This is intended only as a general guide to understanding this topic. Contact us to discuss your individual circumstances.
There are five common strategic mistakes that people make when buying an investment property. Avoiding these pitfalls will help you build your wealth through property.
Mistake 1: Cash Flow positive
✓The Promise – Risk Free investment property, where the rental returns pay the cost of financing
✓The Property – New estate housing in outer suburban areas – often close to the coast or Small inner city units aimed at the student market or young tenants.
✓The Reality – The structure of the Australian property market means average rental returns rarely cover the typical investor’s costs. Only properties with the wrong profile have high rental returns. Cash Flow positive or high rental returns are red flags that a property is a poor performer.
Mistake 2: Renovate your way to riches
✓The Promise – Buy a run-down property, renovate and sell it for a fat profit
✓The Property – Nearly all renovators underestimate the budget required and the scale of the work that needs to be done.
✓The Reality – Careful analysis shows that most successful renovators benefit more from a rising market than hard work. Many renovators over-capitalise discover expensive structural flaws after they have bought or get caught out by a turn in the market cycle.
Mistake 3: Urban Living
✓The Promise – Sold as the new face of Australian housing embraced by Generation Y professionals
✓The Property – Typically small one and two bedroom units in high rise towers located in tightly restricted areas of the CBD and CBD fringe. Most developments are designed to maximise the numbers of units – not the liveability or investment performance.
✓The Reality – Stamp duty savings mask selling prices 20% above real market price. Rental guarantees mask poor long term rental returns. These properties usually have poor capital growth due to the low land component of each unit and many similar units competing in the resale market for a limited number of buyers.
Mistake 4: Resort Property
✓The Promise – Share the Australian dream of a place near the beach which doubles as a great investment.
✓The Property – Cluster format, semi-detached townhouses in coastal areas. High rise apartments in major coastal resorts.
✓The Reality – These properties perform poorly during downturns when non-residential owners are forced to sell, resulting in a market glut.
Mistake 5: Tax effective property investment
✓The Promise – A tax effective investment in a high land value location. “Investment opportunities” are outlined in a glossy brochure which includes an accountant’s report.
✓The Property – Re-developments of older style buildings in established mixed use areas. Small scale “up market” apartment or townhouse complexes in affluent areas.
✓The Reality – These properties typically are a well-financed attempt by a developer to sell units at prices well above their real market value.
WBP Property Group 2011 Residential Advice