There are signs that property investment is no longer the sure thing it used to be.
The market is cooling, and prices are tipped to fall further.
Property expert Jane Slack-Smith tells us what investors should be doing and how to avoid making bad money mistakes.
Do you know of anyone who went broke, or close to it because of over investing or badly investing in property?
Property Investing is a long-term investment.
The successful investors buy with that in mind and don’t speculate or gamble.
Those who I have seen get into serious hot water are those who have followed a trend or fad and tried to capitalise on short term gains.
A number of people have also been caught out purchasing off the plan and lender changes have made their ability to settle those loans nearly impossible.
Often this results in a loss of deposit.
What mistakes do people tend to make when investing in property?
They invest without considering what drives the market.
Location is key so looking at areas where there is income growth and population growth is just one consideration but then at the percentage of renters and in which streets they want to live in and what the typical property is.
Many buy based on convenience, ‘the house around the corner is for sale and I know the area”.
When I ask what the rental yield is, the predicted growth, the percentage of houses vs units etc they understand that just because a property is convenient it may not make for a good buy.
I also find many try to buy an older house attracted by renovation riches.
The fact is many properties can be renovated but few deserve to be renovated if you want to make a profit.
The key is checking that there is enough of a price difference between the not renovated and renovated properties in a suburb and even street to allow you to make a profit after all your costs are removed.
How important is the economic cycle to making money in property?
Those who try to chase the cycles often get caught out.
I spoke to a lady in 2006 who had read that the Sydney market would collapse as $600,000 was an insane median value, so she sat out of the market.
With prices over $1mill now she would have to be 45km from the CBD to even find a property in that price range.
In the meantime, there has been incredible growth she missed. Leave timing the market to experienced investors.
What tips do you have for property investors today?
Location is everything, it will be cashflow that assists you in holding the property but capital growth that will allow you to sell one day and put money in the bank.
I have a 3-prong way to make money with any property.
Buy below the market, in days of coming uncertainty there will be opportunity for those ready to act. This allows you to make money immediately.
Manufacture equity, I do this with a strategic renovation getting at least $2 more value from every $1 I spend, and increasing the rent so my out of pocket expenses are not too large.
Buy in an area with good future capital growth. Understand the drivers of growth and capitalise on this for the long-term