Most common property investment myths busted

Do what the experienced investors do and research first before pulling the trigger. Picture: Lyndon Mechielsen/Courier Mail

Whether you are just starting out as an investor or you are unsure where to begin, it’s helpful to do as much research as possible – especially when there are a whole host of myths floating around. Here are some of the most common misconceptions about property investing and the reasons they aren’t true.

If you have bought a property it doesn’t mean you will automatically get rich.

MYTH 1: PROPERTY PRICES ALWAYS GO UP

Prices don’t always go up, says Property Investors Council of Australia chair and co-host of the Property Couch podcast Ben Kingsley. Instead, they tend to go up and down in cycles, driven by the economic activity related to that particular market – namely job opportunities – which drives demand for housing.

“An example of that would be a place like Broken Hill,” he says. “Their property prices peaked many, many decades ago, right in the middle of their mining boom.”

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Brand new or OTP isn’t necessarily the best investment.

MYTH 2: IT’S BETTER TO BUY NEW VS EXISTING

While a brand new house might be appealing in terms of liveability, it doesn’t make for a better investment decision, Kingsley says.

“Promoters and property spruikers will get you connected to the freshness, the emotional, seduced nature of a fresh, new property,” he says. “The reality is, it’s the land that appreciates, it’s not the improvements, ie., the dwelling.”

“You’re looking for that land to asset ratio where the percentage of the value is more locked up in the land than it is in the improvement in the land.”

That doesn’t necessarily mean a larger land size, he says, explaining that location of the land is also important.

It’s not just land size, but location itself, that’s important.

MYTH 3: OFF MARKET EQUALS OPPORTUNITY

A lot of buyers see off market properties as being good opportunities since there is usually less competition from other buyers, however, they don’t always equate to being good deals, says The Investors Agency CEO Darren Venter. He says it’s important to be careful when doing due diligence and to look for things that may detract from the value of the property, such as electrical transmission lines, proximity to council housing and whether it’s located in a flood zone.

“In a lot of instances, off market properties can hold these traits, where the sellers agents know that an off market title has a bigger attraction to property buyers,” he says. “So people pretty much let go of a lot of criteria and due diligence looking because they’ve heard that it’s off market.”

Apartments tend to be more volatile when it comes to capital growth. Picture: Vince Caligiuri/Getty Images

MYTH 4: ALL PROPERTY TYPES HAVE THE SAME GROWTH

There are several factors that determine price growth, but if you understand the principle that it’s the land where the property is located that goes up in value over time and the dwelling itself that depreciates, “the reality is that the different types of properties that you pick potentially run the risk of not performing as well as other well-located properties,” Kingsley says.

The amount of value you have in the land content can be affected by current and future supply as well as scarcity – which is why purchasing units in a medium to high density setting may be a risky move.

The Investors Agency CEO Darren Venter. Picture: supplied

“Apartments saturate themselves very, very quickly and easily,” Venter says. “I would stay far away from apartments and units. The value is always going to be in the land because the land is where the demand is grown from the transactions that happen inside the area where the properties are being purchased.”

He says demand for apartments is generally far lower than housing demand across the country.

“The vacancy rate for housing sits at around 1.1 per cent. The vacancy rate for units sits at around 2.5 per cent,” he says. “When there’s less demand, there’s essentially less competition, which drives price.”

Property Investors Council of Australia Chair Ben Kingsley. Picture: Supplied

FACT VS FICTION

Property Investors Council of Australia Chair Ben Kingsley suggests keeping these three simple principles in mind when researching property investing in order to help you sort out fact from fiction and keep any spruikers at bay:

1. Supply is the enemy of capital growth

2. Economic activity is essential to drive demand for population and thus housing

3. Owner occupiers are the price makers, investors should be the price takers

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