What are the Property Investing Myths You Should Know?

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There is just so much information about property investing available on all types of platforms. It is quite tough for potential investors to delineate fact from fiction. How do they manage? There are some learnings made on the job and sadly, when errors are inadvertently done. We learn based on such experiences, and the reality is that these are arduous lessons that are hard to forget.

Don’t lose heart though. If you make the effort of primarily preventing these blunders from taking place, you can avoid being burdened with both anguish and financial loss. This can probably put all your investment goals (and yes, dreams) down the drain.

Statistics show that about 50% of beginners in property investing sell within the first 5 years, and 90% of those who have kept being investors never get past their 2nd property. Do all the best you can to lessen the risks and trip-ups for you to be successful in your pursuit of a successful strategy in property investment.

We’ve listed down some myths to help ensure you are ready to win in your investment journey.

MYTH #1 – Property investing is only for the rich.

What we can say is that wealth is relative. One’s perception of what affluent is could be different from another. Truth to tell, Australia’s fondness for property has long been established. As it is, Australia has currently about 1.8 million property investors. Despite the average income that they have, they still manage to create their portfolios profitably.

Most investors can start getting into a property by leveraging their home’s present equity or with their savings.

Some purchase off-the-plan as this means having a property locked in at current prices by way of paying a reservation fee and some minimal down payment and settling the property at a future date, typically within 18 months and in some situations, even longer than that.

Go through any investment strategy with a financially-sensible mindset and attitude, especially if you are just starting.

MYTH #2: Property prices are consistently increasing.

This has always been the observation, but it is not true all the time.

Based on the location and the payment for the price at that period, it is not always the case that a property’s value will increase to a level that will generate a profit.

It is important to know that property is always recurring – resulting in either a boom or a decline. A good example of this is a mining town that has very specific periods of surge and decline cycles.

This turnaround is so quick that pushes for intense dropping off of prices while demand dwindles.

MYTH #3: Better to buy houses primarily because of the land.

There are portions in Australia that are largely desirable, it is not surprising that the land prices escalate in property value.

But the fact is that each land is different. There’s too much land in Australia that would not increase in value. The reason is that no one wants to live there.

Attractiveness is a significant factor in growth in real estate. Without this, an increase in property value will not be evident. For this reason, property research should be directed to the particular areas where people desire to live or reside.

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MYTH #4: Cash flow is king!

While it is true that you can get passive income from high-yielding properties, seasoned property investors will tell you that creating and strengthening your portfolio comes from cash flow but down the road, it is really the capital growth that will provide the wealth.

The main focus of any investment is to accelerate the growth of the asset value. But for you to maintain your assets on a long-term mode, you need to manage your debt where a positive cash flow and strong rental yields can help you realise it.

SuburbsFinder can assist you in your focus on increased cash flow (plus growth suburbs) to prepare you off to a good start in your next property search.

MYTH #5: Buy only properties within or near the CBD.

No doubt, location is significant when you buy a property, but this does not imply that there are no remarkable investments if you go beyond the CBD.

Look for the essential indicators of a suburb’s growth such as:

  • Population growth patterns;
  • Infrastructure plans set in the future;
  • Past or recent performance through suburb’s median growth rates;
  • Increasing wage levels in the suburb;
  • Increasing weekly rental prices;
  • Comparison of prices versus neighbouring suburbs.

The above mentioned are all indicators that can support you in assessing a particular suburb, if it could bring growth on a long-term basis

MYTH #6: It is better to buy a new property vs. an old property.

The newly constructed properties, along with the off-the-plan ones can be an attractive offering as you can secure the investment property at today’s prices and maximise depreciation which can result to tax savings.

Just note however, that there are also risks involved in doing so, including a declining property market from the time that you paid the primary deposit and the settlement date of the property, the developer reneging on the project, your financial and credit situation at the time of settlement, and having no idea exactly how the property will appear after it has been fully built.

Check out “Crunching the Numbers: Positive Cash Flow vs. Negative Gearing

MYTH #7: You will earn a profit buying a property lower than the market value.

This is based on the definition of market value at the time of purchase which may not be sustainable in the future.

One example is when a property is bought below market value price at the peak of a boom. In the short term, it could be a bad investment if the property cycle plunges and consequently drops the value of your property way below what you have purchased it for.

In a booming market, investors are not likely able to get more discounts with the high level of demand.

Throughout a bust market, on the other hand, there’s plenty of properties for sale and fewer buyers, so bigger discounts are easier to negotiate and achieve.

How to Find High Growth Suburbs within Seconds

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MYTH #8: Acquire properties only in familiar areas.

It’s easy to fall into the trap of investing only in a location that you’re familiar with.

Distinguish between understanding the area’s lifestyle attributes and the fundamentals of investment and economics which you can research to establish the feasibility of a probable investment location.

Research on the following fundamental indicators:

  • Historical capital growth trends
  • Demographic data
  • Days on Market
  • Sales volume
  • Vacancy rates
  • Rental volume
  • Rental yields

Know that the myths we’ve enumerated here often put the wrong approach in most property investors, so being mindful and cautious of these myths can help you accomplish your property investing objectives.

What will spell success for you is deciding smartly after doing a detailed, timely, and accurate research.

What is your goal? To put it simply, should be this:

Buy the perfect property at the best location, at the right price and at the right time.

We recommend that you establish strong and comprehensible long term financial goals. Always consider property investing as a business you need to carefully plan for and manage well.

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