4 Property Investment Myths
While everyone loves talking about property in Australia, the reality is that few people are experts. Here are some of the most common property investment myths that you might hear.
Blue-Chip is Best
One of the main things you might hear when you talk about property is that blue-chip is best. What this means, in most cases, is to buy in the top suburbs as close as possible to water or the city.
While this is good advice as blue-chip suburbs have performed well over a long period in terms of capital appreciation, the main thing to consider is that you have to be able to afford to buy into such an area. If you’re in a high-paying job, then purchasing a negatively geared, high-priced property might be something that is good advice. However, if you’re constrained by borrowing or equity, then it’s not always the most helpful property advice.
Interestingly, while many experts will tell you to buy only in cities of blue-chip locations, over the past 20 years there have been numerous examples of semi-regional markets that have performed strongly and come in at lower prices with far higher rental yields.
One Property Market
If you read the mainstream media, you would think that Australia has one large property market, and you have to simply sit back and take what the market gives you. In reality, there are tens of thousands of smaller property markets across the country, and they all differ. We see different markets at the state, suburban and even street level. The clearest example of this might be a suburb that has a ‘good’ end and a ‘bad’ end.
We even see streets that have very different prospects as one side of the road might be zoned differently to the other.
You Need a Lot of Money
While it’s true that you do need some money to get started in purchasing property, cash isn’t always the most valuable commodity. These days the ability to borrow money has become more legislated than it used to be, and you need to prove your ability to service a loan. If you have a steady job or form of income you can take advantage of several different types of loans and even Government incentives that allow you to buy property with as little as a 5% deposit.
Property Always Goes Up
Contrary to popular myth, there is no housing affordability crisis. In fact: housing has not been this affordable in a very long time. Yes, Australian house prices are surging, however, this is simply because residential property has suddenly become much cheaper than it used to be.
How? Firstly, this is due to government stimulus preventing job loss and increasing household savings, meaning larger disposable incomes and larger savings, making deposits for housing easier. Secondly, the heavy reduction in the cash rate that the RBA slashed from 1.5% down to 0.10%, caused a reduction in variable home loan rates. Thirdly, the RBA offering of the Term Funding Facility which was at $200 billion over 3 years at 0.1% forced fixed rates on mortgages is currently down at an all-time low of sub 2%.
When the market is booming, it seems everyone is out and about snapping up the great deals. Once the market slows down the media starts running ‘40% drop’ stories and it becomes all doom and gloom. Usually, this is the period in time when it’s wise to separate yourself from the rest of the herd and remember you don’t always have to be doing what everyone else is doing.
Off the back of this, often the most asked question is, “When should I buy?”
The answer is simple, buy when you can afford and when your finances are all in order. If you wait for the perfect time or that perfect deal to fall into your lap then you probably won’t see any results, leaving yourself in the same position for years to come. If you really want to get started, we recommend seeking out the advice of others who have done what you're trying to do. This is where the saying “Wisdom is born of experience and experience is born of mistakes “ was born.
Remember “Yesterday was always the best time to buy property”.