Everyone has an opinion when it comes to property investment, particularly if you look at the internet!

Having worked in the industry for over 40 years, we’ve definitely heard our fair share of misconceptions.

If you’re thinking of starting out on your property investment journey, or just need some reassurance you’re on the right track, to help you sort out the fact from the fiction, we’ve busted 12 common property investment myths.

Myth #1 Everyone’s a property investor

With government incentives there has been an increased interest in property, and the media almost daily talks about international investment in Australian property.

However, according to the Australian Tax office, in 2017-8 tax year (the latest statistics available) there were just over 2.2 million property investors in Australia. With a population of around 25.5 million, this means around just 1 in 5 people have an investment property.

Myth #2 Property investment is a ‘Get Rich Quick Scheme’

Yes, you can make good money off property, but it doesn’t happen overnight. The reality is that it’s more about doing your research and taking good advice from qualified financial experts so you can make informed decisions right for your financial situation.

Unlike other forms of investment, property usually survives economic rough times and many consider it a low-risk investment for the potential of high returns.

Myth #3 All property goes up in value

Generally, yes, property does go up in value over time, but there are peaks and troughs in the property market; anyone entering into property investment needs to be in it for several years to really reap the benefits.

There are other factors to consider too. If a property isn’t well maintained, it will decrease in value.

Myth #4 You should want to live in your investment property

Everyone is different, and while some love living in a rambling old house, others prefer a low-maintenance apartment with minimal input from themselves.

Ultimately, you will not be living in the property and it is a business.

Some key factors of property investments are your budget, costs associated with running the property, and what the returns will be.

Myth #5 Negative gearing is a good investment strategy

If a property is negatively geared, it means it generates less income than it costs to own it.

So why do investors use this strategy? Some investors use this strategy if they expect the property to grow substantially in value, or they want to offset their tax paid through other income sources.

This is why it is imperative you talk to a financial expert who can explain what strategies will work best for your financial situation, and what you need to consider long-term.

Myth #6 Interest-only home loans are best for investment properties

Interest-only home loans are good in lots of ways, and do help many get onto the property investment ladder. However, the loan will have to be paid back at some point, and this needs to be factored in.

This is why long-term planning in property investment is essential.

Myth #7 Debt is bad

Not all debt is bad if it’s used in the right way; for example, refinancing your home so you can buy an investment property means that while you’re in debt, your assets are worth more than your debt.

Furthermore, you will be receiving an income to pay down that debt.

Myth #8 There’s nothing affordable to buy

When there is a boom in the property market, and everything seems to get snapped up at the drop of a hat, it may seem like there is nothing affordable on the market.

But property investment isn’t always about going with the crowd. Think laterally and widen your searches; there may well be a property in your price range two suburbs along offering a good return on investment.

Alternatively, if your finances are in order, and you’ve minimised your risks, waiting for the market to slow down is another option. The right property will come along if you are serious.

Myth #9. Only buy in areas with a proven record of growth

Areas come in and out of vogue; an area of exceptional growth doesn’t always show the same increase ten years down the line.

No-one has a crystal ball, and while an area with proven record of growth may seem a less risky approach, canny property investors also look for indicators which may suggest an area has the potential for growth. For example, this includes looking at what investment is being made in infrastructure and regeneration projects to attract more people to the area, and what the job opportunities are.

Ideally property investors want to get into an area at the start of an area’s growth, not at the middle, or end; that way they reap the higher rewards.

Myth #10. The Australian property market is going to drop 40%

The recent report that made the ‘40% drop’ grabbing headlines should be looked at more closely.

This report was actually looking at whether Australia could reliably withstand an ‘extreme’ scenario of dropping 40 % in value at a time of high unemployment.

The forecaster Martin North outlined that for a 40 % drop to happen, there would need to be a ‘GFC 2.0 scenario’. This scenario isn’t just a recession, this is a major depression. And for this to happen, Australia’s unemployment rates would be at 9.5%, mortgage stress levels would need to increase above 40% and bank losses would need to increase fourfold.

Also, this report primarily looks at cities, which often don’t reflect what is actually happening in regional Australia; we’ve been experiencing record rental prices across our managed properties for most areas, and we’re also experiencing a strong demand for sales too.

Myth #11 Renovations always add value

Well that depends on the renovation….. in many cases it’s highly unlikely a $40,000 bathroom renovation in a 2-bedroomed unit will add $40,000 to the price of the unit.

A good renovation often does add value, but the type of renovation and the renovation costs must be factored in; if the renovation costs more than the value it’s going to add to the property, it doesn’t make fiscal sense to make the renovation.

Myth #12 Property investments will make you wealthy

There is a difference between the words ‘will’ and ‘can’; ultimately, wealth creation through property is down to the choices and decisions made by the individual.

Any investment involves risk, and in property investment there are lots of factors to consider. We always recommend speaking to a financial expert and our aim is to give you the information so you can weigh up the pros and cons, do your sums and make good purchasing decisions.

Investing in property can be used to create wealth, after all, three of the biggest names in property are in the top ten of the AFR Rich List 2020.

As one of Newcastle’s longest established real estate offices, we know property. Whether it is from an investment or homeowner’s point of view, we’re always looking at innovative ways to help you get the best from your asset.

We’ve helped thousands of people live their financial dreams through property so if you would like to know more about our services, simply give us a ring on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au or pop into our Cardiff office for a chat.

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