Property investing is one of the best ways to build intergenerational wealth. There is a very good reason that the wealthy prefer real estate investment above all others. The reason is simple. A well-purchased real estate asset rarely goes down in value. The main reason is due to the scarcity of land. Our short guide is to help you understand some of the common misconceptions about investing in Australia.
Fore more information, our detailed guide is available here.
Sure, Australia has lots of land, so it is easy to keep building. But the reality is 85% of Australia’s population lives within 50 km of the coast. The vast majority of Australian land is not livable, which impacts how much land is available.
Australia is like most other countries; most of its population lives in major cities. Australia’s capital cities are constrained by how much land is available for development. Real estate experts Australia wide say the supply of new homes is becoming a major issue. The good news for investors is there is a strong supply of great tenants. And the shortage of homes is creating capital growth.
If I lose my job, I will lose the property?
Many people worry about losing their job in today’s economic climate. And if you lose your job, it will be impossible to refinance if you need to change your mortgage. Or you run the risk of missing payments and losing the property.
Reality
If you lose your job, it will be difficult for a short period of time. But how long will it take to get another job? And how much will it cost you to pay the mortgage after you consider the tenant’s rent?
As an investor, you need to have a contingency plan in case things go wrong. But for most investors, you can deal with these setbacks if you have a well-planned strategy.
The reality is no one is coming to save you. If you don’t plan for your own financial security, no one else will do it for you. Investors get ahead because they accept a certain amount of risk. You can manage the risk as long as you have a plan for whatever life throws at you. Real estate is a slow-moving investment which is why the wealthy use it to create long-term wealth. You will have time to react and respond even if things go wrong.
Real estate investment Australia means huge debt, which is bad
Buying real estate involves borrowing huge amounts of money. Borrowing a lot of money is bad and not worth the risk. Borrowing too much money can lead to financial problems, and you should avoid it at all costs.
Reality
We get taught that all debt is bad when we grow up and that having a lot of debt is negative. But the reality is no one gets wealthy without the use of debt. And you will not generate wealth without some debt. But not all debt is equal; there are two types of debt, bad debt and good debt.
The idea of debt being a bad thing was created by those who only obtained bad debt. Those who constantly borrow money for material items that are depreciating assets. The fact is they should not be called assets!
Bad Debt
A huge proportion of people are trapped in a cycle of bad debt. Loans on depreciating assets are bad. Borrowing money for consumer goods, cars, white goods, and electronics is crazy.
A depreciating asset is an asset that decreases in value over time due to wear and tear, age or obsolescence. Examples of depreciating assets include cars, computers, furniture, and buildings.
Good Debt
On the other side of the coin. Borrowing money for appreciating assets is the only way to generate long-term wealth. And it is how the wealthy create and preserve wealth.
An appreciating asset is an asset that increases in value over time. Appreciating assets include stocks, real estate, and precious metals like gold and silver. Appreciating assets are a wise investment because they generate a return over time as the asset’s value increases.
Managing a property is a huge hassle
Managing a property will be a huge hassle, especially if it is a long way away. I will constantly be repairing things and bothered by the tenant for the smallest of issues.
Reality
Sure, if you try and manage the property yourself or run it as an Airbnb, you’re right. It will be a huge amount of work, and chances are you will be communicating with the tenant all the time. If it is an Airbnb, you should expect to speak to them every other day!
It is true to say that investing in property is going to take some time. You will need to invest some time when you invest in property; nothing in life is easy.
But how much time you need to spend on investing in property is up to you. Using a property manager will reduce how much time you need to spend managing your property. The great news is the cost of the property manager is tax deductible in Australia.
Strategy is everything when it comes to Real Estate Investment Australia
Real estate experts Australia will all tell you the same thing, plan is everything. As an investor, you need to understand the market, the good news is powerful real estate investment software exists to help you on that journey. You will need to:
- Plan your portfolio, which can easily be done with property portfolio planning tools
- Understand the market – now property data tools exist which which can speed up this process
- Understand your likely return – property investment calculators exist to help you do this
- Compare alternative property investments – property comparison tools exist to do the hard work for you
Once you have built your portfolio, property portfolio tools exist which can help you manage your investment.
Negative gearing could be eliminated by the Australian government
The government previously made the mistake of removing the right to claim interest losses investing in property. It created huge turmoil in the property market.
Reality
The Australian government is unlikely to remove the right to offset mortgage interest. The last time they did it, investors left the market in their droves. The government reversed the decision within two years.
You might also find it interesting most politicians’ own property. According to the Australian Tax Office, on average, politicians own 2.5 investment properties.
Even if the Labour government did introduce these laws. They have already said they would not do it retrospectively. Every time there is a new Government, this myth starts to do the rounds again.
Interest rates will go up at any time without warning
If you read the news, you will hear things like; interest rates will spiral out of control. Homeowners will get into negative equity, and the property market will crash.
Reality
The reality is that central banks telegraph their intentions a long-time before they act. They do this because they don’t want to spook investment markets.
The reality is interest rates are currently very low, and they will continue to rise over time. The real problem with interest rate increases happens because finances have been stretched too far. Because of this, investors are forced to sell. Often times, when interest rates go up, so do rents (because of the demand). However, if the interest rates go down, rents are not reduced. So, no matter what the interest rates do, you still get a good rent return for your property.
Some people who have been burnt investing in the property market when they didn’t have the funds to do so in the first place.
Bad tenants will destroy my investment property
You will rent your property to rogue tenants who will trash your property. You will end up having a bunch of hooligans living in your property. It will be a pain to get rid of them and cost you a fortune.
Reality
This fear stops more people from entering the investment property market than any other. Don’t let it stop you from starting your journey to creating long-term intergenerational wealth.
Watching daytime television would have you believe the property market is full of rouge landlords and bad tenants. The reality is both are pretty uncommon. Even in those rare situations they exist their is a lot you can do to mitigate your risk, including:
- Tenant checks – you can do a whole host of background checks to make sure you are getting a good tenant
- Property Managers will reduce your risk by regularly checking what is happening in the property. And address antisocial tenants quickly.
Insurance
For the rare scenarios that something goes wrong, it is possible to get insurance to protect you against potential loses. Why would you buy a valuable asset and not insure it?
Property prices will go down and I will lose my money
Property is over priced, people cannot afford to buy a property anymore and the market is going to crash. You would be much better off investing in shares or something sexy like cryptocurrency.
Reality
When you hold on to a property (buy and hold) for at least 10 years, you create a buffer against any cycles in the market. It is important to keep sight of long-term goals and not be distracted by short-term noise.
There is hundreds of years of property data for Australia and other countries. All the data shows the same thing long-term stable growth well above that of inflation.
These stories about the property market is spread by investors who deal in the share market. The funny thing is shares spend a lot of time going sideways and no one ever talks about the share market stagnating. The share market is based on the emotion of people. When they like a company, the share price goes up. When they are upset with a company, the share price goes down.
The best part about investing in property is no one is making any more land. There is a limited supply. This in itself ensures that property prices will rise in alignment with demand.
Are you thinking about investing in Australia?
It is important to clearly understand why they are investing and their objectives. You might be interested to checkout our investor checklist here.
Du Val Global
We built Du Val Global, real estate investment software designed to help investors make better investment decisions when they buy property in Australia. Our platform provides investors with the real estate investment tools to help with critical decision-making, including:
- Research – access to powerful property analysis provides real-time market research, allowing landlords to have a complete picture of tenant economics, prevailing rents, and capital values.
- Financial Analysis – a property investment tool that investors can use to create financial models to determine net return after tax and return on investment. Investors can understand specific tax implications. Our property comparison tool allows investors to compare investments on an after-tax basis to determine the best investment for them. Investors can even compare properties in different countries.
- Du Val Dynamic Pricing™ – Du Val Global offers a range of properties for sale from leading developers in Australia, New Zealand, and the United Kingdom via its proprietary Du Val Dynamic Pricing™ algorithm. This sophisticated pricing model levels the playing field for small investors through aggregation, providing discounts of between 7.5% and 15% from retail prices, which, until now, have only been available to large institutional investors.
- Portfolio Management – a property portfolio planning tool investors can use to monitor and track the performance of their investments.
Interested in giving our platform a go? Start your free trial today at Du Val Global.
