The Myths Most Property Investors Fall into the Trap of
Successful property investing means overcoming a number of preconceived myths that Australians have had programmed into them from a young age.
When people look to get into investing for the first time, many struggle to come to terms with the fact that investing is about numbers and not whether they personally would like to live in a particular town, suburb or property.
One of the greatest myths that can ruin your chances of success is the stigma around affordable markets and tenants belonging to a lower socioeconomic demography
A major mindset roadblock that b Invested founder Nathan Birch hears is that people think that properties with low rents and lower purchase price points in less desirable locations will likely attract bad tenants and should be avoided.
Nathan’s answer to that is that he simply wouldn’t have been able to build his own portfolio if he had those same attitudes.
When he started investing two decades ago he was worried about houses being burnt out, or crimes in the local area, but what he has found is that those areas have made him a lot of money over time and that there have also been plenty of positive stories. Some of his longest staying tenants are in those suburbs and are lovely people.
On the flipside, he’s had issues with tenants in blue chip, expensive locations.
Nathan has had tenants who were part of a lovely family, with no trouble whatsoever, until the marriage broke up and then a new partner entered the scene and it completely changed the dynamic. Suddenly there are fights, noise complaints, damages, etc. It shows you never can tell when you judge by face value.
What happens to low rent?
Nathan has had property in Vaucluse that he bought for $600,000 and it’s now worth $2 million. He’s also had property in Mount Druitt that has gone up in value from $150,000 to $800,000.
The difference with Mount Druitt is that while the value of the property has increased by six or seven times, the rental income has increased by far more. So when the rent comes off a lower base, coupled with the fact there is always demand for rental accommodation at the affordable end of the market, there is much more room for it to grow.
Nathan also explains there’s a difference between cheap areas and creating value by buying the right property.
He says that while 10% of the property b Invested secures for clients may be in areas considered rough, 90% are in much nicer areas.
He believes that people get “cheap” and “good value” confused sometimes. They may think they need to buy cheap, but they really should be focused on value.
An investment property in Broken Hill might be cheap, for example, but where is its upside for growth? Where is its rental return? Will the bank even lend to you to buy there?
When you are on the hunt for value, Nathan says it’s important to get good pricing and ask yourself, am I getting the property for below market value? Is it cheaper than its rebuild cost? Does it have potential for value growth? Does it have good rental income for cashflow?