The 5 big myths of property investment

The 5 big myths of property investment

We’re going to quickly explain the five biggest ones, to help you make better property investment decisions.

Myth 1: You must buy in a big capital city

You should invest in communities that have diversified economies and the potential for long-term growth. There are literally dozens of such places in Australia, from big capital cities like Sydney to major regional centres like Cairns to smaller regional communities like Orange in NSW. Any one of these locations could be a good place to invest, depending on the numbers at the time. For example, Ballarat’s median house price jumped 32.4 per cent in the three years to September, according to CoreLogic – while during the same period, Sydney’s actually fell by 1.7 per cent, according to the ABS.

Myth 2: You can no longer find good properties at entry-level prices

It’s very hard to find investment properties at entry-level prices in Sydney and Melbourne – but remember, there’s a lot more to Australia than just Sydney and Melbourne.

Here’s how far out of Sydney and Melbourne you’d need to go to find something near entry-level prices:

● Campbelltown (57km from Sydney CBD) median house price = $550,000

● Melton (47km from Melbourne CBD) median house price = $385,000

There are dozens of locations in Australia that offer properties at entry-level prices that are close to the CBD – including in other capital cities:

● Gepps Cross (10km from Adelaide CBD) median house price = $370,000

● Rocklea (14km from Brisbane CBD) median house price = $407,000

Myth 3: You can only have capital growth or cash flow – not both

Good property investors buy properties that tick two boxes:

● They’re likely to grow strongly in the future.

● They have well-balanced cash flows at purchase.

If you do that, you can not only get capital growth in the long term, you can also get positive cash flow from day one. Here are a couple of examples that illustrate how you can get good yields at good prices – and poor yields at high prices.

Location Median house price Average yield for houses
Sydney (entire city) $947,000 2.7 per cent
Bendigo (postcode 3550) $425,000 4.6 per cent

Myth 4: You should only buy when the economy is strong

Good property investors take a long-term approach – they think in decades rather than years or months.

So, what’s relevant is not what the economy is doing today, but what it’s likely to do in the decades ahead.

We believe Australia’s economy will grow over the long term, although there will inevitably be downturns from time to time.

Tasmania makes a really good case study. Between the 2013 and 2017 financial years, Tasmania’s economy grew by an average of 0.9 per cent per year. In the 2018 and 2019 financial years, it averaged 3.6 per cent annual growth. During that entire seven-year period, Hobart’s median house price jumped 50.4 per cent, showing how profitable it can be to buy during a weak economy.

Myth 5: You should only buy when the market is rising

Again, what matters is not what a particular investment location is doing today, but what it’s likely to do in the decades ahead.

If you find a location with good long-term growth potential, a falling market can actually be a great time to buy, because you can nab wonderful properties at a discount.

Brisbane illustrates the point well. Over the past decade, there have been regular periods when prices have gone backwards. During the 10 years to September 2019, the median house price increased by only 24.4 per cent – roughly in line with inflation. Yet for the past few years, Brisbane has offered some really good long-term opportunities for the savvy investor.

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