Are you new to investing in real estate in Melbourne?
If you are unsure of what it requires, investing in real estate may seem a little intimidating. Realize that properties can typically be divided into two groups: active investments and passive investments when taking this into account.
An example of active investment is buying a house, renovating it, and then reselling it for a profit. Active investments need the investors to be on the move. On the other hand, passive investments often involve buying homes or apartments to be used as rental properties in order to obtain a continuing income stream and long-term value increase.
Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.
Choosing to invest in real estate can be scary no matter what method you choose, especially when everyone else seems to have lots of money to spare. Even so, most of the time it isn't money that prevents individuals from starting. People are hesitant about investing in real estate since there are many concepts that are constantly spread but are mostly just misconceptions.
We frequently hear conversations in our daily lives about how people see investing in real estate. It's an interesting sector with lots of opportunities for people in many different age groups. The issue is that a lot of hot air comes along with such a buzz.
Naturally, some of the information you have heard about investing in real estate will be accurate, but a lot of it will also be wrong. Knowing what to believe and, more significantly, what not to believe, is the key. This may appear to be a perilous minefield to those without a background in real estate.
Unfortunately, this mindset deters a lot of individuals from entering the real estate market in the first place, and the false information spread about it causes others to make critical errors that end up costing them time and money.
Book a discovery session by calling (03) 9998 1940 or email info@klearpicture.com.au
26 prevalent myths and why they shouldn't prevent you from expanding your real estate holdings
Myth 1: Nowadays, everyone is an investor in real estate.
Due to a number of variables, there are now more Australians investing in real estate (tax incentives, our growing wealth, and that pervasive passion for estate among them). Additionally, there has been an increase in foreign investment in Australian real estate, and there have been innumerable media articles concerning investor hysteria.
However, only a small percentage of people still attempt to invest in real estate, and even fewer build up sizable portfolios. Everyone has different objectives, and while building money through real estate does require regular effort, not everyone finds it appealing.
Myth 2. Investing in Property Is a Get Rich Quick Scheme
Property investment is a lucrative venture, but it's not something you should rush into expecting a quick profit. There are many people out there who try to make money off of unwary investors by spreading the notion that you can make a fortune in real estate overnight. The truth is that success depends entirely on timing, patience, and making the correct decisions.
Property is a sizable investment, and as we mentioned before, the financial outlook for it is always positive. Avoid expecting too much too quickly in this situation. Wait for your property's worth to increase and don't be upset if your returns aren't as quick as you had intended.
Myth 3: You Must First Purchase Your Own Home
This poses a significant barrier to potential real estate investors. They think they can't start investing in other houses to make money only because they don't own their own house.
A real estate investing misconception is this one!
Despite renting the house we live in, we own a total of 12 properties. Why? Because you are spending money that you could be investing elsewhere by purchasing a home to live in. Your own property isn't an asset because it isn't generating any income for you when you think about your position as an investor; instead, start thinking about the things around you as assets.
Start by making investments in other properties; after that, you'll be in a better position to make money and advance.
Myth 4: Only the wealthy can invest
This misconception seems to be accurate given the increase in property values across all of Australia, yet many people with earnings under $100,000 are really investing in homes.
LJ Hooker's online survey of 1700 homes revealed that 37% of them had an annual income of under $100,000.
The data also revealed that 34% of individuals surveyed earned more than $150,000 annually, while 29% made between $100,000 and $150,000.
Your acquaintance who invests in real estate could have a lot of money now, but it doesn't necessarily mean that's how they started. Even if buying a home on an entire block would be expensive, you can start with much smaller investments like townhouses, units, and apartments.
You'll have more money to finance others once you start seeing a return on these investments. Additionally, if you choose the right asset in the right place at the right time, your property will increase in value over the course of a few years, giving you more equity to use for your subsequent acquisition.
Additionally, you don't need significant savings to open an account. Many Melbourne tradies and trainee electricians, who don't make a lot of money, have discovered money to invest in real estate.
You might gain from the equity in your property if you are just starting out. You can be qualified for a loan to build a new home or purchase an apartment if you have a sizable amount of equity and have made timely payments. Having another asset may result in a tax benefit and additional money.
Strangely enough, some people believe that only the very wealthy can afford to purchase an investment property. While it's true that you should approach investments with a financial responsibility lens, some people opt to buy an investment property as their first home, and people on 'ordinary' incomes are discovering they can take a step into investments by leveraging the equity in their existing home or with savings they've worked hard to accumulate.
Real estate investors come in many shapes and sizes, and not all are wealthy. You don't have to be wealthy to obtain a home loan, but you do need to be in solid financial standing. Even first-time homebuyers and people with average incomes are discovering that they can save and buy an investment property.
Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.
Myth No. 5: Banks don't approve investment loan applications
The ABS revealed that pledges for investment housing decreased by 1.20 percent and commitments for financing all types of housing decreased by 2.1 percent in August. Have banks ceased lending as a result?
What about the earlier in the year reported rejection rates of up to 40% for loan applications? Is investment financing in danger of collapsing?
No.
Yes, the financial services royal commission has changed how banks evaluate requests for house loans. The total number of house loans filed to be settled is comparable to other years, despite the fact that banks are demanding extra information on 57 percent of applicants (compared to 36 percent last year). In other words, the banks are still approving the proper loan applications while requesting more information and taking longer to evaluate them.
What therefore is the key to approving investment loans?
Consider other banks.
The policies of different lenders vary. This has an effect on lenders today because of the banks' serviceability benchmark rates, which means certain banks may charge you a greater interest rate on loans you hold with them than loans you hold with another bank.
To put it another way, let's say you already have a $500,000 loan with bank A and are considering applying for a new $250,000 loan. When you apply with the same bank, they will evaluate your current loan at 7.25 percent based on P&I repayments. If you applied to Bank A for a new loan of $250,000 while the $500,000 loan was held by another bank, they would accept the mortgage payments on the $500,000 loan at a rate closer to 4 percent, expanding your borrowing capacity.
Repayment of principal and interest
What a few years ago would have been deemed insane is now a reality. Investment interest-only loans now have a higher interest rate as a result of the speed constraints APRA implemented last year. Consider principal and interest choices; they might be more advantageous to you.
A bank customer in the top tax band with a $500,000 loan would be $6,000 better off after five years and $12,000 better off after ten years moving to P&I, according to Macquarie Bank, using a 0.5 percentage point disparity.
Location, location, the location used to be the order; now it is lender, lender, lender.
The way in which apartment rental income is handled is another rule that, in our experience, might mislead investors.
Depending on the particular complex, some lenders will cut rental income by 50%. (presumably determined by the lender's total exposure to that apartment complex). So that you won't be caught off guard, ask your mortgage broker to double-check in advance.
Myth 6: Property values always increase.
Tragically, no. Some so-called "experts" will even use an unbreakable formula to predict with absolute certainty how much it will increase in value.
One of the most widespread misconceptions is that property values will constantly rise. In the Australian real estate market, this could not be more incorrect. In the near term at least, real estate and housing are not immune to economic downturns. You must consider a variety of aspects while investing in order to determine whether it will be profitable for you. Are you attempting to flip it or are you in it for the long run?
Please consider the initial cost of a purchase in addition to any ongoing maintenance charges, such as management fees, routine maintenance, and potential upgrade prices.
Compare that to any potential rental revenue now and any potential future growth. Look around you for signs that the demand for rentals is rising; is there a school close by? Will there possibly be a construction there?
What types of lifestyle factors exist that would increase the property's value? When these many costs and circumstances are taken into account, the price may be more than the prospective return on the investment or it may show great potential for growth.
Remember that obsessing over numbers can cause you to miss out on chances. You'll face less competition and be able to benefit from cheaper purchase costs while others worry about inflation or unemployment rates. You can overlook any stock market decline and instead witness an increase in the long-term value of your real estate by using creative thinking.
Real estate is still seen as one of the lower-risk assets overall over the long term. The property market, in general, does have a tendency to expand over time consistently despite some market corrections and sporadic reductions in value. Sometimes it can just take longer. Additionally, you are confident in your ability to control the property.
In a way, you may manage the market worth of your home by upgrading the kitchen. Sometimes, even new paint will do the trick. In contrast, you have no direct influence over an investment like the stock market, which can be highly volatile.
Due diligence, which is crucial for investors, can provide a hint as to how values might change, but past performance is not a predictor of future performance. There is reason to expect that your investment could succeed if the cards are stacked in your favour, but there are many factors that could cause a property's value to decline, so these risks should be considered.
The real estate market can go through growing surges and sporadic lulls; it is not always predictable. For instance, values in all Australian capital cities increased by just 1.7 percent in the third quarter of 2014, compared to 3.8 percent in the fourth quarter of 2013 and 2.5 percent in the third quarter of 2013. (Australian Bureau of Statistics).
But keep in mind that past performance is not always a predictor of future performance. Because of this, it's crucial to exercise caution when buying an investment property and to be ready in case the market declines and property values fall.
Myth 7: Homes appreciate more quickly than apartments
This commonly believed notion puzzles me the most since, taken as a whole, it is just plain false. Regardless of the type of housing, a well-located, well-researched property should yield significant profits. Equally, whether it is a house or a unit, a dwelling in a bad area will perform poorly.
In my real estate portfolio, there are 10% residences and 90% apartments and townhomes. ALL units rank among my top 10 achievers in terms of growth and yield.
You may quickly begin to see the numbers for what they are if you can get past the media cacophony of excess supply and sky-high panic. For instance, if you were to look at Brisbane, which is sometimes criticized for having an excess of apartments, you may believe that there are no successful units.
But if you look at some of our clients who bought at Bastion (a well-researched property in a well-researched location), you'll see that their rental yields are good and will undoubtedly increase the value of their apartments.
Australia has some very desirable regions, and certainly, rising land prices are raising the value of homes there.
But keep in mind that not all land is created equal. Australia has millions of hectares of land, and it won't take you long to locate some of it that won't appreciate in value.
Why?
Since no one wants to reside there!
A significant factor in the expansion of real estate is desirability. In fact, without it, the value of your property won't rise. This is why you should focus your real estate research on neighbourhoods where people wish to live.
Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.
Myth 8: Renovations Increase the Value of Your Home
Many individuals believe that purchasing a property is the first step in becoming an investor and that in order to increase its worth, they must subsequently renovate it. Furthermore, even while this isn't always false, it's also not always true.
The truth is that there is no guarantee that spending $50,000 on renovations, such as installing a new kitchen and bathroom, will increase a property's value by $50,000.
You must be as certain as possible before beginning any renovation work that it will be a wise investment and increase the value of the home when you eventually decide to sell it. Again, it's important to surround yourself with knowledgeable individuals who can provide you with reliable counsel because this can be a difficult thing to evaluate.
Myth 9: You Should Purchase a Residence You Would Like to Reside In
Prospective investors frequently make the mistake of presuming they are experts without having the credentials to support it. They make investments in homes they'd want to live in because they believe that everyone has the same tastes and aspirations as them.
Now, even if you have excellent taste, this won't necessarily bring in money. You must consider a variety of criteria, not simply those that are important to you personally when determining a property's value.
Instead, you should be aware of which locations are now the most valued on the real estate market and what improvements and renovations can actually increase the value of your home.
You may have observed that the best method to dispel the majority of these myths and misunderstandings is to have access to professional guidance that you can rely on to point you in the correct direction.
When investing in real estate, the most frequent error people make is trying to save a few dollars by conducting their own research.
Myth 10: Using negative gearing as an investment is a smart move (especially for the tax benefits)
Negative gearing is a popular property investing strategy among Australians, but you don't have to use it if you want to be a successful investor and reach your objectives.
Owning a rental property that produces less money than it costs to maintain it is known as negative gearing. Therefore, the negative income might be considered a tax loss that can be applied to other income that has already been taxed. With negative gearing, the idea is that the asset's value will increase over time, and as it does, so will the rental revenue.
This isn't always the case, though. Nobody should ever make an investment with the mindset that it is wise to operate an asset at a loss. Instead, the asset should be purchased with the understanding that long-term income and growth will make up for any short-term losses (and if applicable, losses).
Purchasing an investment property should be more on the long-term performance and how it fits with your cash flow position rather than just focusing on the tax advantages. Due to their high liquidity of cash flow, some households profit greatly from negative gearing as an extra advantage, while others may need to make a positive gearing investment.
You can blame this myth on real estate agents and investment marketers who have a financial incentive to get you to overpay for a house.
However, as any competent property tax professional will tell you, there are better investment alternatives available than relying on negative gearing's tax benefits. Don't get me wrong; people have profited from negative gearing in Australia.
What's an immediate negative gearing example?
Simon purchases an investment property, but because the costs are more than the rental income, he loses $15,000 a year. In order to hold the property, Simon must pay $1,250 per month from his cash flow. As a result, Simon will receive a $5,850 tax break by using this $15,000 annual loss to lower his taxable income from $110,000 to $95,000. Simon still has to pay $9,150 a year for the house.
For a number of reasons, negative gearing is a bad investment strategy.
- Your cash flow is stolen. Simon's monthly holding costs for the property are $1,250 from his income.
- Selling the property is the only way to generate income. However, keep in mind that Simon must pay $9,150 after taxes each year to maintain the home.
- It usually requires you to have high levels of debt and can restrict the number of investments you can have. The property inhibits Simon's ability to borrow money because it costs him $1,250 per month to maintain it.
- The tax benefits of depreciation diminish over time.
- It is dependent on a tax plan that might be changed after the following federal election. Simon might not be impacted, but it should be grandfathered, which means no retroactive tax adjustments. Negative gearing actually depends on you losing money on an investment property while assuming that the capital values will rise enough in the long run to provide a return. Since it won't work perfectly for everyone, even though it can be helpful for some investors, you might think about looking at positively geared properties or lowering your overall debt situation.
Myth No. 11: Use only interest-only mortgages for investment properties.
Although interest-only mortgages are a great way to manage cash flow, you should only use them as a component of your overall investing plan.
Your goal should change to paying off the principle so you can raise the equity in the property after a few years of ownership and obtain a reliable rental income.
The person who needs cash flow the most is either a novice investor or someone with a negatively geared property. As a result, they can decide to secure it with an interest-only loan.
Once they have owned the investment property for a while, they can decide to shift their focus toward paying down the principal to raise the property's equity.
In conclusion, interest-only loans are a tool that should be utilized in conjunction with a well-thought-out strategy for investing in real estate.
Myth 12: Debt is harmful
Debt is not always bad, despite what previous generations have been taught to believe. Debt can be effectively used to purchase things that appreciate in value.
Myth 13: There's nothing left to buy at a reasonable price.
When the economy is doing well, it appears like everyone is hopping on board and taking advantage of the fantastic offers. Then, when the market is stalling, getting involved appears downright risky. You don't have to follow the crowd, just like your mother used to say, though.
Invest when you feel prepared and your finances are in order. You probably won't get any results if you wait for the ideal price to come along. Going out and talking to someone will probably yield better results if you want to start.
Never forget that purported deals could actually be the contrary. In this world, there is no such thing as a free lunch. There is typically a valid reason for a developer to offer an extraordinary price on a property. Examine potential justifications for selling short. To find out if you're being offered a fantastic deal below market value or if you're being conned, you might want to seek the advice of an expert. You want something that will function well over time, not just something cheap that will cause you problems later.
Myth 14: The process takes too long.
Even though you might not be an expert in real estate, you undoubtedly already know quite a bit. Start by attending open houses on Saturdays rather than watching football on television. Spend some time browsing the Internet for professional guidance rather than looking for celebrity news. Visit a nearby bookstore and educate yourself on how to start investing in real estate.
It is true that there is no quick way to make money, at least not one that is sustainable, and whoever promises such a deal will be the only one to profit from it. However, if you put in a little effort and educate yourself on investment opportunities, you can achieve notable outcomes.
Is it accurate to say that doing the research can take months, if not years and that it might take another several years to determine whether you made the right choice, but that lounging on the sofa also doesn't pay very well?
The alternative is to speak with a Qualified Property Investment Adviser if you lack time or confidence in your investigation (QPIA). They would be in a position to comprehend your financial situation and advise you on the type of approach and property you should pursue thanks to their professional training in property investing and expertise. None of these items calls for a commitment that must be made right away, like buying a house right away.
You can be comfortable that you are on the path to reaching your investing potential even if a QPIA occasionally suggests that you continue to save for a short while.
Myth 15: If it's far from the CBD, it's not worth buying.
Purchasing close to the CBD is a wise move. It's not the only location to invest, though.
While neighbourhoods close to the CBD frequently have strong capital growth, this does not imply that these neighbourhoods are the only ones with this potential.
Smart investors look for properties in locations where market drivers are active, even if that means venturing outside of the CBD, depending on their unique situation and aspirations.
So how do you avoid falling victim to real estate investing myths?
Of course, education is important, but not just any education.
Find successful real estate investors that have more experience than you do, and take note of their missteps. Meet together with like-minded individuals to provide you with encouragement when things are tough or to seek out sound counsel. This will help you stay grounded in the facts regarding real estate investing.
Even though you might believe that purchasing an investment property in or close to the CBD will ensure that you not only receive a large number of interested tenants but that you will also have a better possibility of rapid capital growth, this is not necessarily the case. A city center's constrained space makes it susceptible to issues like traffic congestion and overcrowding.
Due to the scarcity of accessible real estate in the CBD, rental homes are in great demand and many potential tenants are unable to afford to live there.
More people are looking to relocate outside of the city core as work-life balance and other aspects become more crucial. It is necessary that you remain close to important infrastructures like public transportation, educational institutions, and retail establishments so that tenants will always have simple access to all of their needs.
A wise investment takes into account the factors that will make a property appealing to tenants, and convenience to amenities and transportation is crucial.
Keep in mind that while the property can be structurally and aesthetically improved, its location cannot be altered. That does not, however, preclude an investment made elsewhere from producing returns.
Regional cities and the surrounding suburbs can add value to a portfolio if the other conditions are right.
Myth 16. An excessive number of rental homes could harm the area
Some investors are concerned about purchasing in an area that develops a rental property glut and whether this could have a negative impact on the neighbourhood and property values.
This dispute is usually resolved by market forces, and at the moment there is greater demand for rental properties than for homes to buy, particularly in those regions that are still recovering from the economic slump where values fell, like Florida and Las Vegas.
The historical evidence indicates that when homebuyers return to the area in large numbers, this has the effect of driving up property values, which then motivates investment landlords to sell at a profit.
As a result, the problem of having too many rental homes shouldn't worry you too much.
Myth 17: You can only prosper in affluent suburbs.
The significance of making a purchase in the appropriate area cannot be overstated. A simple explanation is that a house can always be renovated but never moved. You don't have to limit your search to affluent areas. It might be simpler to make money in less affluent suburbs, depending on what technique suits your financial objectives.
According to Ben Kingsley, our CEO, founder, and chair of Property Investment Professionals of Australia (PIPA), while investing in a blue-chip suburb has numerous advantages, purchasing in a neighbourhood with rising income levels can be just as alluring. In addition to seeing a significant increase in your rental yield, you may also experience spectacular capital gain. Similar to any investment, finding the ideal location that meets all the criteria is the most important step, and the only way to achieve that is by in-depth investigation, astute observation, an analytical evaluation, and last but not least, independent property investment guidance.
Keep in mind that a good deal is more important than finding the lowest option.
Myth 18: Only invest in locations that have a track record of growth
"See it before they believe it" is a common sentiment among novice investors. They are happy to invest in areas that have fared well recently, but they are much less persuaded by regions that have underperformed within the same time period. Growth is not linear, though; places that have had rapid growth will eventually slow down, and underperforming areas will improve if the factors necessary for growth take hold.
My investments in Melbourne between 2008 and 2014 have done incredibly well, but I can't see the value in Sydney for 2017.
The big reality is that you will make money when you buy, not when the seller sells, as all wise real estate investors are aware of. Before the property cycles reach their rise, you want to be in the correct places. You won't learn the specifics of the ascent from historical personalities in the past. Not only should you look to the past, but also from the property cycle.
Myth 19: It would be beneficial if you only made purchases in places you are comfortable with.
Even while it may seem wise, merely investing in real estate in a place you are familiar with can leave you in the dark. It may not be in your geography dictionary, but the top performers are those that fit the market they were created to serve.
You shouldn't generalize the performance of real estate across Australia or only at the state or city levels while examining the Australian real estate market. Every market has a submarket! Every suburb has a unique set of neighbourhoods.
A property's value on one street may be very different from a property of a comparable type on the adjacent street. Therefore, just because Melbourne, Australia, was named The Most Livable City in the World, doesn't necessarily suggest that it would be a wise choice for an investment location or time. If you enter the Melbourne market at the incorrect moment, you might have to pay more for the home because the market may have changed.
The best investment returns might be in a different area or a different state rather than just in the 10 suburbs you are familiar with.
The most important thing is to choose an investment that will produce the best returns possible, not one that you can routinely monitor. Therefore, why not board a plane and search for chances elsewhere if you are ready to invest but can't discover any in your area? Hire an expert to do it for you if you're unclear how to go about it.
Myth 20. The cheaper the property, the less expensive it will be to own.
This is another huge, pervasive lie. Cheap homes are priced that way for a reason. They are probably:
- in places of low demand;
- an older building;
- elicit a lower rent;
- bring in unfavourable renters;
- greater upkeep is necessary;
- offer scant or no tax relief.
It would cost more money if any of the aforementioned factors weren't present. Each of these factors affects your potential for capital growth.
In my experience, if I focus on value rather than price, I can acquire a better quality construction in a better neighborhood with much better growth potential AND better cash flow. Many investors tend to think that a lower purchase price equals reduced risk. Therefore, over the long term, the more expensive home may be significantly less dangerous than the cheaper one.
Myth 21: The Australian real estate market will decline by 40%.
Australia's real estate market fluctuates in cycles, and Sydney, which is the country's largest home market, has seen values drop 5.6% since their peak in July 2017. This, however, is nothing new.
The GFC caused a 7 percent decline in Sydney home values over a year, and the recession from 2003 to 2006, which included the Sydney Olympics, caused a 7.1% decline in expenses. In Melbourne and the other capital cities, the situation is similar. In comparison to earlier downturns, the falls we have witnessed over the past 12 months have been modest.
What about the 40% decline in house values?
Martin North, a forecaster, claimed that the 40% decline in housing prices was not his primary scenario.
He explained that for that to occur, there would need to be a "GFC 2.0 scenario"—that is, a catastrophic depression, not just a recession—that would see Australia's unemployment rate reach 9.5 percent, mortgage stress levels rise above 40%, and bank losses multiply by four.
What scenario is most likely?
Within the property cycle, each state and city is in its respective stage.
In general, when you buy a home, you are buying the specific property rather than the market. Research on personal property is essential.
Having said that (and for the naysayers), I think the supportive elements of our real estate market are as follows:
- a robust increase in the population and net migration, up 27.3% from the previous year;
- Low unemployment and strong job growth, according to ABS, with "trend employment rising by 303,100 persons (or 2.5 percent), above the average annual growth rate over the preceding 20 years of 2.0 percent";
- At the lower end of the RBA's target range of 2-3 percent, inflation is under control.
Myth 22. Rent money is dead money
Yep, that old chestnut.
You should purchase the home where you reside, obtain a sizable mortgage, and devote the remainder of your life to paying it off, correct?
Nope.
Do you know what reinvesting is? You can live where you want and invest where you can afford by reinvesting.
Saving money for a down payment appears to be proving more difficult for most home purchasers as Sydney and Melbourne's median house prices inch closer to $1 million. Therefore, why not rent where you want to live and invest where you can afford to instead of buying a home in the suburbs?
Here are some reasons to think about reinvesting.
- For the way of life. You can live in a metropolis or close to your place of employment and lead the lifestyle you like.
- Enter the market more quickly. The typical apartment in Sydney costs $1 million. You'll need at least a few hundred thousand dollars, which most people lack, to join the market with a deposit on such a home.
- Where you wish to invest is entirely up to you. You don't have to buy the place where you wish to reside if you reinvest. To provide you with more options, you can spend in the suburbs' periphery or in other places.
- Flexibility. If you own the home you currently reside in and plan to travel or relocate to another city, you must sell it. When you rent, you can put off worrying about your mortgage until your lease expires. Instead, if you reinvest, a property manager will take care of it, giving you total flexibility.
- The capacity to diversify If you own a home, you should aim to finish paying it off as soon as you can. But if you own an investment property, you can make the bare minimum loan payment while concentrating on other things. You will be able to diversify your investments, for instance, by placing them in several geographic regions, asset classes (such as houses, apartments, or townhomes), or categories (shares or property).
- While you concentrate on investing, let your landlord worry about negative gearing.
Myth 23: All property costs are covered by the rental income.
Some landlords believe they are essentially getting a free ride as long as their rental income covers their mortgage and a little bit more.
It is improbable that the rental revenue is paying all of your expenses every year once maintenance and insurance charges are taken into account unless you are receiving rental income that is about 130 percent of your mortgage payment.
Myth 24: Improvements always increase a property's worth
Unfortunately, upgrades don't always increase a property's worth, no matter how much we all like watching renovation shows and convincing ourselves that we can do that ourselves.
While it might seem reasonable to assume that spending $40,000 on a new kitchen and bathroom should increase the value of your home by $40,000, this may not always be the case.
Let's examine some data that Michael Matusik calculated using Underwood in Brisbane as an illustration.
Our research indicates that over two-thirds of the detached homes in South East Queensland that have been resold during the past ten years have undergone renovations. Furthermore, we discovered that the expenditures for the renovation were nearly half of the prior purchase price in one out of every four cases. Additionally, the cost of this refurbishment was higher in 10% of cases than the cost of the previous entire purchase price.
Therefore, even though these property owners may have spent more on their renovations than the original purchase price, they might not have increased the value of their home by the same amount.
There is no all-encompassing strategy for home improvements that will be successful in Australia. However, it's worthwhile to take the time to investigate the neighbourhood and speak with local real estate agents before you undertake any renovation work. Recognize what attracts local purchasers so you can optimize the return on your renovation investment.
Myth 25: The best method to make money is by flipping.
For those who are unfamiliar with the term "flipping," it refers to the practice of buying an investment property and swiftly reselling it for a higher price in order to make a quick profit.
Flipping was a popular practice during the previous real estate bubble since it was quite simple to buy a home, see the market appreciate each month, and then sell it again, typically for a greater price, within a year or two.
It appears that only 5% of the houses bought by investors were sold again within the year, indicating that the housing market is no longer in a bull market. It is reasonable to assume that, at the moment, flipping is not the best way to make money on real estate, though it can be successful if you buy at the right price, as with a foreclosure, for example. The typical investor will typically hold on to a property for at least five years before considering selling.
Myth 26: Investing in real estate will make you rich
Although it may be easier to establish this claim as fact rather than fiction, there are several qualifiers that need to be included rather than merely assuming that owning property will lead to financial success.
Timing and your investment choices will be important, but Fortune magazine's conclusion that 97 percent of millionaires' wealth was either created in or held in real estate after studying their finances is a pretty compelling statistic that suggests real estate produces more millionaires than any other asset class.
Summary
Making the decision to invest in real estate can be difficult. Be aware that many of the objections are simply myths before dismissing the idea. Even though it could take some time to see a benefit, investing can be profitable.
If you are hesitant to try it on your own, speak with a seasoned real estate investing advisor. He or she will be aware of potential dangers and what will go best with your financial goals.
Less seasoned investors frequently have preconceived notions about the kind of property or location that will produce the best results.
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So what guidance can we offer to potential investors who are committed to building wealth? Start by going back to the beginning. The property is the means, not the end, for those who truly create wealth. There are many methods you can employ in order to build riches, so pick one first. As a result, information overload will be reduced.
Second, identify your target renter first for any specific region. Do considerable research on them before purchasing the investment property that best suits their requirements.
Following these recommendations should enable you to avoid costly errors and accelerate your financial progress. Invest wisely!
Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.
