One of the most common mistake people make when considering an investment property is:
They think that all property is the same or at the very least they don't adequately consider the differences between one property and another and what effect that will have on their ability to create wealth.
They think that all they have to do is to invest in property and they will make money...
And to some extent that is true... all property will eventually double in value, so they will make money. We all look at our family home and remember what we paid for it all those years ago and think that every property will do that.
Property experts will tell you that property doubles every 10 years...
But that is the average of all properties, so it stands to reason that some will do better than that and some will do worse. The fact is that some will do much worse.
If your investment was to take 20 years to double, then it is not necessarily a great investment and it won’t make you rich... in fact at that rate of growth it won't even keep pace with inflation. (We can show properties where that has been the case)
Eg. Worse than average (ie. in poor locations):
With a portfolio of 6 properties at $300,000ea. (equals $1.8m in loans)
If that portfolio double in value in 20 years (ie worse than average)
Then in 10 years you have made $900,000 profit. (not bad but...)
Eg. Better than average (ie in good locations):
With a portfolio of only 4 properties at $450,000ea. (still equals $1.8 in loans)
If that portfolio doubled in value in 7 years (ie better than average)
Then in 10 years you would have made $2,570,000 profit.
*Nearly 3 times as much for the same outlay.
Note: These examples are just used to show the relative difference and are not intended as guarantees that any property will perform as predicted.
A lot of people also believe that Property Marketers all tell the truth... all the time.
Think about it… they want to sell you a property because that is how they get paid.
Are they likely to say to you that the property they have is not suitable to you or that it might not capitally appreciate as quickly as you would like?
What I have found is that most don’t actually lie...
They tell a very good story or present compelling information by leaving out crucial facts.
What is common is for them to distract you from the real purpose of investing in real estate which is making money over the long term. They do that by focusing your attention on what I call “Hot Buttons”.
Typical “Hot Buttons” would be things like:
· High rental yields or Rental Guarantees
· National Rental Affordability Scheme (NRAS)
· Government Grants
· And pretty much anything called a scheme.
*Note: All of those can be very helpful, but they should not distract you from the real purpose.
The first question you should ask yourself should always be:
Would I buy that property, in that location and at that price if it did not have (whatever the offer is)?
In other words; Is it a good investment without the offer?
Then and only then, should you consider what other benefits or “schemes” can make it easier or more attractive to buy or to hold on to for the length of time that you need for it to increase in value to achieve your goals.
If you allow yourself to get distracted by the “Hot Buttons” then you risk overlooking key factors that might mean that you:
· Pay too much
· Buy in the wrong location
· Or have a higher chance of getting the tenant from hell
Most importantly your investment in property might not grow in value quickly enough to achieve your goals and aspirations. And by the time you realise that you have made a mistake, it is likely too late to change or correct your financial position.
Absolutely I think property is a great investment vehicle. It has shown to be one of the safest investment classes particularly through the GFC (see graph above) but always “keep your eye on the prize”, ie the long term creation of wealth through the capital growth of your property portfolio.
But as I have said many times before:
"Where ever there is a great opportunity these is an even greater opportunist"
So be wary...
Call us if we can help… we have been creating wealth through property investment for our clients for nearly 15 years.