The top five pieces of bad advice property investors hear

Not all property investors are successful. 

Some fall on hard times because they don’t research the market, some ignore good advice and make a serious error of judgment, while others listen to self-professed experts who don’t know what they are talking about and have very little experience.

If you are looking for bad advice as a property investor, you won’t have to go far to get it.

Some of the people doling out this bad advice do so because they are trying to sell a lemon and sometimes it is because they simply don’t know any better.

Here are some of the most common examples of bad advice that property investors hear time and time again.

The good ones don’t listen.

1. INVEST OVERSEAS

Why buy a one-bedroom apartment in Sydney for $700,000 when you can purchase a charming villa in the foothills of Florence?  

Many an investor has been seduced by the idea of buying up overseas, but unless you are familiar with the area, speak the language and are extremely experienced in the local market, I would exercise a high degree of caution.

There is a good reason Sydney apartments are so expensive: they are in high demand.

When it comes time to sell your romantic Tuscan villa you may struggle to make a profit.

Then there are the local laws and language barriers to consider.

Seems like too much of a headache to me.

2. BUY OFF THE PLAN

Many investors who signed contracts for off-the-plan apartments in Melbourne or Brisbane over the past 12 months have good reason to be concerned.

There is a large glut of new releases due to come onto the market over the coming years and it will take a very long time for this stock to be absorbed.

Buying off the plan is never a great idea as this style of apartment is far from being in short supply.

That means there is no scarcity factor and when it comes time to sell the property you are competing with similar properties — sometimes even within the same complex.

Established properties in established areas that are held for a long period of time tend to do very well indeed.

These are the areas that investors should be looking.

3. FOCUS ON RENTAL YIELD

Many investors become fixated on positively gearing their properties to the point that they will focus on rental yield over capital growth.

It is very rare to find a property offering both, and a lot of the time the properties that offer high yields can turn out to be poor investments.

Hotels and serviced apartments fall into this category. 

There is nothing wrong with ensuring a healthy rental yield, in fact, it is extremely important, but just make sure it is not at the expense of capital growth.

By the way…a similar rule applies to rental guarantees.

Don’t be tempted to buy for this factor alone.

You should never buy a property because of kickers, tax set-ups or inducements.

The fundamental driver behind every purchase should be whether or not it is a good investment.

4. FIND A HOT SPOT

If I had a dollar for every time someone gave me a tip on the next hot suburb about to boom — or asked me for one —  I would be an obscenely wealthy man by now.

Investment is not about trying to guess what suburb is about to gentrify: this is risky business and investors stand to lose quite a bit of money once the heat leaves the market.

Take, for example, the investors who bought in towns such as Karratha during the Western Australian mining boom. Some of these investors stand to lose, or have lost, hundreds of thousands of dollars.

Speculation is a high-risk strategy and not one I would ever recommend in the property market.

5. SIT BACK AND WATCH YOUR MONEY GROW

Some people think property investment is a simple case of snaring a bargain, renting it out and watching their money grow.

If you want to be a highly successful property investor in charge of a growing portfolio, you will have to do a lot of hands-on work.

This means research, regular valuations to assess the worth of your portfolio (and subsequent borrowing power), rent reviews, tax and cash flow management, and checking in with the professionals you hire to help manage your assets.

Not to mention keeping up to date with the property market news and the latest government policy in relation to negative gearing and investment.

Sounds exhausting?

It can be, and it is also very rewarding.

So if anyone has ever told you that making money in property is easy then they are lying.

Even if you have a natural interest in property, and many investors do, it still requires a lot of effort and attention.

Like everything in life, really.

The best rewards are the ones you have to work hard for.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.