Property investing myths

From: Nigel W


I think we all need to examine our beliefs every now and then - do a spring clean of what we believe to be true and turf out those beliefs that are erroneous or just plain unhelpful.

What do people think are some commonly held, yet incorrect beliefs about property investing?

Some that spring to mind for me are:

1) you can't make money investing in country areas
2) you can't make money buying units
3) you can't buy positively geared property in [insert name of city here]

...

Let's see if we can weed the garden a bit!

N.
 
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Reply: 1
From: Glenn Mott


Nigel,

I seem to remember that only 3-4 years ago, people were saying that property investment as a whole would never be the same again and that strong capital gain would not occur in a low inflation environment...

Investment advisers, market commentators (journalists with $2K in some .bomb) and plenty of people never to buy an investment property were screaming SHARES, SHARES, SHARES!

While my properties have done much better than my managed funds over the last 3 years, my personal feeling is that we should all have balance in our portfolio because although we have a rough idea as to what economic sectors will be performing strongly at different times, growth seems to happen in short bursts, especially in the share market which can catch out those people trying to time their purchases/sales to perfection.

At this very point, I cannot tell whether there will be "across the board" growth in shares or property in the next couple of years or whether cash will be the go, so I will continue to buy into my managed funds on a monthly basis, continue to pay down the balance owed on my PPR, continue to look for more more IPs close to the CBD that are positively geared or close to it and keep trying to learn.

It seems as though, just before a market segment is about to turn upward, general consensus suggests that this segment is rubbish for one reason or another. The myths that I see come from uneducated(investment wise)/cowardly/lazy people who wish to make excuses for their failures or procrastination.

One thing that has caught my eye in the last couple of days is the concept of a lease option. Having read a website of one of the people that post to this forum, it does seem like an interesting way to get people to purchase property that may have not been able to afford it otherwise.

Glenn
 
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Reply: 1.1
From: Frank Shead


Glen,

This is interesting. I actually went to a seminar on Wednesday evening on this very subject.

Speaker told the gathering we could and he would guarantee to arrange for us to buy an IP for $100.00 for say Purchase payment in two years.
This is really great news.

It turns out there was a $50 per week payment in addition to what ever rent was being achieved.

Plus solicitors fee of perhaps $1,000 to achieve watertight agreement

plus 3.5% fee paid up front to the speaker's Company for making this deal.

My comment is not about how much it cost, but the suggestion that all this would only cost $100.00

Frank Shead
 
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Reply: 2
From: Rolf Latham


Hi Nigel

My two pet hates are not property specific. They are two outdated concepts that are still held by many people:

1. Pay off your home totally before you commit to IP and
2. Dont use the equity in your home to borrow against to fund the purchase of your ip, but SAVE the deposit and the costs.

Its all about better safe than sorry.

Ta


Rolf
 
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Reply: 2.1
From: Donna L


Overheard in a queue at sharemarket
seminar:

"My accountant says it's very hard to make
more than 5% a year on property."

Personal experience to date:

$4,000 on two OTPs, $100,000 return in
2.5 years. Not sure what that is but it's a
damn sight more than 5%.

Donna L
 
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Reply: 2.1.1
From: Sim' Hampel


They were probably talking about yield. Buying a property at a 5% yield in Sydney is considered "nirvana" these days. Typically, yields in inner suburbs are 3-4%.

 
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Reply: 2.1.1.1
From: Glenn Mott


Sim,

Things should be different in a couple of years...

Glenn
 
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Reply: 2.1.1.1.1
From: Tony Blanch


On the subject of myths, did anyone pick up on the myth that the city was the place to be.

Perhaps some choose to invest in one high valued property in the city rather than having to administer a number of lower valued properties out of the city.

Without comparative figures for recent quarters or years I cannot be sure that the following indications endure time, but the top 10 annual capital growth areas for the Greater Metropolitan Region by Local Government Area, in NSW, in order for the June 2001 quarter were (with percentages, from Rent and Sales report No. 57, www.housing.nsw.com.au)

Leichhardt 18.8
Wollondilly 16.7
Blacktown 15.8
Penrith 12.9
Wollongong 12.6
Marrickville 11.4
South Syd 11.3
Strathfield 11.0
North Syd 10.5
Liverpool 9.9


Admittedly these are not country destinations, but if the figures are correct Sydney at 6.9% and Mosman at 1.2% are not nearly as attractive.

If anyone believes these figures are skewed by recent events or some other anomaly, I would be keen to hear your comments.

Myth 2.

Another myth/fact I am interested to hear comment on is the percentage growth rate of high value properties vs low value properties. There may be preference for one end of the market such as choosing one high value property vs several low value properties to lower administrative work, or choosing lower value properties to spread risk eggs across more baskets, but does anyone have numbers (or opinions) on the growth rate of value at the upper end of the market versus the lower end of the market.

Should I aim toward fewer higher value properties or more lower value properties in order to increase the capital growth. Note that this question is not considering rental returns, stamp duties or otherwise, only capital growth rates....

I am keenly interested in comments.


Cheers,
Tony
 
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