With the current state of investing in Australia, there are a few misconceptions that can confuse even the smartest investor. Here are three commonly held misconceptions. Be careful you don’t fall for any of these!
Knowing how to navigate the property landscape is vital as an investor, so equipping yourself with the right information is a must, just as much as discarding the wrong information.
According to Dominique Grubisa, lawyer, educator and founder of the DG Institute, these are four of the biggest commonly believed misconceptions about investing in property, and why you shouldn’t believe in them:
1. Lowered interest rates can only be done through negotiation
Because of pressure from APRA and the royal commission into banking, banks have been cutting back the number of interest-only loans, Ms Grubisa said.
The problem with this is many people who have five-year interest-only loans will be unable to find comparable finance when their loans expire, which can lead to severe mortgage stress.
“To simply ease this stress, you can use an ATO approved product called loan controller. The product is suitable for people with a home loan and investment loan and enables them to lower the interest rate on their home loan (where repayments aren’t tax deductible) and raise it on their investment loan to increase the potential for negative gearing,” Ms Grubisa explained.
“This can potentially improve your financial position significantly.”
2. Increasing property value in a weak market? You’re dreaming!
The state of the Sydney and Melbourne markets at the moment may discourage some into thinking that value growth is a far-flung dream, but there are still plenty of opportunities to find, according to Ms Grubisa.
“There are plenty of great deals available for the taking in a weaker property market if you can source finance and creatively add value to property deals. One strategy is for developers to form joint ventures with property owners,” she said.
“The owner supplies the property while the developer supplies the expertise and sources finance for the construction phase. This lessens the risk and upfront capital for the developer while giving the owner a share of the development’s profits.
“Another smart tactic is to take out an option on a desirable property. This means they can buy the property at any time in an agreed period, but they don’t have to do until they have finance, approvals and investors lined up.”
3. The market’s too costly to enter right now
“While millennials are often criticised for spending too much on smashed avocado, the reality is it’s far harder for them to buy than it was for their parents and grandparents,” Ms Grubisa said.
“One novel way around this is crowdfunding of property. This trend involves a large group of people coming together and pooling their money to fund a real estate investment and then sharing the profits generated. They might get a cut of the rental income that comes in, or if the development is sold, a slice of the sale price.”
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