The 3 biggest lies in property investment
One of the biggest mistakes people can make is believing that any property is a good investment opportunity, but there are some other misconceptions in the marketplace as well.
Blogger: Kevin Lee, Smart Property Adviser
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As you read this article there are millions of hard-working Australians desperately trying to set themselves up so they can retire and leave the rat race. Some of them have 'considered' property investment but don't know where to start. Whilst others have taken action and have purchased their first, second third or more properties.
One of the biggest mistakes people can make however, is believing that any property is an investment opportunity.
Many "accidental" investors soon learn that when it comes to property investment, research is just as important as having the right mindset, knowledge and education. Without these key skills, you become an easy target for the hundreds of spivs and spruikers whose only goal is to part you from your money.
Properties double every 7 to 10 years?
Before the now infamous meltdown known as the GFC, you could purchase almost any property and 'expect' to see it double in value every 7 to 10 years. Right?
Most people don't know that cliche was always an 'urban myth'. RBA chairman, Glenn Stevens, agrees that property today won't deliver the same capital growth results as was 'the expectation' of most Australians over the past 40 years.
Why? There are a number of alarming structural changes and a massive demographic shift taking place that will effect Australian property and our economy at large.
Today's investor can no longer rely on luck or advice from family and friends. You need to rely on thorough research, your own judgement and a healthy financial education.
There’s a single property market?
The biggest lie industry professionals perpetrate is that there's just one property market. THE Property Market? Smart property investors understand that there's no such thing.
Most property "gurus" talk about the property market as a whole, but they won't tell you that there are as many "property markets" as there are streets in Australia. Same applies to every other country.
No two streets are alike in any property market: property type, surrounding amenities, infrastructure and even tenants differ from street to street. These attributes affect the supply and demand equation for that particular market.
Many investors don't know that there are also property 'pockets' within most markets – areas in a suburb or location that can provide better investment opportunities than another area in the same suburb or town.
What about the property clock?
The property media refers to the much hyped property clock when 'selling' investment opportunities on a macro level. It's often used to compare states, cities or even towns.
Macro economics can affect properties, and the property clock allows investors to monitor only broad market dynamic cycles. You should know that the two primary catalysts affecting property prices are 'supply and demand' and 'employment'.
Simply put, no job supply = lower housing demand = property prices dropping.
Many investors try to identify areas at the bottom of the cycle as they present prime investment opportunities. Here's a quick explanation about what the property clock represents:
• 12:00 – top of the market; undersupply of property, increasing prices
• 1:00 – low or reducing rents
• 2:00 – surplus of properties for sale
• 3:00 – interest rates increasing; supply is balanced
• 4:00 – property sales declining
• 5:00 – new dwelling construction declining
• 6:00 – bottom of the market, prices declining – market is oversupplied
• 7:00 – rental returns improving
• 8:00 – demand outstrips supply
• 9:00 – interest rates declining; supply is still tight
• 10:00 – property sales are improving
• 11:00 – new dwelling construction increases
Although those locations sitting at the bottom of the clock might look like great investment opportunities, you can't just buy any old property in that location and expect to see great results – you need to delve deeper and perform thorough micro research.
To identify the right opportunity for you and your risk profile, you must compare not only the different property types available in your chosen area, but also the supply and demand for each property type.
It's crucial before you invest in property, that you understand there's no such thing as THE Property Market; and that although there are thousands of sub-markets, some are hot, some are very cold, whilst others are at a complete standstill.
Do your own research before you buy to ensure that the property you're going to purchase will help accumulate the cash flow you need to retire comfortably.
The last word: everyone wants 'free advice', don't they? Mine would be: be very careful who you trust.
About Kevin Lee
Kevin Lee is the property investment expert and buyer's agent at Smart Property Adviser.
Kevin specialises in helping investors identify and acquire positive cash flow properties that generate high rental returns, enabling his clients to grow their portfolios.
Kevin's free report "How To Turn Your Negatively Geared Property Into A Positive One In 3 Steps – Without Selling" is available at www.smartpropertyadviser.com.au.
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