost this couple $70,000 in cash
lost and approximately $60,000 lost
opportunity capital growth over the five
years.I’ve seen
investors
lose tens of
thousands of
dollars by not
keeping an
eye on their
property.”
MIRIAM SANDKUHLER
Did you
know?
Properties have grown by
over 14 times since the 1970’s
in Australia.
FEATURE | SET AND FORGET