9 Reasons You Shouldn't Buy an Investment Property
Leading into the weekend I listened today to a great podcast by well respected Property Developer and Investing coach - Michael Yardney who was talking about why NOT to buy an investment property, or specifically why it may not be right for YOU.
A quick summary of the take home messages and my thoughts are below:
1. To save Tax
While this is great, when it works for you, you should not purposely buy a property that loses you money just so you can claim a tax deduction. There are far better things you can do.
2. Fear of missing out
Just because you have to act now! There will always be opportunities somewhere and rarely is an opportunity truly so unique that if you need to act whether you're ready or not.
3. Get rich quick
While we all see stories in the media of people retiring after spending only 3 years building a property portfolio, and while these stories are factual for that person they've often had the benefit of a strong rising market and capitalised on rapid growth of at least one property they already owned. It's not the norm. Property is generally a steady growth game.
4. You don't understand how property investing works
I'd add to this one and say, if you're not patient. You need to be able to understand the basic fundamentals of property investing and what your goal is and why you're doing certain things. Never be on autopilot, it's your life, your money and your goals. Have a clear understanding of what you're doing and why.
5. You can't currently spend less than you earn
This one really needs to be sorted before you start making any large purchasing decisions involving taking on substantial debt, I think it's self explanatory.
6. Emotive reason for purchase - e.g. future holiday home
It's the classic, lets buy a unit on the gold coast so we can holiday there. While for some people it may work, it's generally not a great strategy or reason for buying a property. Rarely is a strong investment property ideally located for you to holiday at.
7. Finances not currently in order
Again this is another clear sensible thing to have sorted. If you're still paying off the personal loan for the holiday from 2 years ago and have 4 or 5 store cards and a few credit cards with debt on them. Sort that first.
8. Can't afford an investment grade property
I agree in part with Michael on this one. Don't buy something simply because you can afford it. That's not to say that only expensive properties are 'good' ones. It depends on you and your goals and your portfolio as to what's right for you. One size does not fit all.
9. You are trying to time the market
This is like playing the share market. Buy now, it's a rising market have a plan to get out in 8 months as the market will have moved from 7 O'clock to 10 O'clock on the property clock (if you have no idea what I'm talking about don't worry). This isn't a great strategy. I've seen people do this and get in with only enough funds to cover the period they intend to own the property for and if the market doesn't go up (which for some it didn't) then you're in a tight spot.