Article By Christopher Melotti
Wednesday, October 23, 2019

Is the tale wagging the dog when it comes to property investment?

This is a gratuitous cute puppy photo

Australians have been investing in residential real estate for decades. And over this time many old wives’ tales about property investing have developed that still exist today.

However, factors such as technology and market shifts change the landscape and that’s when we need to realise that some of these tightly held perceptions aren’t always consistent with reality.

A savvy property investor takes the time to separate the real from the hearsay. So, to help, we’ve compiled the 6 most common misconceptions when buying and selling property.

A vintage version of the novel The Old Wives’ Tale by Arnold Bennet

We have 6 old wives’ tales to bust

Fallacy #1 Negative gearing is the only way

Negative gearing is such a popular strategy in Australia, with many believing it’s the only way to invest. However, positive gearing offers so many additional benefits, such as helping you earn a passive income and potentially increasing your returns.

Positive gearing is a better strategy if you are looking for return on your investment income.

Fallacy #2 Major cities offer the highest growth

While cities like Sydney and Melbourne have experienced periods of high capital growth over the years, the real estate property market is always changing.

But when you actually look at the numbers, it’s common for many regional areas that are far less known to outpace many of the major cities. It’s all about doing your research.

There are huge opportunities for high growth in regional areas across Australia.

The great Aussie BBQ has a lot to answer for when it comes to spreading rumours and old wives’ tales

Fallacy #3 It costs a lot of money to get into the property market

With the Median House Price in Sydney above $1 million since 2015, people wonder how they’ll ever be able to afford to get into the market. But with huge opportunities for rapid growth in regional areas, there are many far more affordable alternatives to help you get a foot into the property market.

Those regional areas can be a very low cost of entry into the Australian property market and represent high growth potential. The TUDI  Sold portfolio features a number of low cost options that performed exceptionally well including: Clarendon Vale with a Buy recommendation on Sept 17 of just $165k. It increased 30% in just 16 months. And a house in Moranbah in Queensland would have cost you a low $160k in Sept 17. It grew 25% to $200k by March 19.

The TUDI Sold portfolio showing the recommended buy and sell dates, with prices and growth

With an historically low interest rate, and deposits coming down to 5%, you can be in the market with a high growth property for under $10k.

Fallacy #4 Lag indicators are a good way to predict what will happen next

Just like with any type of investing, the first thing that any investment advisor will tell you is that what has come before doesn’t necessarily forecast what will happen next. So, just because one area, suburb or region has performed well recently, doesn’t mean it will simply continue indefinitely.

Past performance simply does not predict future performance

Fallacy #5 House prices double every eight or even ten years

This is deeply ingrained in Australia, but the data just does not support this at all. Loosely, overall the increase in house prices tend to closely follow the underlying inflation rate

Since 1903, there have been only 4 times when house prices doubled in 8  year blocks.

House prices do not double every 8 years

And in fact the data shows that most of a property’s price growth occurs in the first 24-36 months. So be ready to get in fast and out just as fast.

Fallacy #6 There is only one Sydney market

Again, with the media focusing so heavily on the highly volatile Sydney market, it’s easy to think of Sydney as one big collective. However, there are so many property markets within Sydney, and each of them perform differently.

Overall There are many property markets in Sydney – some on the way down, but there are always many on the way up too! It’s in knowing where and how to look.

Graph showing the 8 year blocks of time since 1903 when prices have doubled.

A September 2019 map of Sydney showing 3 year Median house price growth. Green suburbs are going up and red is down. As you can see there are a lot going up and a lot going down so a lot of different markets in Sydney.

What’s the common theme with all of these?

It comes down to having the right information! Data is the single determining factor between what is myth and what is reality.

While hunches, hearsay and widely held beliefs about the property market are common, real statistics and indicators based on up-to-date data are far superior to grow a profitable investment portfolio.

Instead of trusting those old wives’ tales, look to the data and look to AI to help you crunch it when it comes down to making clever decisions about selecting the right property in the ideal hotspot suburb.