'Investors should only buy new' - five property investment myths exposed
The world is full of advice on how best to invest in property but many supposed nuggets of wisdom are merely myths that need debunking.
Investing in property offers investors a chance to build wealth; nevertheless, it’s crucial to be cautious because misleading and deceptive information is prevalent, potentially leading investors astray.
Common myths and potentially dangerous advice on property investment abound, and we point out five of the most prevalent misconceptions
Myth 1: Only wealthy people can invest in property
Having cash is helpful when purchasing an investment property but it’s not the be-all and end-all. Contrary to popular belief, most Australian property investors are ‘mum and dad’ investors: non-professional, small-scale investors.
Most investors own just one investment property.
Purchasing an investment property isn’t exclusive to having accessible cash flow; investors can use the equity within their home and refinance their mortgage.
Another strategy is rentvesting, which is a home-owning strategy where you rent a property to live in that’s right for your lifestyle, while you own an investment property that’s right for your budget.
Rentvesting is increasing in popularity due to its accessibility and flexibility for first home buyers.
Myth 2: Investors should only buy new
The notion that tenants exclusively prefer newly built properties and that older ones do not qualify for tax deductions is inaccurate. Older properties not only make attractive rental properties but also yield lucrative tax deductions.
Frequently, older properties come with a more budget-friendly price tag, offer greater potential for value enhancement, and are more readily accessible for purchase.
These properties may also currently house a long-term reliable tenant that the new owner may choose to retain.
Myth 3: It’s best to limit purchases to familiar locations
Investors shouldn’t succumb to the notion that only familiar areas are worth buying in.
Acquiring an investment property requires a distinct approach from buying a family residence.
When evaluating potential locations, it’s crucial to factor in elements like population and infrastructure growth, proximity to public transport and shopping hubs, as well as rental demand.
After researching these factors, the information found will often help investors decide on the type of property, tenant and location they’re after.
Myth 4: Property investment guarantees quick wealth accumulation
Investing in property has the potential to build wealth and create a strong long-term financial plan, however, it’s not guaranteed.
No investment scenario is a guaranteed way to get rich, regardless of the ‘foolproof’ or ‘never failing’ method often promised to investors.
Investing in property is typically a long-term strategy that involves experiencing and preparing for the ups and downs of the property cycle.
Investors must be mindful of their risk tolerance; consulting an accountant or financial adviser is the safest way to maintain these boundaries.
Myth 5: Don’t worry about claiming depreciation; it only raises your property’s cost base
Since property investment is a long-term strategy, investors should experience the benefits throughout the journey, rather than solely relying on them at the time of sale.
Claiming depreciation deductions can reduce a property’s cost base, however, claiming depreciation each year will improve both the investor’s annual cash flow and overall tax outcome. It’s also worth mentioning that a capital gain is never guaranteed, so, it’s best to claim the deductions along the way as a reliable way to optimise cash flow.
This is general advice only. When researching or acquiring advice it’s important to ensure sources and professionals are appropriately accredited, failing to do so can result in dangerous and financially unstable outcomes.