Are these beliefs holding you back from investing in property? Insynergy busts the Top 5 misconceptions
As property markets flourish in many parts of the nation, savvy investors should be looking to leverage this golden opportunity to plan for a better, more secure financial future. Yet, so many people ruin their opportunity for success because they have the wrong mindset. Here are the five most common misconceptions that could impact your success as a property investor.
1. ‘We don’t need no education’
With apologies to Pink Floyd, yes you do! Entering the market without a sound understanding of property market fundamentals including which markets are set to perform best over the next seven to 10 years and why; which markets are yielding the best rental returns; and how to best leverage your financial circumstances and borrowing capacity, is a wasted opportunity.
Firstly, potential investors should seek out tailored education about these property market fundamentals and look to improve their financial literacy. This education should be researched and backed by historical data and credible forward-looking research. Look for a reputable and personalised property investment workshop or course and forget the spruikers offering free advice and seminars, which are usually just an opportunity for them to ‘introduce’ their potential investment properties to you.
2. Professional advice isn’t needed – I can do my own research online
Just as you need a life plan for your other financial needs, you also need a carefully planned strategy for investing in property. A property wealth planner is someone who has experience, skills and the appropriate qualifications in several areas including property investment finance broking. This way they are equipped to help you understand how to use and build equity and incorporate other finance techniques to increase returns while minimising risk. They should also be a qualified investment property buyers’ agent, capable of researching the whole Australian property market. Ideally, they should be a qualified property investment advisor (QPIA) with the Property Investment Professionals of Australia.
3. I need to save a deposit for my investment property
With as little as 30 per cent equity in an existing property, such as your home, it is possible to use that equity to invest in other property safely without the need for any extra cash. For property investment experts, tapping into this dormant equity, also referred to as ‘lazy equity,’ has long been a tried-and-tested formula for success.
Equity is the difference between the current market value of your property and the amount you owe on your current mortgage. Over time, as capital growth increases the value of your property and you pay off your mortgage, the amount you owe compared to the value of the property will widen and your equity increases.
This equity or ‘untapped wealth’ is an incredibly powerful tool as it effectively becomes your borrowing power. Many homeowners may not know what a goldmine they are sitting on and don’t realise that they can tap into this ‘lazy equity’ to fund another property safely without the need for extra cash.
4. Debt is a bad thing
Successful investors treat debt as a tool to build wealth rather than seeing it as a burden. They also understand the difference between ‘good’ and ‘bad’ debt. This is an important mindset when creating your finance strategy, regardless of your current property purchasing goals. The aim is to utilise your borrowing capacity for maximum effect, not over-stretch yourself financially. Having a clear understanding of your equity position and creating a safe borrowing strategy is the key. Many people are surprised to know that it can cost just $50 a week to fund an investment property. To get peace of mind, have a buffer. You can borrow an extra $20,000 to $50,000 just in case something untoward happens. With this buffer, and taking the appropriate risk- management steps, you build in added protection.
5. Big risks do not always equal a big pay-off
Some property investors roll the dice when there is no need to do so. Topping the list of risky behaviour is buying a property off-the-plan without the right advice. That’s not to say that off- the-plan property isn’t right for everyone, however you should always get professional advice before proceeding with an off-the-plan purchase.
Another big risk is not having your various insurance policies in place, especially income protection, life insurance and trauma cover, in the event of a serious injury or personal crisis that could prevent you from meeting your future mortgage commitments.
Richard Sheppard is the CEO and founder of inSynergy Property Wealth Advisory. inSynergy provides a broad range of professional services designed to assist with all aspects of property investment. Phone 1300 425 595 or visit insynergy.net.au