08 Mar 5 Property Investment Myths
Property continues to be a wonderful investment for Australians and has been one of the most effective ways of building wealth for generations.
However, there are a number of misconceptions many people have when it comes to property.
Here are 5 property investment myths that need looking at.
There is only one property market
One of the biggest misconceptions homebuyers run into is believing that there is only one property market. When they see stories about house prices rising and falling they assume that is the case everywhere.
In reality, there are tens of thousands of smaller property markets that all move according to their own localised factors. While something like interest rates might impact the entire property market, there will always be locations that are in high demand with very low supply.
If you’re buying a family home that is suited to owner-occupiers, in a location that is close to the CBD and in a good school zone, that property will fair very differently compared to a house in a mining town. Before buying a property, look at the localised factors that impact that area and the level of supply and demand – not the media headlines.
You have to be rich to invest in property
With property prices rising at a record pace, it can be easy to assume you need to be rich to buy a property.
For first homebuyers, there are a number of ways you can buy a property even with a small amount of savings and a modest income. There are Government programs such as the FHLDS and also the possibility of taking out a guarantor loan.
For an investor, it might be worth considering paying Lenders Mortgage Insurance (LMI) to access a loan with a higher LVR to help you get into the market.
Either way, speak to a mortgage broker in Melbourne before you begin your search and they’ll be able to compare loan products and help find a solution, even if you’re not rich.
Debt is bad
At the end of the day, debt isn’t bad it simply comes down to how you use the debt. If you’re taking on high interest loans to buy assets that are likely to depreciate in value, that might not be the best use of those funds.
However, using debt to buy assets that appreciate in value over a long period of time, such as property, means that you’re actually putting that money to work.
Debt allows you to leverage your initial investment and control a larger asset than you otherwise could. Leverage can be risky, but if you look to invest in an asset like residential real estate it can become a very powerful tool to help grow your wealth.
Property prices always rise
It’s true that property values have historically risen over time. Typically property prices have increased by around 7 per cent on average for a number of decades.
However, 7 per cent is the average that property prices increase. Meaning that some properties actually increase by more and some can potentially underperform. If you had bought into a mining town in the mid-2000s, you could well have seen the value of those properties decrease.
Property prices are also cyclical in nature. They tend to rise and then plateau. If you’re looking to invest for the long term, then there is a good chance that property prices will rise but there can be discrepancies between different markets.
You must buy in the city
One of the old adages is that you must buy blue-chip. There’s no doubt that blue-chip inner-city real estate is a great investment, however, the reality is that there are also many other locations that have performed just as well and in many cases even better.
Blue-chip locations are normally good investments because there is always a steady stream of demand on the back of the great location and all the surrounding amenities. Just think of inner ring Melbourne locations and it’s easy to see why there is always demand.
In recent years, we’ve also seen that the outer suburbs and regional property can also perform very strongly. Over the last 12 months, regional property has outpaced city locations.
Again, it comes down to the fact that all locations are different and will likely grow at different rates. It’s important that you get the right advice before starting your search so you know that you can not only afford the property but you are also making a sound investment.
Are you currently in the market for a new property? Get a clear understanding of how much that property might be worth with our free property report.