Yahoo Finance 5 real estate myths you need to ignore
Australia is obsessed with real estate.
Despite having a sharemarket with some of the highest dividends in the world, Australians can't get enough of buying property.
But unfortunately this means everyone at a backyard barbecue thinks they're an expert.
"Successful property investment involves separating fact from fiction," Your Property Your Wealth director and buyers' agent Daniel Walsh told Yahoo Finance.
"Unfortunately, there are many untruths out there, which are sometimes taken as gospel by novice investors and first home buyers."
Walsh has picked out the five biggest myths about real estate that potential buyers need to ignore. Here they are:
Myth #1: Blue chip is best
Blue chip property is typically referring to high-demand inner-city suburbs that only high-income buyers can afford.
And this is where the argument falls over.
"If only a small proportion of people can afford these locations, then there won’t be the strong demand needed to keep driving prices higher," said Walsh.
"More affordable areas, on the other hand, are in demand from more people, which over time sees prices increase."
Walsh cited an example of an outer suburbs that doubled its median from $300,000 to $600,000.
"[$600,000] is a figure that is still affordable to the majority of homebuyers and investors. However, a suburb that has a median house price of $1 million will already be overpriced for the majority.
"So it stands to reason that it will be difficult for that suburb to double in price because there is just not the demand from enough people with enough money to keep prices growing."
The other big reasons for buying cheaper properties is flexibility and diversification.
"With lower [prices], investors can also afford to own a number of properties, in different locations for diversification reasons, instead of just one or two expensive ones that are usually significantly negatively geared," Walsh said.
"With a portfolio of five or six affordable properties, in the future, they can sell down half of their portfolio to pay off the debt of the others and create passive income. "
Myth #2: Buying property means sacrificing lifestyle
Many Australians don't take the plunge into real estate because they fear the loss of income would mean a serious compromise in their lifestyle.
"They imagine (false) scenarios that sees them forking out hundreds of dollars out of their own pockets each week to hold an investment property," said Walsh.
"The next thing they know they have to skimp on their daily coffees, they believe."
Walsh said while this might happen if they invest in the wrong location, "strategic" purchases could mean holding a home without any change in disposable income.
"In fact, you can buy an investment property today that not only won’t cost you anything to hold each week, it is forecast to grow in value over the medium term."
Myth #3: You have to be rich to invest
"One of the most frustrating myths is that all investors are 'rich'," Walsh told Yahoo Finance.
"Seemingly, they own dozens of properties and swan around lighting their cigars with $100 bills!"
Facts don't bear this out, according to Walsh, with only about 20,000 Australians actually owning six or more investment properties.
He said most investors own "two or three" properties while earning an average wage from their day job.
"To get a start on the property investment ladder, many people use the equity in their homes to buy their first and perhaps second one, rather than being wealthy."
Myth #4: You must invest in rising markets
Experienced investors are not concerned about what the market is doing, because they're focusing on medium and long term performance.
During Sydney's last boom in the middle of the 2010s, Walsh said most home buyers didn’t start joining the fray until prices had been climbing for a year or two.
"Most of them bought just before the peak of the market and saw the prices of their properties start to fall straight away.
"A bit like lemmings running off a cliff, following the crowd when investing in property is always a bad idea."
The smart investors target specific geographic areas where prices are about to rise, before too many people have realised what's going on.
"They then buy the best properties in those areas before anyone else and capture the benefits from an entire market cycle."
Myth #5: There is one Australian market
Australia is a physically vast country with highly concentrated populations in very few cities. This means the real estate market in each city, town and state is subject to very different pressures.
"Just consider the different market cycles occurring in our capital cities at present, with some locations posting price growth but others recording price falls," said Walsh.
"If you add major regions into the mix, you have a diverse range of market cycles happening at the same time."
Successful investors are aware of this and regularly dip in and out of a variety of sites around the country.
"Property prices in each state and territory grow at different times, plus there are submarkets within each state as well," Walsh said.
"Savvy investors always look for the best opportunities across the nation – and buy when the time is right not because everyone else is doing so. "
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