Property investment myths

Property investment myths

Just under 8 percent of the Australian population owns an investment property, according to the Australian taxation Office, although a much higher proportion considers it – or ends up selling up and giving up on the dream of being a landlord.

“Fifty percent of people who get into property investment, sell up within the first five years – either because they bought the wrong property or because they bought at the wrong time,” says property investment expert Michael Yardney, CEO of Metropole Property Strategists.

Sound daunting? If you’re interesting in becoming a successful property investor, it’s important to keep in mind a handful of common property investment myths.

1. Investing in property is easy
“Property investment may be simple, but it’s not easy,” says Yardney. “The majority of people who get into property investment fail because they do not achieve financial independence – 90 percent of property investors never get past their first or second property.”

So while it’s not easy, investing in property can be simple if you stick to time-proven rules, according to Yardney – including buying property below its intrinsic value and investing in areas with a history of strong capital gains. All this requires research and experience.

2. Property always increases in value
Would-be property investors assume they can’t go wrong because property prices will always go up. Not so, Yardney says. “This is true for well-located property, but there are areas where you can lose money. For example at Docklands in Melbourne, property prices have probably not increased in value at all in 10 years because of an oversupply.”

Once again, research and understanding the market will help you avoid any losses. “In every 10-year period, there’s usually a couple of good years and a couple of bad years,” Yardney adds.

3. It’s all about timing
Yes, timing is important but, as Yardney says: “It’s hard to read the cycle if you’re a beginner.”

Success in property investment comes down to your way of thinking and to having a strategy in place – and sticking to it, according to Yardney. “Some investors do well in good times and in difficult times, while others do poorly in good times and worse in bad times. Timing is not as important as people think. I believe a lot of success in business and entrepreneurialism has to do with the way you think.”

If that doesn’t come easily to you, Yardney suggests seeking professional advice. It’s also important to have a cash reserve to ride out any tough patches in the market.

4. Certain suburbs guarantee investment success
Location, location, location: it’s the catch cry of real estate agents all around the world. But it’s not as simple as choosing the best suburbs in which to buy a property investment, Yardney says.

“While some suburbs outperform others, within each suburb there are areas you should invest in and areas you shouldn’t,” he says. For better rental return as well as capital gains in the long term, he suggests avoiding main roads and secondary streets, and looking for streets with character, lots of trees, views and proximity to amenities.

For more news and information about investing in property, check out RateCity’s latest articles here.

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What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

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Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

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A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

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Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

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