With an overload of information about property investing available, it can be difficult for would-be landlords to separate fact from fiction.
Some lessons we learn on-the-job when we make mistakes and learn from our experiences.
These lessons are hard won but not easily forgotten!
You know what they say about experience?
It’s what you learn a few minutes after you need it!
However, if you can avoid making the mistakes in the first place, you’ll also sidestep a lot of heartache and possibly financial loss, which can potentially bring your investment dreams to a grinding halt.
With statistics revealing that around 50% of first-time investors sell up within the first 5 years, and 90% of the remaining investors never getting past their second property, you should be doing all you can to minimise risk and trip-ups that cause you to stumble.
That’s why I’m going to dispel a few myths around buying investment properties, as these seem to prevail, no matter how much evidence is presented to the contrary!
1. Only properties surrounding a CBD will gain significant capital value
Properties around cities aren’t the only ones to grow in value, nor are they ever absolutely guaranteed to do so.
Sure, finding a property with good growth potential comes down to its location, but it’s also about demand for the area from an affluent population who can afford to and are prepared to pay to live in that area.
I also look for areas of gentrification as well as areas where there is large owner occupier demand (as opposed to investor demand) or locations with growing population, changing infrastructure and no oversupply of new properties.
If you look only within a few kilometres of the city, you might be missing some excellent opportunities elsewhere.
2. It’s better to buy a new property than an old one
Yes, there are benefits to buying a new property: high depreciation deductions, no renovation work to attract tenants, lower costs for repairs and maintenance since everything is brand new…
But that doesn’t mean they’re always the best option.
If the property you’re considering is in a new development, for instance, then it’s likely to lack scarcity and will possibly be one of hundreds that will hit the market simultaneously.
That could impact your ability to secure a tenant due or force you to drop the asking rent, due to severe competition.
And according to new research from BIS Oxford Economics purchasers of new apartments are suffering significant losses with 60% of units purchased off-the-plan in inner Melbourne since 2011 breaking even at best or reselling at a loss, while inner Brisbane saw 40% of resales lose money.
You also need to take into account that if a property is renovated or new, it’s at the ceiling of its value – and there’s no wiggle room for you to manufacture more capital through improvements.
3. The property market rises in 7-10 year cycles
Some investors are told that property is safe to invest in because property prices will always rise.
But there are no guarantees!
The market moves cyclically, but whether or not your assets will increase or decrease in value depends entirely on each property and its individual location and circumstance.
All properties are not created equal.
However, if you have bought an investment grade property in a sound location, then the fluctuations of the market shouldn’t worry you.
But some properties never gain enough value to make to a profit.
If you keep a diligent eye on your portfolio and spot such a floundering asset, it’s likely to be time to sell it and move on.
4. Land will always be desirable, making houses better performers
You might have heard the saying, ‘the real value of property is in the land’.
This maxim causes many investors to believe that because houses have larger lot sizes than most units, their capital growth will be greater.
While land appeals to a portion of buyers, a unit close to the city with excellent infrastructure and high employment opportunities close by has every chance of outperforming a suburban family home.
In fact, with affordability becoming increasingly difficult, apartments are rising in popularity with first-home buyers and young tenants, so there is strong and growing demand for this type of investment.
Remember…well located apartments have an attributable land value underneath them.
As always, it’s about lining up all of the ducks for each property.
If all the factors are there, then it’s a sound opportunity.
Land size in and of itself does not dictate future growth.
5. Long-term success involves a diverse investment portfolio
Financial planners might tell you that putting all your eggs in one basket is too risky, and that diversifying into other areas of investment is crucial for a balanced portfolio.
But that’s not quite true.
In fact Warren Buffet said it well… “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
In my experience, being a ‘jack of all trades, master of none’ isn’t a smart way to go about setting yourself up for a strong financial future.
On the other hand, knowing everything there is to know about investing in property makes you an expert in one field, and knowing your geographic investment patch like the back of your hand, means you can make wise choices backed up by experience.
The fundamental concept behind a successful property investment journey is finding investment grade properties at the right price.
Whether you’re new to investing or you’ve purchased several assets already, it’s never too late to hone your skills and learn a few new lessons.
The property market is a fickle mistress, so make sure you’re always staying current with its movements and trends.
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.