6 Common Property Investment Myths and How You Should Be Thinking About Them

The odds of a rate hike from the RBA are increasing by the day and along with the current political uncertainty, sentiment is starting to wane.

Many property investors are wondering what they should do and it’s important to look at some common misconceptions that come about in a changing market environment.

Here are 6 common property investment myths and how you should actually be thinking about them.

1. Property always rises

Over a long period of time property prices have historically risen in value. While most people have likely seen their parents or grandparents’ homes rise in value substantially over the years, it’s not always the case that prices just go up.

Typically houses that are in demand and in quality areas will see price appreciation. However, the market itself normally moves in cycles. A growth phase where prices rise can often be followed by a period where prices will stagnate and at times even fall.

If you’re buying into areas like mining towns, these ups and downs are even more pronounced. Whereas affordable, family homes in city locations tend to see smaller fluctuations. When you buy a property, make sure you’re buying with the long term in mind and you’ll be putting yourself in the best position to benefit from rising prices.

2. Debt is bad

While debt can certainly be a bad thing, the reality is that it’s how you use debt, that is far more important.

Debt is just leverage, meaning you’re able to control a large asset, like a house, for a relatively small amount of capital. By taking on debt you’re able to benefit from the growth in the asset.

The key is using debt wisely is to invest in assets that tend to grow in value like property. If you’re using debt to buy cars or household items that will typically lose value over time, then it’s probably not the best use of those funds as you’re just losing ground faster with the help of debt.

3. Cashflow is always king

Investing in property is about finding the right balance between generating capital growth on your investment and getting enough cash flow through your rental income to help service your loan.

Typically high growth assets attract lower rental yields, but that is not always the case.

Many property pundits will tell you that you need to have the high cash flow to help make your repayments and maintain your serviceability. However, it’s ultimate growth that will expand the value of your portfolio and allow you to buy multiple properties.

I always recommend a portfolio approach, whereby you have a mix of both capital growth and cash flow so you can continue to expand your portfolio while generating enough rental income to maintain your borrowing power.

4. Always invest in the city

In years gone by, investing in the city was tried and tested advice, with many blue-chip locations seeing strong growth.

As we’ve seen in recent years, more than ever there is strong demand for regional property and if you look at growth rates over a long period of time there are many regional locations that have outpaced the major capital cities.

Regional locations also have the added benefit of lower prices meaning they’re easier to invest in initially while also offering higher rental yields.

5. Only the wealthy can afford to invest in property

The great thing about the property market is that there are properties all around the country at different price points and buying one is certainly not limited to the wealthy.

For investors, you don’t actually need all that much money or serviceability to get started with your first purchase.

There are plenty of locations that have seen good growth over the years that are priced under $400,000, which would allow a median income earner to get started investing. There are also options such as using Lenders Mortgage Insurance (LMI) to put down a lower deposit so you can get started investing earlier.

6. You have to do it all yourself

When you sell a property you enlist the help of a sales agent who handles all parts of the selling process on your behalf including negotiating, marketing and organising all the documentation.

Why is it then that buyers feel they need to do everything themselves?

You can work with a buyer's agent who will not only help you come up with an investment strategy that is suited to your personal situation but will also source appropriate properties and negotiate on your behalf.

If you’re a first-time investor, you shouldn’t be expected to know where to buy or even how to start looking for the right type of property. Assemble a team of people who can work on your behalf and let them find the best opportunities for you.

To know the difference between property fact and fiction, focus on getting properly educated, talk to experts and start putting a team in place, so you too can begin to use real estate to start building wealth.

This article was recently published in Money Magazine.