It may seem strange for a buyers agent to say this, but you can lose money in property. And not just when the market slows down – but at any time.
There’s a report that comes out every three months by Corelogic and it’s called the “Pain & Gain Report”. That’s right, PAIN and gain. I’ve been reading these reports now for some years and what I’ve learnt is that close to 10% of properties in Australia sell at a loss every single quarter.
Here’s some of the general patterns I’ve seen:
- more apartments sell at a loss than houses, which is largely due to the high proportion of new apartments that lose money on resale,
- more investors sell at a loss than owner occupiers, which is possibly due to them being more sensitive to losses than owner occupiers,
- more regional properties sell at a loss than those in the city, which would have been exacerbated in recent years by crashes in mining towns.
Even if you sell for more than you paid, that doesn’t necessarily mean you made money. You need to subtract all your costs of ownership in order to determine whether or not you made a profit. And then, you need to think about what else your money could have been invested in over that period of time. Opportunity cost is the one of the biggest ways you can lose money on property.
Here are 7 ways you can lose money in property:
1) You buy off the plan.
People don’t realise that they are paying a premium for brand new and that a lack of scarcity and a full development pipeline will impact growth. Research has shown that more than 50% of new apartments bought and resold between 2011 & 2016 in Melbourne sold at a loss.
2) You pay too much at the peak of the market.
When the market is hot, buyers panic and often pay too much. If you overlook the negatives of a property in your hurry to get onto the market, you could end up buying a property that goes down in value, even while others go up.
3) You fail to act on good opportunities.
When the market slows down people say “we’ll wait to see if prices fall”. Savvy investors take advantage of a buyers market and have the confidence to secure quality property at reasonable prices. Some of those who bought just after the GFC reaped gains in a very short period of time.
4) You get conned by a property spruiker.
My heart breaks when I hear of people falling for the spin of “investment advisors” who are really just trying to sell you a get rich quick scheme. If you aren’t paying for advice, it’s probably a sales pitch. The developers and marketers will make the money, not you.
5) You chase quantity over quality.
It’s incredibly risky to try to buy too many, too fast. When positive cash flow is more important than capital growth you run the risk of buying underperforming assets. Your rent needs to be really high to compensate for the lack of capital growth.
6) Poor property choice.
Owner occupiers push up prices, as they are likely to be more emotional than investors. So, it stands to reason that a property that appeals to owner occupiers will be more popular than investor stock. If you buy a property that only appeals to investors, your opportunity for capital growth is limited.
7) The wrong location.
Some areas offer sustainable growth, others are up and coming, yet others are in various stages of the property cycle. Property investment is a long game and the choice of location needs to take into account your long term goals and appetite for risk. If you are looking for the next hotspot, you need to make sure you keep your eye on the location so you sell before the market peaks.
Now, I don’t want to scare you off buying property. I just want you to be aware of the risks so that you can take due care when you buy. My mission is to help you make good property decisions!
If you’d like to know how to choose a low risk property, click on the link below to download my free ebook HERE.
Published: 25 July 2018
DISCLAIMER: The tips included in this video/blogs are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.