The 12 myths of property investment: Part 2

Information provided by InReach Investments

There are many myths surrounding what it takes to become a successful property investor.  I'll be giving you my perspective of the 12 key myths that are currently in the marketplace over the coming weeks. To learn more about me, Cameron Patterson, and the work we do at InReach Investments, visit us here.

To read my previous post covering myths 1 - 4, click here

Myth 5: I’d like to buy something to live in and then I will rent it out.
 
The approach in buying a principal place of residence (PPOR) with a plan to rent it out as an investment property is one of the most common questions I receive.
In principle I believe this approach is fundamentally flawed, as both the PPOR and investment property have different selection criteria.
 
When buying a PPOR you need to find something with which you have an emotional attachment to. You need to like such things as the layout, location, local schools and close to family and friends. etc.
 
When buying an investment there should be no emotional attachment. You should look for key investment parameters that are inline with your investment strategy and goals and that assist with exposure to growth but also limit your investment risk.

Eg. Low vacancy rate, purchase price, yield, growth drivers, new development etc.

These differing sets of criteria can be at either ends of the scale. To compromise may mean that you are either buying something to live in that you aren’t really happy with or you are buying an investment that doesn’t maxmize good  investment fundamentals.
 
Myth 6: Only the rich can afford to invest.
 
Whilst I am a strong believer in purchasing investments responsibly, this myth is simply not true.
Properties can be purchased for as little a $30,000 and investors can enter into the market with as little as a 5% deposit (providing all lending criteria is met).
Many people also enter the market in partnership with family, friends or a fellow investor.
Deposits also don’t have to be cash. They could be equity in your principal place of residence or another investment property.
 
Myth 7: I shouldn’t buy units & apartments due to high strata fees.
 
Whilst strata fees are an important consideration, I believe this particular cost should be reviewed in context, against all the other costs associated with the property and of course the rental income. We need to establish the cost position of the investment as a whole.
 
This can be determined by the preparation of an accurate cash-flow sheet. This is critical in determining the total performance of any investment property.
ie. In many cases, particularly in Queensland, higher strata fees can often be offset higher rents, thus potentially giving the property the same cash-flow position.
 
To disregard units/apartments due to high strata fees on the basis of high strata fees limits good potential investment opportunities.
 
Myth 8: Never sell, buy and hold for ever
 
I am a subscriber largely to the long term buy and hold strategy, this isn’t to say I wouldn’t sell though as different markets have different long-term risks.
 
Markets such as mining towns, some regional areas, Cairns, Gold Coast and other holiday spots may typically have some sort of down turn over a long period of time. They have historically operated this way over a long period of time (investors should purchase in these markets with consideration of this risk).

One investment strategy could be to purchase into these markets for a single growth cycle, take your profit and then exit the market.
 
In addition to this, some investors use a heated market an opportunity to offload either some problematic properties, those that are not performing or that are not expected to provide growth in the future.

Keeping checking this space for more monthly myth’s from InReach Investments.

Cameron Patterson, founder of InReach Investments, began his career in pharmaceuticals but found his true calling within the property market. After taking the leap of faith to purchase his first investment property, Cameron’s success has snowballed. To learn more about Cameron and his mentoring and property services, visit www.inreachinvestments.com.au






Disclaimer: information supplied by InReach Investments. While due care is taken, the viewpoints expressed by contributors and/or sponsors do not necessarily reflect the opinions of Your Investment Property.

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