8 Obstacles to buying an Investment Property

Most Australians realise they must do something other than rely on their superannuation to ensure they have enough to retire on. Paying off the mortgage, adding to super, and putting some savings aside may not be enough to secure the kind of equity needed to have a comfortable retirement.

Property is a widely recognised investment, based on solid returns over the last 80+ years of performance history, yet many Australians will never make the first step towards this -- despite knowing the advantages of having a property portfolio.

There are various reasons why people are wary to take the plunge and commit to this type of investment, some of which can be dismissed as myths or excuses, so let’s look at eight common obstacles that stop people buying an investment property.

1 Failing to bring their life strategy ‘blueprint’ up to date

The blueprint for life that many were taught growing up simply involved getting a decent job, buying a house, paying it off, then retiring off superannuation and the pension. End of story.

While it may have been relevant for previous generations, times have changed, and many are learning that this traditional approach may not work in these modern times.

The lifespan for previous generations was shorter than what it is today, and therefore the retirement savings required were proportionately less. The strategy plan that was programmed into us from a young age is no longer applicable to the times we are living in. The lifestyle we live has changed, and we want to drive that nice car, go on holidays, and enjoy the longer lives that we are living.

We need to reassess the blueprint and ask ourselves “Is what I am doing today going to ensure that I have enough funds and savings for retirement?”

2 Listening to negative stories

Many people have heard or experienced a negative story about failed investments and money that was lost. It is wise to learn from other people’s mistakes, but these stories must be examined carefully, and we may learn that it was not the idea itself but maybe the approach could have been better.

When you take people’s horror stories to heart, you will take action. Other people’s mistakes do not have to be your mistakes. With information from a reputable and qualified financial adviser who can empower you with the right knowledge, you can minimise the risk and increase your profit.

Most times, when people have failed with investment, it is due to a ‘get rich quick’ scheme. Whether it is stock or properties, riches are gained from a long-term strategy.

3 “It’s too confusing/I don’t know where to start”

Investing can be confusing. Knowing where to start, what to buy, and what is right for you can be a lot to take in. Everyone’s situation is different, and the journey to wealth creation can take a variety of paths.

There is plenty of information out there, but this can also be overwhelming. A simple search on successful property investment tips will produce hundreds of tips, with some of the advice being conflicting. That is why it is essential to cut through the noise and access advice from a professional.

Education is key to getting a better understanding of what is best for you. It will allow you to seek out the next level of advice and ask great questions that will enable you to move forward.

4 Fear of losing money

Fear is one of the most significant reasons why people fail and add losing money to the equation, and it makes it even more terrifying.

While it is natural to feel this way, we can find guidance from famous adventurer Bear Grylls, who once said “Being brave isn’t the absence of fear. Being brave is having that fear but finding a way through it.”

The best way of overcoming fear is taking that first step, and every other step becomes more effortless.

It also helps to remember that your goal is to make money, and you cannot make money without taking a risk.

5 Not assessing their position

A lot of people do not realise that they can invest in property. This may go back to their misaligned blueprint, or they have been living day by day and have not taken the time to have their financial position assessed.

Once people really examine their financial position, perhaps with an adviser, most people are shocked to discover just how much they can do. Even if you do not have enough right now, you can start a plan and take steps to get you on the right track.

6 Worry about being in debt

Not all debt is created equal, as there is ‘good debt‘ and there is ‘bad debt’. One example of bad debt is a car loan for the late model V8 you finally bought. While it is definitely giving you a great amount of personal satisfaction, the financial value of asset will lessen over time. A loan taken out for a property purchase, or even a student loan is a good investment which will prove its value in the long run.

Property is the largest type of purchase made in anyone’s lifetime, so it is understandable why someone would not rush in without weighing all the factors.

With the power of leverage, you can educate yourself on the positive benefits of good debt and soon discover that not all debt is bad. If you still have a fear of debt, then consider if it is more important to you not being in debt and not making money, or being in debt but being able to make money.

7 Procrastination

There are those who have recognised that a property investment is indeed a good idea, but still put it off. “I’ll wait and see what happens” or “I’ll wait when the market is better” are among the common excuses some may have. While this may be valid in some instances, opportunities are also lost when the right time has come and gone.

They say that a game of football cannot be won on the sidelines and that is true you have to get in the game to win. Staying on the sidelines and procrastinating is not going to make you a fortune. You need to step on the field and get into the game.

Engaging a professional to understand your situation better and put together a plan is a great way of preventing procrastination.

8 “She’ll be right” mentality

Even worse than procrastination is the carefree attitude that is characterised by the common Aussie saying, “She’ll be right, mate.”

Many are content with the effort they are making, plodding through their 9 to 5 jobs, and believing that everything will fall into place on its own. We have already established that the traditional blueprint for life and retirement will not cut it in these modern times, so people need to realise that the absolute minimum will not see them through a comfortable retirement.

The government has already increased the retirement age and are looking at increasing the superannuation contribution. Though these changes may help a little, it is simply not going to be enough for many of us.

Most Australians do not realise that they have a choice available to them right now that will dramatically change their outcomes for the future.

Your next step

While these are not all the obstacles or excuses, it is a good starting point to understanding what is holding you back from securing a better life for yourself. Whichever is your excuse your next step would be to contact a specialist to assess your current situation and put together a plan to get you out there making some real wealth through property investment

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Houses and Units seem easier to understand than many other types of investments

It’s important to understand how investing in property works, to decide if it’s right for you

Pros and cons of investing in property

Property investment is often seen as being less risky than other forms of investment. However, while it may seem more straightforward, there are pitfalls to be aware of. Here's what you need to consider about investing in property.

Pros

  • Less volatility – Property can be less volatile than shares or other investments.

  • Income – You earn rental income if the property is tenanted.

  • Capital growth – If your property increases in value, you will benefit from a capital gain when you sell.

  • Tax deductions – You can offset most property expenses against rental income, including interest on any loan used to buy the property.

  • Physical asset – You are investing in something you can see and touch.

  • No specialised knowledge required – Unlike some complex investments, you don't need any particular specialised knowledge to invest in property.

Cons

  • Cost – Rental income may not cover your mortgage payments and other expenses.

  • Interest rates – A rise in interest rates will mean higher repayments and lower disposable income.

  • Vacancy – There may be times when you have to cover the costs yourself if you don't have a tenant.

  • Inflexible – You can't sell off a bedroom if you need to access some cash in a hurry.

  • Loss of value – If the property value goes down you could end up owing more than the property is worth.

  • High entry and exit costs – Expenses such as stamp duty, legal fees and real estate agent's fees.

Diversify your investments

  • Invest in more than just property so your money isn't all in one market. If you invest in one market, it'll increase your risk and means your portfolio isn't diversified.

Cost of investing in property

  • Buying, managing, and selling an investment property can be costly and will affect your overall return.

  • Cost to buy and sell

  • Some of the costs involved to buy and sell a property include:

    • stamp duty

    • conveyancing fees

    • legal costs

    • search fees

    • pest and building reports

    • If you sell your property, you will have to pay agent's fees, advertising costs and legal fees. You may also have to pay capital gains tax if the property has increased in value.

Borrowing money to buy

  • If you borrow to invest, you will have to pay the property mortgage. Don't rely on rental income to cover the mortgage – there may be times when your property is empty.

  • Many people buy investment property with interest-only loans but remember the interest-only period will end after a certain time. This means your repayments will increase to pay the amount borrowed, plus the interest.

Cost of owning an investment property

Ongoing costs of investment properties include:

  • council and water rates

  • building insurance

  • landlord insurance

  • body corporate fees

  • land tax

  • property management fees (if you use an agent)

  • repairs and maintenance costs

Tax on your investment property

Although you may be able to claim tax deductions on expenses, you'll still have to pay them up front. For positively geared investments, you may pay tax on your rental income.

What to consider when buying an investment property

  • The decision to buy an investment property should be part of your investment plan and take into consideration your goals and risk tolerance.

  • Once you have a property in mind, compare the income you expect to your outgoing expenses. If there is a shortfall, consider whether you can cover the expenses long-term. Also, work out whether you could cover all expenses short-term if you had no tenants for a while.

  • Research the property market to decide how to get an investment property. Where and what you buy will affect your return on investment.

Where to buy

  • Areas you're familiar with will take time to research.

  • Look for areas with high growth, higher rental yield and low vacancy rates.

  • Find out about proposed planning changes in the suburb that may affect future property prices.

What to buy

  • Look for properties with appealing features like a second bathroom, a garage and access to schools, shops and transport.

  • Consider maintenance costs based on property type, age and features.

Overseas property investment

Investing in overseas property is riskier than investing in property in Australia. It's harder to manage a property from afar and there may be costs that you haven't thought of.

Some things to consider before you invest

  • Distance – Good tenants and property managers are hard to manage when you're so far away

  • Renovations and repairs – You can't supervise repairs or know who does the work

  • Extra costs – You must factor in Australian tax laws, local property taxes, insurance, management costs, and ongoing repairs. If you buy through a promoter, there may be other hidden costs

  • Exchange rate – Changes could affect the amount of income you receive

If you’re curious about how working with a financial planner could potentially help you

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