A very narrow gap between gross rental yields and mortgage interest rates is a buy signal for investors.
Myths. The property market is riddled with them. Often masked as positives, the consequences of falling for them often leaves investors dazed and confused – “how could a sure thing fail?” When navigating through the property world, avoid these fables to find property truth.
Myth – Hotspot
This is one of the most common property myths out there. It promises investors that purchases in the next hot spot cannot fail.
Most of the time these upcoming hotspots are not up to scratch in terms of infrastructure and amenities and are severely compromised in regards to location.
It is also not just about finding the right suburb but finding the right part of those suburbs. Finding a quality property that is in the right pocket and so delivers good capital growth is very difficult.
While some suburbs do experience short and significant growth due to infrastructure changes in the areas, these episodes are often shorted lived. When the spotlight fades so too do the prices, with properties tending to revert to their original growth patterns.
Myth – Worst house on the best street
This myth works on the premise that all that matters is location. It has investors believing that the condition and style of the house is not important if it is lucky enough to be located on the standout street of the suburb.
While location is an important first step in picking an investment property, a low value property on the best street has a cheaper price tag for a reason.
Through the eyes of an experienced investor, these properties tend to be compromised in some way. Whether it be the wrong architectural style for the street, undesirable adjoining uses or is in need of significant repairs. Significant repairs may include major structural changes or reinstating original features which can be costly. Combine this with having to forgo a rental income during the renovation and with the cost of structural repairs not necessarily translating to the equivalent increase in capital growth, the worst house on the best street is a house to avoid nevertheless.
Myths – Booms and busts
There is still a common belief that property markets suddenly ‘boom’ and equally suddenly ‘bust’. This myth works under the premise that you should get in and out quickly, buying just before a boom and selling before the ‘inevitable’ bust.
While this idea is constantly mentioned in the media and has infiltrated its way into people’s thinking about property, this is not how a property investor should work. Rather than moving in sharp increases (booms) and decreases (busts) in short periods the market moves in cycles over 10 or so years. While the market is susceptible to the occasional jump, timing the exact moment to get in and out is extremely difficult. Allowing this myth to guide your thinking can leave you waiting for the ideal time to buy, not only making you miss out on countless opportunities but costing you valuable time in the market to grow the value of your property.
Creating wealth from residential property is a long-term strategy and should not be driven by booms and busts. A quality asset held for long enough will provide good capital growth that rides out any sharp increase or sudden drops.