Successful property investment involves separating fact from fiction.
Unfortunately, there are many untruths out there, which are sometimes taken as gospel by novice investors and first home buyers. These property investment myths and fantasies are abundant online, with anyone having the ability to call themselves an “expert” without having to prove a thing.
While fundamentally property investment is about strategy, skill and experience, it is also about ignoring common myths.
Here are five of them.
1. Blue chip is best
One of the longest standing property investment myths is that blue chip property investment is the best.
Now, when I say blue chip, I mean inner-city suburbs that generally have high median house prices that are only affordable to the top end of income earners.
Straight away you should be able to see a hole in this argument.
If only a small proportion of people can afford these locations, then there won’t be the strong demand needed to keep driving prices higher.
More affordable areas, on the other hand, are in demand from more people, which over time sees prices increase.
Just think of locations where prices used to be $300,000 but are now $600,000, which is a figure that is still affordable to the majority of homebuyers and investors.
However, a suburb that has a median house price of $1 million will already be overpriced for the majority.
So, it stands to reason that it will be difficult for that suburb to double in price because there is just not the demand from enough people with enough money to keep prices growing.
With lower buy in prices, investors can also afford to own a number of properties, in different locations for diversification reasons, instead of just one or two expensive ones that are usually significantly negatively geared.
With a portfolio of five or six affordable properties, in the future, they can sell down half of their portfolio to pay off the debt of the others and create passive income.
2. Property investment involves sacrificing lifestyle
One of the reasons why so many people never actually become property investors is because they think they’ll have to sacrifice their lifestyle to do so.
They imagine (false) scenarios that sees them forking out hundreds of dollars out of their own pockets each week to hold an investment property.
The next thing they know they have to skimp on their daily coffees, they believe.
While investing in the wrong property in the wrong location may cause this to happen, strategic property investment won’t.
In fact, you can buy an investment property today that not only won’t cost you anything to hold each week, it is forecast to grow in value over the medium-term.
3. You have to be rich to invest
One of the most frustrating property investment myths is that all investors are “rich”.
Seemingly, they own dozens of properties and swan around lighting their cigars with $100 bills!
Of course, this is ridiculous, with most investors owning two or three properties and earning average wages as well.
In fact, only about 20,000 Australians own six or more investment properties!
To get a start on the property investment ladder, many people use the equity in their homes to buy their first and perhaps second one, rather than being wealthy.
4. You must invest in rising markets
During Sydney’s boom a few years back, many home buyers and investors didn’t make their move until prices had been firming for a year or two.
Most of them bought just before the peak of the market and saw the prices of their properties start to fall straight away.
A bit like lemmings running off a cliff, following the crowd when investing in property is always a bad idea.
Rather, property investment experts are able to pinpoint locations where prices are able to strengthen before anyone else.
They then buy the best properties in those areas before anyone else and capture the benefits from an entire market cycle.
They are not worried about what a property market is doing now because they are concentrating on its future performance over the medium- to long-term.
5. There is only one property market
The final property investment myth that needs to be busted is that Australia has one “property market”.
Educated investors and property investments experts know otherwise and are regularly buying in a variety of locations around the nation.
Just consider the different market cycles occurring in our capital cities at present, with some locations posting price growth but others recording price falls.
If you add major regions into the mix, you have a diverse range of market cycles happening at the same time.
The truth of the matter is that there are multiple markets around Australia.
Property prices in each State and Territory grows at different times, plus there are submarkets within each state as well.
Savvy investors always look for the best opportunities across the nation – and buy when the time is right not because everyone else is doing so.
