If you’re thinking about buying an investment property this year, then make sure you’re doing it for the right reasons.
“While property investment is an excellent vehicle for growing lasting wealth, occasionally it’s the wrong fit for particular people,” warns Michael Yardney, director of Metropole property strategists.
“In fact, sometimes there are some very legitimate reasons why you just shouldn’t do it.”
Here are reasons you shouldn’t buy an investment property:
1. You’re buying it to pay less tax
“Negative gearing is not an investment strategy – it’s a short-term funding strategy that makes sense only when used to purchase high-capital-growth investment-grade properties,” says Yardney.
2. You’re buying because you’re disappointed you’ve missed the recent property boom
FOMO (fear of missing out) is a powerful emotion but can lead to bad judgement.
Yardney says this is the time in the property cycle when you need to be more cautious in your investing decisions rather than over-optimistic.
3. You want to get rich quick
“I’ve found it takes average property investors 30 years to become financially free,” says Yardney. “Often it takes 10 years to learn what not to do. Then it takes three to five years to undo the mistakes of the first decade, often selling off underperforming properties.
Then it takes two good property cycles to build a substantial asset base of investment-grade properties.”
4. Your finances are not in order
“To get into property you should have a stable job, profession or business with a steady income and need to be attractive to the banks so they lend you money, plus you should have sufficient stashed away in a financial buffer to see you through the inevitable rainy days ahead,” says Yardney.
It’s also important that you know how to budget, spend less than you earn, and save and are good at handling debt.
5. You don’t have enough money
“If you can’t afford an investment-grade property, either because you haven’t saved a sufficient deposit or you can’t service the loan repayments, then rather than buying a secondary property, in my mind it’s better that you wait and buy an investment-grade property,” says Yardney.