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There are several property investment staples Australian investors swear by, but are they fact or fiction?
Blogger: Gavin Smith, director and general manager, State Custodians
Below are several property investing myths that have been debunked.
Only use interest-only home loans on your investment property
Interest-only home loans can be an effective tool to manage cash flow. However, they should only be considered as part of your investment strategy.
After a number years of owning your property and receiving a regular rental income, you should work towards paying off the principal so you can increase the equity in the property.
There are too many investors
Although the number of investors in the property market is increasing, it does not mean there isn’t enough room for more investors to get their foot in the market.
The number of Australians who are property investors is still a relatively small portion compared to the rest of the population. The fact is the population is only going to continue to increase, so there will always be a demand for housing.
Only the rich can afford to invest
You do not need to be a millionaire to become a property investor. Although you do need to be in a good financial position and not buried in debt in order to take out a home loan, you do not have to be extremely wealthy. People on average incomes and even first home buyers are finding that they are able to purchase an investment property.
Property always increases in value
The property market can go up and down regularly and it’s not always easy to predict where it is heading. For example, values across all Australian capital cities rose by just 1.7 per cent in the March 2014 quarter compared to 3.8 per cent for the December 2013 quarter and 2.5 per cent for the September 2013 quarter (Australian Bureau of Statistics). But remember, past performance is not necessarily an indication of future performance. That is why it is important to be cautious when purchasing an investment property and be prepared if the market does slump and property values drop.
You should only buy investment properties near the CBD
Don’t assume that buying within or near the CBD will guarantee that you will not only get a high volume of interested tenants, but you will have a better chance of fast capital growth, this is not always the case. Limited space is becoming an issue for many CBD areas causing traffic congestion and overpopulation. As there is a limited amount of property available within the CBD area, rental properties are in high demand and many renters cannot afford to live there.
Many renters are looking to move away from the major city areas as the cost of living is increasing. However, if you do look to purchase an investment property outside the CBD, it is important that you are still near essential infrastructure such as public transport, schools and shopping centres, so that tenants will still have easy access to all of the necessities.
About Gavin Smith
Gavin Smith is director and general manager of State Custodians and has over 20 years’ experience in leadership roles within the banking services sector. An expert in personal finance, securitised lending and the mortgage industry, Gavin has a post graduate degree in management from the Australian Graduate School of Management (UNSW), including several mortgage and securitisation qualifications.
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