Tag Archives: aphorisms

Buying Investment Property And The Property Cliches

Many Australians are buying investment property armed with nothing more than poorly understood property cliches, are these aphorisms always true?

Is property investing your business or passion? I personally love seeing property investors make bank. Seeing property investors make ill-informed property decisions and costly mistakes can be avoided with greater knowledge and understanding of property cliches.

Regardless of your property investing experience and the type of property you’re now researching or planning, here are some real estate and hard-won investing lessons I’d to share with you…

So what are property cliches? Are you aware of property cliches and why you’d want to ignore them in your property research, planning and transactions?

Over the years residential property has proven to be one of Australia’s best performing investments. Buying property is considered the biggest investment decision…a cliche?

Surprisingly, many Australians buy property with little or no investigation into the factors which drive individual property performance.

Misinformation is prolific and the cause of many poor investment decisions. Even well trusted beliefs can prove misleading for the most experienced property investors.

What if you questioned the validity of property clichés and commonly held assumptions? Would it mean as buyers you’d make better informed decisions? What are the investing factors which differentiate a good investment property from a poor one?

property cliches
Are you buying investment property armed with nothing more than poorly understood property cliches…

Location, location, location, possibly the most well-known property cliche, often quoted as the quintessential factor when it comes to property selection.

What many buyers fail to realise is location is about far more than just the right suburb or even the right street; it is as specific as the lot number or position in a block of units.

Neighbouring properties may appear to be similar in many ways, factors such as aspect, orientation, floor plan, levels of natural light and security, all have an important impact on property value beyond the underlying land value.

Hot spots, it’s not uncommon for property investors and buyers to chase the next big hot spot with hopes of making a quick buck. Hot spots aren’t all they’re cracked up to be right?

By definition a hot spot is a suburb or area predicted to benefit from rapid short-term gains in value. However, despite an initial spike, a hot spot is usually characterised by slow or limited growth in the long-term that often eventually undermines short-term gain.

Because of the high transactional costs of buying property investments,  real estate should be viewed as a long-term plan, which means hot spots often fail to provide the exceptional growth buyers hope for…

Timing and analysis of historical sales data clearly shows that it isn’t when you’re buying investment property, so what you buy is that an important factor?

Purchasing a property based on price alone is no guarantee of future capital growth or performance. Selecting the right property with the right profile for growth ensures property owners buy an asset which performs irrespective of wider market conditions.

Keeping up with the Jones, some of the best performing properties aren’t glamorous. When buying investment property don’t be fooled into thinking the more you spend the greater the likelihood of good capital growth.

In fact, buying a flashy new property or one considerably above a suburb’s median price can limit buyer demand and subsequently growth.

When investing, don’t buy property which appeals to buyers’ aspirations. Buy property which caters to financial and social requirements of tenants and buyers in the area.

Sitting on the sidelines, during uncertain economic times it’s common for buyers to withdraw from the marketplace in anticipation of property prices reaching the bottom.

Adopting a wait and see attitude to buying and selling real estate can be disadvantageous.

The reduced competition during a downturn can create really good opportunities for savvy property investment buyers. History shows most buyers tend to return to the market after a positive shift in sentiment and later on as the values have already occurred.

Property investors which have bought well needn’t worry about selling in a downturn either as quality real estate assets are always in high demand.

So don’t wait for others to make the first move. Base your decision to buy on your personal financial circumstances, not market sentiment.

Buy the worst house on the best street, can seem like a cost effective way of buying investment property in a sought after location, however, it is not without risk…

property renovation cliche
Property renovation cliche…

The goal is commonly to transform property from worst to one of the best properties on the street. However, any saving on initial purchase is often very quickly absorbed by renovations to improve the property.

Conversely, deciding to leave the property in its original purchase conditions can have negative implications for the property, which will be reflected in future capital growth.

It may actually be more cost-effective to buy a better property and forgo the expense, stress and risk of renovating.

Think outside the box, when it comes to investing in property there is no need to reinvent the wheel.

Investment properties which offer ROI aren’t always architecturally unique or modern. In fact, they are more commonly well-located inner city period and pre-1970s properties.

Property selection isn’t a guessing game, so stick with tried and tested property selection methodologies that rely on empirical sales evidence, not speculated or high-risk returns.

A renovators dream, as renovation property programs continue to hit Australian television screens the punter or DIY handyman considers the prospect of buying and renovating to make a quick buck.

The novice renovators often underestimates the commitment required to transform a property, which can cost them significantly.

value investing
Novice renovators surprised by value investing…

When deciding to renovate it is important to consider where the property is located, the type of property e.g house or apartment, whether it will be a rented investment property or owner-occupied…

Who is the target market, potential buyer or tenant of the property? Sellers should renovate to their target market…

It is also important to be wary of overcapitalising in a property, as the amount spent on renovations may not offer an equivalent return in the increased value of the property.

A good rule of thumb is to not spend more than 20 per cent of the property’s value on renovations.

Up and coming, closely related to hot spots concept, which is often used for suburbs expected to perform well on the basis of proposed future improvements to infrastructure and/or local amenities such as roads, school, shopping complexes, sporting facilities etc.

When it comes to property, one of the golden rules is never speculate. Purchasing on the basis of planned or proposed future improvements is risky.

Hundreds, if not more, development proposals are put on hold or denied every year and when approved can take many years to build. There’s no guarantee the added amenity will add positive weight to local property prices.

The most diligent measurement for an asset’s future growth is to look at its performance history. Remember to consider this when looking at hot spot or up and coming suburb.

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Property Cliches