There’s lots of advice out there about what you should and shouldn’t do when hunting for an investment property, but how much of it should you believe?
According to property adviser Anna Porter, principal of Suburbanite, there are three common misconceptions that buyers frequently get wrong.
1. If there’s infrastructure close by, prices will go up
Property buyers tend to think that when there’s infrastructure occurring in an an area, property prices are sure to increase.
Porter told Your Money Live on Monday that this is normally only true when the infrastructure is job-creating.
“For example, we’ve seen over the years a lot of people invest in the Hunter Valley area, where there’s been a lot of government spend,” she said. “But it’s on road infrastructure.”
Roads only employ people during the building period, and workers often move away again after the project is finished.
“Employment creates population growth, and it creates money being spent in the economy, and a thriving economy is what underpins the property market,” said Porter.
She said the right kind of infrastructure includes hospitals and military bases.
2. If the property is paying for itself, you should be OK
When rental returns are too good, it can be a sign that something’s not right, according to Porter.
She says buyers need to keep in mind the two key drivers behind property investing – good capital growth and rental returns.
When rental returns are higher, typically it’s because property prices in the area are slowing.
“So, going into areas where properties pay for themselves, you’re often introducing risk factors like mining towns, serviced apartments and tourism hubs,” she explained.
“Never go for a single industry town, whether it’s government industry or mining industry.”
3. Only buy in areas you’d want to live in yourself
Porter said people are reluctant to buy in areas that they wouldn’t personally choose to live in.
“We bought a property for a client of ours in an area called Frankston… at the time, it had a bit of a high crime rate,” she said.
While their client was initially reluctant, she said all the fundamentals were there, such as high employment, proximity and an easy commute to Melbourne.
Within 18 months, the property price had gone up by $150,000.
However, she warned that a cheap property price doesn’t always mean it’s a good buy.
Investors should be wary of areas that have low employment rates and lack of opportunity.