Buying property for investment or a new home is exciting, not just for you, but also friends and loved ones around you. It can be hard to avoid the avalanche of advice and opinions that will probably come your way when you tell people your plans to buy. As great as this advice sounds, it’s really important to stick to the facts. 

There is a lot of bad advice floating around. Even if the advice is good, not all good advice applies to every location or type of home. Some real estate myths and misconceptions are based on outdated information and these could affect your decision if you get caught up in them. 

Doing your research and debunking myths helps you make a solid purchasing decision that can protect you from financial loss and help reduce the risks when buying property.

5 real estate myths and misconceptions debunked

The residential property market is a dynamic space with plenty of changes made to processes, policies and financial offerings over the past two decades. Advice others give might have been solid when they were in the property game, but may prove to be irrelevant now. Here are some common misconceptions we hear floating around.

1. You have to have a lot of money to invest in real estate

Investing in real estate used to seem inaccessible for everyday Australians; there was an image that you needed a six-figure salary to comfortably afford the additional wealth to buy property you didn’t live in. This changed when interest rates dropped. Even with high rates today, buyers are only looking at 3.5% interest, a big drop from the 16%-18% interest on a property 30 years ago.

While lending terms may be longer for those earning average wages, it is very possible to get into property investment and see profits through additional rental income streams, especially with the tax benefits that come with it. There are many ways to invest in property with little to no money upfront including:

• Using the equity in your home. Borrow against existing equity in your home and use those funds to finance a deposit to buy a new property. 
• Getting a guarantor loan. Another option is getting a guarantor loan, which means a family member who has their own property will serve as collateral for your lender.
• Seller financing. A non-traditional way to buy an investment property is seller finance, which refers to taking a loan from the owner of the property rather than the bank.
• Partnership agreements. A partnership with someone who is money-rich but time-poor that wants to invest in property is a starting point for investing regardless of the upfront deposit.

Investing in property can begin with less money and more effort, fortunately, there are more than enough ways to start without getting bogged down on saving for a deposit.

1. Properties in cities are the only smart investments

Location is important for sure, but there are amazing investment opportunities waiting outside the inner city prices (which are usually too high for most first-time investors and home buyers). A smart investor will consider a lot of factors when buying a property and not just the location.

A desirable property with a good capital yield might look different for everybody, but most are usually in proximity to basic amenities, schools, work establishments and transportation.

The surrounding neighbourhood needs to match the buyer’s lifestyle desires and plans. If you are investing, consider what type of tenant you want and which lifestyle surroundings will be most enticing. If you prefer a quieter environment, it doesn’t make sense to buy an inner city property just to get a “good investment”.

Savvy investments come from knowing how to predict which suburbs are on trend to be big in the next few years. There are many up-and-coming North Melbourne suburbs you can investigate, that offer property gems that tick all the boxes, fit your personality and fall within budget. 

1. Buying at an auction is a bad idea

Buying at auction can be intimidating, but it doesn’t necessarily mean you can’t get a great deal on a property. Unlike private sales, where the offers from other buyers are hidden, auction bids are fully transparent and you can see them happening in real-time.

You can easily see who is bidding, what the increments are and gauge the value of the property based on interest.

To help get over the initial overwhelm it’s important to research how to bid, talk to real estate agents about what to expect and go to auctions (online or in person) where you don’t plan to buy to get a feel for how things work.

1. You’ll see property value increase every 7 to 10 years

Property appreciation simply isn’t as predictable as people think. Many investments aren’t as successful as predicted because investors have unrealistic expectations of capital gain and don’t wait long enough for their property to mature.

This myth is based on the idea that a well-located property in a capital city will experience an average 7% annual growth and generate double the value in around 10 years. This figure might be true over the long term of your property ownership, but it’s an average figure so this means around half of all properties won’t perform anywhere nearly as well as that.

Markets move in cycles and each market will fluctuate at different times depending on location, demand and property types.

There are rule-of-thumb concepts you can use to compute your property’s value — like the 72 rule, where you divide 72 by the annual growth rate — but this should be used in line with other market indicators and thorough research, not as your only basis for potential growth. Keep in mind that calculations will be based on the current market trend, so you’ll need to be flexible and towards changing market conditions.

1. You don’t need a real estate agent to buy property

Some people would recommend buying property without an expert, but it’s important to understand the benefits of using an experienced real estate agent before you cross them off the list.

Real estate agents work equally well for both buyers and sellers, it’s their duty and code to put your best interests first. 

A professional real estate agent has access to information you don’t, with expert knowledge gained from dealing with property every day. They can guide you and provide knowledge about the current market conditions and negotiate the best deals.

Real estate agents are able to serve property buyers by:  

• Assisting throughout the transaction process. Including paperwork, and the legalities of the transaction.
• Sharing recommendations. Expert suggestions and comments provide valuable insights to making decisions on price, property specifications and assessing contract terms and agreements. 
• Supplying updated data. Agents are trained in assessing and providing current property reports, like comparative market analysis (CMA). This gives you information on correctly pricing a property. 

Having a real estate agent walk you through the viewing, negotiating and paperwork process can make a big difference to your buying confidence for both first-home buyers and first-time property investors. 

With plenty of advice out there, it’s important to research everything you can about a property to help uncover any myths or misconceptions that might lead you in the wrong direction.

For expert advice on the property, you’re eyeing, contact our agents at Nicholas Scott for unbiased insight and guidance on the investment you’re about to make.