Property myths busted - Part 3

"I will choose the wrong investment property and lose money"

It is understandable that would-be investors are afraid that they will choose the "wrong" property, and, as such, make a financial loss on their property over the long term, rather than a gain.

The reality is that property is a long term investment and the longer you hold, the greater the gain. How much you gain and over what period depends on many indicators. Having said that, people do sometimes make financial losses on property, but this is usually due to the structure of their mortgage, affordability, or selling the property at the wrong stage of the property cycle (in a buyer's market - or a time of low buyer demand), rather than the investment itself. Speaking with an expert to discuss your affordability and financial situation could save a lot of pain further down the track.

Nevertheless, there are two situations in which an investment property could serve your poorly, rather than well.

1. Some investors are disappointed when they discover that the capital growth of their property had not achieved in the way they had hoped when they first bought it years ago. Capital growth is a profit that results from the initial investment into the property, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor. Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price. Some property types in certain locations and suburbs and at certain times of the property cycle do not grow in value to the extent that others do. This can also happen if the investor paid too much for the property in the first place, which is all the more reason to consult with an expert.

2. Having a high vacancy rate on your property (this means the property is unrented) could lead to financial stress, as the investor is then forced to make mortgage repayments without help from rental income. Things that could lead to an untenanted property is tenant demand for the property (eg, is it close to employment, transport, or in an area that is desirable to renters) or having a poorly experienced property manager. Some investors have unrealistic expectations as to the rent their property can achieve, and in this case its better to receive a lower rent than hoped, rather than let the property sit empty for months.

The best way to avoid falling into the pitfalls mentioned above is seeking expert advice first from experienced property investment consultants, such as us here at Grow Consulting Group, about the right investment for you.