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When I recommend to people not to buy property

Victor Kumar

When I recommend to people not to buy property

by Victor Kumar | 27 June 2018
buying
1 minute read

When I recommend to people not to buy property

June 27, 2018

Some property investors get so caught up in growing their portfolios that they buy when they shouldn’t. They rigidly stick to a plan that might be out of date. There are a number of reasons why you shouldn’t buy and here are some of the biggest reasons.

Say no to new

One of the key reasons to not buy is when your accountant gives you the following advice: that because you’re paying so much tax then you “must” buy a property, which invariably is a brand new one.

If your accountant, your broker, or your financial planner is recommending you buy an off-the-plan “opportunity”, it is paramount that  you do not buy that property because there is money likely changing hands behind the scenes that you might not know about.

At the end of the day, allegiances generally lie with the person who is paying you, so in that scenario that “advice” is probably being swayed by the commission being offered for the sale.

Another reason not to buy a property is if it will use up every single dollar you have to purchase it. That’s because it will then significantly impact your cash flow position.

Murphy’s Law dictates that once you’ve bought an established property, you can expect to have what I call a “teething” period. That usually lasts the first six months and is when you will have a number of niggling repair and maintenance requests, such as leaky taps or broken locks.

This is often the case when the property has been vacant for a while before you bought it.

The point is that if you don’t have any cash flow leftover, how will you pay for their essential repairs?

Plus, you don’t have a financial buffer if the property remains vacant for a period of time after settlement, which means you have to cover the mortgage repayments. When that happens, landlords often make poor tenant selections because they’re desperate to get someone in.

So, they don’t, or can’t, wait for a good application and take the first one that comes along, which usually ends badly.

Life changes

Another reason why you shouldn’t buy a property is imminent changes to your income, such as going from being a PAYG employee to being self-employed or setting up a business.

That’s because there is usually an issue with cash flow in the first six months when you leave the relative safety net of employee-land. So, you’re potentially just adding more to your pain by buying at that point of time.

A better strategy is to wait until your finances and cash flow has improved or stay at your job for longer. The same goes if your income has been reduced because of a new addition to the family.

You have to factor that in because once you’ve bought a property, you’re stuck with it for the long-term.

It’s very easy to get into the market, but it’s much harder to get out, and you could lose money if you have to sell in bad market conditions.

Equally important to remember is that too many people just concentrate on one side of the equation — such as buying quickly — but not on the vital fundamentals such as insurances to sustain over the long-term. At the end of the day, to build a portfolio there are four avenues of incomes which need to be protected:

  1. Rent, which is covered by landlord insurance;
  2. The property value, which is covered by building insurance;
  3. Your own income, which is covered by income protection insurance; and
  4. Debt retirement, which is covered by life and trauma insurance.

It’s this basic house-keeping that will make the difference between whether you will be a successful investor over the long-term or a fly-by-night one who has to sell because they bought too quickly or bought the wrong property on bad advice.

When I recommend to people not to buy property
Victor Kumar
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About the author

Victor Kumar

Victor Kumar

Victor Kumar is the author of 'Supercharge your Property Portfolio' and the founding director of Right Property Group.

Victor and his wife came to Australia from Fiji in 1997 with just $4,500 in their pockets. They worked hard as radiographers but realised this was not the way to prosperity. Victor embarked on a process of building wealth through property. He has amassed a substantial property portfolio, and is still actively buying and renovating property. His recommendations are based on what works in today’s market, not what used to be effective a year or more ago.

Victor’s experience, finance background, and financial planning qualifications mean he is well equipped to negotiate with banks – helping them find ways to say “Yes”. He has also invested significant time and money in learning from other property investment experts and knows how to make a portfolio work.

Of course, Victor has made a few mistakes along the way but these have made him... Read more

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