There are many commonly held beliefs about property investing that aren’t only questionable but are also utterly false.
Sadly, some investors go through their entire property journey believing them. And that’s a shame.
They’d waste precious time buying the wrong property or using faulty strategy because they listened to bad advice.
Most financial publications and websites shy away from highlighting the potential downsides of investing in property for obvious reasons.
However, if you are serious about investing in property, it’s important to be aware of the following investment truths before you dive in. Or at the very least, as a reality check.
1. Property investing is simple, but not easy
Now this is not a play on words.
Just because something is simple to understand doesn’t mean it’s easy to do or make money from it.
If property investing is easy, there will be more people owning two or more properties.
But here’s some sobering stats: Half of those who buy a property sell up in the first five years.
Of those who stay in the game, 92% never get past their second property.
The latest stats show that there are only 19,198 Australians with an interest in six or more investment properties.
Of course property investing is relatively simple if you follow a time tested, proven strategy.
The problem is most of us act irrationally and emotionally when it comes to money.
Some of us are too cautious and stay in their comfort zone and invest in their own back yard, while others are in too much a hurry and chase the next hot spot.
2. It takes up to 30 years to become financially free through property
Despite what you might have heard, it takes time to become rich through property.
It takes two or three cycles to build a substantial asset base, therefore, you need to be prepared to hold your investments for a number of years.
Unfortunately, most investors waste the first 5-10 years buying the wrong investments, then they need to sell them off.
The good news is, with the right strategy, you can speed up the process and achieve your financial freedom sooner.
This is where your trusted mentor and independent advisors could help you immensely.
They can guide you how to buy well in the right area and how to grow your equity quickly so you can expand your portfolio.
3. Residential real estate is a high growth, low yield investment – don’t look for cash flow from your real estate
If you’re looking to use property as a cash cow, you may have to rethink your strategy.
As a property investor, your job is to build your asset base, not just to get cash flow.
Of course cash flow is important because it keeps you in the game, but capital growth is what makes you rich and gets you out of your day job.
Growing wealth through property involves going through three stages, namely:
- Accumulation stage: where you focus on growing your asset base.
- Transition stage: now you start paying down loans to lower your LVR. If you’ve invested well and your properties have grown in value, this will happen organically as well.
- Live off your cash machine
- The banks are not on your side.
Let’s be blunt… banks are in the business to make profit.
That means your bank wants to make money out of you.
This doesn’t mean bankers aren’t trustworthy but beware that the mortgage they’re selling you may not be the best product for you.
Without an independent advice from a finance strategist, you could also end up paying higher fees and interest rate.
Or worst, unable to get the finance you need to invest in property.
4. No one really knows where the property markets are heading
No matter how much data is quoted or analysed, no one can really accurately predict how the property markets will behave in the future.
If you’re counting on your property to grow in value year after year, you will be sorely disappointed because growth in property values is never linear and there are many factors that are out of your control, no matter how diligent you are.
If you treat your property investments like a business, buy investment-grade properties, invest for the long term and ensure you have sufficient buffer to cover rate rises, vacancies, maintenance issues and any other surprises you have a greater chance of riding the property market cycles.
5. There is not one property market
The media tends to talk of the “Australian” property market or “Melbourne” Property market.
But the truth is, each state has its own cycle and there are markets within markets – different price points, types of property and geographic locations
Sure its important to look at the big picture but also consider the micro cycle of the suburb you’re investing in.
This way, you won’t miss great opportunities just because the headline data isn’t impressive.
As you can see, there’s a lot of confusing information about property investing out there, and a pragmatic eye (and a willingness to seek independent advice) goes a long way in helping you succeed as an investor.
Remember, it’s your money.
Be careful what you read and who you listen to.
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.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
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.