There is no shortage of property investment myths out there, all of which can derail an investor’s chance of breaking into the market. While some of these myths are actually true, many others are just plain false and should not be taken seriously by prospective investors.
At Property Club, we bust common property investment myths to help our members receive the right advice. Let us explore some of these myths to see if they are based in truth, or if they are nothing but lies.
Myth 1: My Financial Future is Secure Because I Have Superannuation Unfortunately, this myth couldn’t be more wrong. It’s becoming less and less likely that there will be a pension for people who are currently in their 20s and 30s by the time they retire, and even if there is, it won’t be enough for a comfortable lifestyle.
According to SuperGuide, a couple will need approximately $60,000 a year to live a comfortable lifestyle after retirement. To account for inflation in 30 years' time, that could be as high as $127,000 per year.
Investing in property early is one of the best ways to secure your financial future, so that you can live out your retirement in peace. Myth: BUSTED!
Myth 2: It’s Okay to Buy Outside of Your Backyard By investing beyond your immediate neighbourhood, city or state, you will be maximising your investment returns in these different areas. If one market is currently going down in value, chances are one of your other markets will be going up.
Myth 3: Investing in Property is Too Intimidating to Get Started Life is full of many intimidating “firsts”. Some of these may include:
Even though these experiences can be frightening, these important steps helped you to learn and grow. The same goes for property investment. By planning thoroughly and surrounding yourself with the right people, you’ll learn the skills to take the first step in the property market.
Myth 4: Negative Gearing is a Tax Benefit Negative gearing is absolutely a tax saving benefit. Investors are often confused and call negative gearing an investment strategy instead.
It’s important to note the difference, so you can avoid being pushed into selling a property simply because it becomes positively geared. If a property is positively geared, you’re making money, which means it’s time to buy your next property.
Myth 5: Purchasing a Property to Develop and Later Subdivide Will Bring In More Money
While this strategy can seem appealing to some, the reality is that only 1% of investors actually follow through with this plan. Subdividing is a long and costly process, so you need to be sure the financial reward is there.
Buying a unit or townhouse allows you to save more tax due to depreciation, so you need to make sure you work out the numbers as there is a strong chance this type of property will result in a wiser investment.
Myth 6: I Have to Save a Large Deposit Before Purchasing My First Property One of the many benefits of being a Property Club member is that we can help you pay less of a deposit for your first investment property. Our Property Mentors will help you take advantage of the negotiation process so you won’t have to save every penny for that massive deposit.
Myth 7: If Property Prices Go Down, I’ll be Financially Ruined The earlier you start investing, the less impact a fall in property prices will have on your retirement solution. Every market goes up and down with the property cycle. However, the long-term outcomes of owning an investment property across multiple cycles will almost certainly guarantee rewards due to inflation.
Let’s look at an example:
Even though there was a 6.5% drop between 2018 and 2020, the property’s value has still increased by 57% since purchase. The media only reports on the short-term decrease, and not the long-term increase. If you give yourself enough time in the investment market, you won’t be disappointed.
Myth 8: I’d Rather Buy Property, Renovate, and Flip It to Make a Profit Unfortunately, this strategy isn’t that simple in Australia. In this country, you are just as likely to pay the same for a lacklustre property on good land as you are for a good property on that same land.
You also need to think about the extra fees and charges you will be paying such as stamp duty and capital gains tax. Are you making a smart investment choice for your future or just buying yourself a job instead?
In Australia, it is extremely difficult to make a significant profit by flipping a house. That’s why we strongly recommend purchasing new properties for your investment portfolio.
Myth 9: I’ll Just Buy a Cash Flow Positive House All the best with this, because there aren’t many cash flow positive houses out there. Even if you can find one, it’s probably a second-hand property in a less-than-ideal location. Before long, you’ll be paying outrageous expenses to maintain your property.
By purchasing a new property you’ll be paying less out of pocket expenses, and have the ability to negative gear any costs that do come through. And with new properties allowing you to depreciate, your new property may end up being cash flow positive after your tax reductions anyway.
Myth 10: The Property Club Services are Too Good to be True This myth is absolutely BUSTED!
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Our mission is to help the average Australian learn the property market dynamics and discover the amazing opportunities that exist in real estate.