Property investment – expectation vs reality

22/11/2018   Alison Nguyen, Accounts Administrator

Property is often regarded as one of the safest long term investments and also one of Australia’s favourite ways to invest.

Novice property investors can often enter the market with pre-conceived expectations of what it’s like to invest in property; however these expectations don’t always line up with reality. Understanding this is one of the first steps to becoming a successful property investor.

So what exactly are these expectations we need to overcome?

Expectation: For the right price, any property purchase is a good investment

Many people go into property investment with this idea that as long as you can secure a good price, any property will do. However, this is rarely the case.

Reality: Not all property is created equal – what, where and when you buy matters

There are so many factors that will affect your return on investment, so it’s important to do your due diligence before choosing a property.

Before you buy, make sure you research the area, check recent sales prices so you’re familiar with what you can expect to pay, check the vacancy rates and any proposed changes in the area, like new development or zoning permits that may affect future property values. Consider your timing in terms of market trends – are you buying at the peak or trough of a cycle? What’s going to provide the most value in the long term?

It’s also really important to go into a property purchase with an investment mindset. Many people fall for the trap of ruling ‘heart over head’, meaning they allow their emotions to cloud their judgement and are more likely to over capitalise their purchase.

Expectation: Property investment provides instant returns

Many first time property investors go in thinking they can become millionaires overnight, believing that investing in real estate can provide a quick fix to their financial shortfalls. They are drawn in by the promise of capital growth, a steady rental income stream and those sweet tax deductions.

Reality: Property investment is a long game, that requires time and planning

To be a successful property investor, you should outline your investment strategy and then develop a plan to achieve your goals. Not only do you need to focus on the short term, but long term also needs to be taken into consideration, and ensure your investment decisions align with your overall strategy. As the saying goes – “if you fail to plan, then you plan to fail”.

While it’s true that investing in bricks and mortar can be a great way to create wealth, it’s also a long term investment. The longer you hold it, the better off you’re likely to be. It’s about patience and persistence; property moves in cycles, with fluctuating highs, lows and periods of no movement at all.

You need to consider your cash flow and budget carefully – on top of loan repayments you need to be able to afford ongoing costs like rates, insurance, owners corporation fees, repairs and maintenance, and property management fees. While your rental income is likely to cover most of these costs, you need to be prepared for those instances where it doesn’t – such as prolonged vacancy periods or missed payments from tenants.

Additionally, those attracted to the tax advantages of negatively geared and brand new property should be wary of relying solely on these incentives.

The goal is to ensure you can continue to afford your property without entering financial stress that would cause you to sell at the wrong time. Understanding all the costs involved in holding property can be difficult, so it’s recommended you seek advice from a professional adviser to ensure you know what you’re getting into financially and avoid any nasty surprises.

Expectation: I can save money doing it all myself

First time investors will often try to do most of the legwork themselves. They believe they can save a pretty packet by taking on tasks such as researching different loan options, sourcing their own property and managing their own leasing.

Reality: You can save both time and money with the right advice

There’s only so much you can learn online, so seeking advice is a great way to get ahead. At The Hopkins Group, our team of advisers have the experience and technical expertise behind them to guide you through all stages of the property investment process. The Hopkins Group can help you:

  • understand your cash flow situation and how property fits in the broader context of your financial strategy 
  • gain access to high quality property that may not be available to the general public 
  • secure the best loan product for your needs
  • manage the ongoing leasing and tenancy of your property
  • undertake pre-settlement inspections to ensure your off-the-plan property is appropriately finished

Our teams are experts in their field and are across all the ins and outs of their industry – from legislative requirements to market trends, they know their stuff.

And while there are fees associated with property management (and the implementation of broader financial plans beyond property), these costs are small compared to the time you’re saving by not doing it all yourself.

What’s more, speaking to a Property and/or a Mortgages and Finance Adviser at The Hopkins Group is free – so you’ve really got nothing to lose!

Get started on your property investment journey and speak to our team today!

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Disclaimer: The information contained herein is general in nature and does not take into account individual situations, needs or goals. It should not be relied upon and persons should satisfy themselves through independent means that any decisions based on this material are appropriate. We recommend that you consult with your adviser who will be able to make a recommendation based on your specific circumstances.

 





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