Have prospective investors missed the Perth property market boat?

API columnist Terry Ryder says those who follow the herd when identifying a property investment location will probably miss the boat when it comes to building a profitable portfolio.

View of marina and coastal properties of Mandurah, Western Australia.
Mandurah, in Perth's south, is among six suburban areas to have recorded annual capital growth above 20 per cent. (Image source: Shutterstock.com)

One of the truisms of property investment is that if everyone in the news media is telling you an investment location is hot, you’ve already missed the boat.

Unfortunately, one of the characteristics of Australians who invest in real estate is they tend to be herd animals.

They dive into property investment when they hear or read in news media that there is a boom happening – and so they want to be part of it.

They have serious FOMO – Fear of Missing Out.

People who behave this way are the least likely to achieve success with property investment.

That probably explains why most (71.5 per cent) of Australian property investors never get beyond owning one investment property and less than 1 per cent create a property portfolio of five or more.

Those who do succeed at property investment, don’t follow the herd.

They’re usually well ahead of the pack, which will stampede when media reports a boom is happening – which is usually a year or more after the smart investors bought in the target location.

Paying too much for Perth property

This is exactly what we are seeing in the Perth market at the moment. Investors are falling over themselves to buy in that market and, in my opinion, many are paying far too much for poor real estate.

When I hear about houses commonly being sold within a week of going on the market, for prices well above the asking price like we are seeing in Perth, I’m concerned.

In Perth at the moment, investors are buying anything they can get their hands on. They are paying more than the property’s value and failing to do basic due diligence like building and pest inspections.

Yes, some of these investors will do ok despite their lack of checks and balances but sadly some will end up with dud properties and regrettably expensive problems.

It’s a classic case of buy in haste and repent at leisure.

I’m not saying, “don’t buy in Perth”.

What I am suggesting is that if you want to buy in Perth, or any market in Australia for that matter, do the due diligence before you commit.

It’s perhaps understandable that an owner occupier may become over-excited and pay above the odds if they fall in love with a property they are going to live in - but that should never happen with an investor.

Investors should be buying on the numbers based on careful research.

Those investors who do the numbers will see that the Perth market has been rising strongly for the past three years.

Those buying with undue haste right now are buying with the attitude that they can buy any property in any location at any price and still make big money.

That is not sensible investing.

Perth is undoubtedly one of the nation’s leading markets on price growth but that doesn’t mean you can jump into this market recklessly.

You still need to choose your suburb well, based on sound research principles, and you still need to choose the individual property with appropriate care and attention.

It’s important that even in a frenzied boom, you buy the right property in the best location at a reasonable price – no matter what city it is in.

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