Is Property a Good Investment for Everyone?

 

This may be a little controversial, but I don’t actually think that property is a good investment for everyone.

I know that may sound a bit weird coming from me, after all, I’m a real estate agent, a buyer’s agent, and a property expert, but the fact is, investing in property is risky. However, there are spruikers and property “experts” who do encourage Australians to buy property for investment without properly educating them as to the risks

Believing their own bulls#!t.

So here’s the thing. Some of these spruikers and “experts” might actually believe what they’re selling. They might actually believe that some of this substandard stock they peddle – house and land packages, brand new apartments, buying in hotspots – make good property investments. However, to be sure, you need evidence, you need to hold property for a long period of time and then measure the performance against other property types and locations. So, is property a good investment for everyone?

Widening gap

Really good-quality properties, as time goes on, grow at a greater rate than poor-quality assets in poor locations or hotspots. You need to beware that where there can be some short-term increase, in the long term there are no fundamentals to sustain the growth of a poor quality asset, therefore the gap widens.

A lot of investors are trying to actually do the right thing in terms of securing their financial future. Good assets grow at a greater rate. The gap between those who have, and those who do not have, gets wider and wider. And this is where we’re getting to a problem around the asset aspirational versus the affordable type of locations for property investing. Aspirational is, within 10K radius of CBDs, you know, close to lifestyle precincts, along the coast, walking distance to the beach, those sorts of locations tend to command a premium. 

Location & opportunity cost

So what do the other buyers that can’t afford these locations do? They start looking for affordable locations and this is why I wonder, is property a good investment for everyone? One of the things that drive these aspirational areas is scarcity, right? There’s a limited supply of land. There’s a limited supply of good stock. There are always buyers that if they can afford to, will pile into these areas. And so those who can’t afford to go out looking for affordability and they might strike it lucky. I’m not saying you never will, but the risks are so much higher. And if you do buy into an area that doesn’t have those foundations for long-term sustainable growth, you might get growth. However, if you get growth of 1, 2 or 3% per annum, say, and those other areas get 4, 5, 6, 7% per annum, that gap gets bigger and bigger over time. And the most vulnerable buyers I’m talking about are first home buyers, rentvestors, first-time investors, and people who have actually squandered their borrowing capacity by buying a bunch of poor assets. These buyers don’t have much left in the tank so they still chase affordable locations. These people often don’t recognize the opportunity cost. The problem is that high yields often come with higher risks and that’s not talked about enough. And the other thing is that your rental income doesn’t compound, whereas capital growth does. And that’s really the magic.

All this sort of stuff does need to be talked about more and I’m all for more truth, transparency, and trust in the property game. If you’re interested in joining the conversation, please leave a comment.

This is a conversation I’d love to encourage you to join. We need to be talking more about truth, transparency and trust in the property industry. Reach out to me on Facebook or Linked In and leave a comment.

And if you’re a property investor who is worried about the market and wondering whether you sell, I’ve created a masterclass video just for you. Check out my process for deciding whether to sell or hold.

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