The advice holding first-time investors back
Along with rising house prices and dwindling serviceability, first-time investors often face generalised advice or suggestions from previous generations that no longer apply.
In a recent episode of The Smart Property Investment Show, Buyers Edge Property director, Jason Titus, said that the property market had changed significantly, requiring a change of tactic for buyers today.
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According to Titus, long-term strategising based on individual capabilities, income and ambitions will position buyers and investors to succeed in their property goals better than broad, generalised advice.
“It’s important to look at people’s situations, and what their goal is, and all that stuff,” he said.
Titus said one of the biggest misconceptions was that investors should buy somewhere close to where they currently lived and could easily visit.
“Like, ‘we live in Cronulla – buy a unit in Cronulla, buy something that you can go and see’.”
He said the close proximity notion could cause investors to miss out on good opportunities, saying they needed to consider overall values.
Additionally, he criticised the strategy of some amateur investors conducting their own renovations to try to maximise the value of their home.
“When they buy a fixer-upper and renovate it. I mean, you’ve never bought a property in your life – you’re going to go and renovate the house on the weekend?”
“You know you’re going to do a bad job – you don’t even know what the market wants to see.”
Further, Titus said that, for many people, buying a principal place of residence (PPOR) as their first property was not necessarily feasible anymore, given the increasing affordability pressures.
He said, unless a buyer was earning an extremely high income, it didn’t make sense for their initial purchase to be their home, rather than an investment, as it was best to try to create wealth first.
“You’re jumping straight into your principal place of residence – I don’t see why you would.”
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He said the idea that “rent money is dead money” gave a limited view in today’s market, as it was based on the idea that, previously, the family home or principal place of residence could create wealth.
“It’s not anymore. If you want to get to that, you’ve got to build to that. You can’t just get straight into it.”
Titus said it worked for the previous generations as they could buy properties at relatively low prices, before the homes increased dramatically in value, and they were able to pay down their mortgages over time.
“Now they’ve got equity coming out their ears, and they’ve got half decent businesses, and it’s like, okay, how do we leverage this to something here?”
Titus said that these days, a household income of $200,000–$250,000 can create a false sense of security as it is enough to make a living, but for some people, not enough to create real wealth with property.
“It’s crazy to think. When did a quarter of a million dollars’ household income become bad?”
Garman said the worst advice he had heard in his property journey from older generations was that he had to “just get on the ladder”.
He argued that it was broad advice that could lead first property buyers astray and cause them to make bad decisions.
Additionally, he noted many first home buyers who had participated in the government’s scheme could now face falling into negative equity, whereas purchasing in the early 2000’s was much easier for first-timers.
“Do not do that because the chances are, if you’re in Sydney, or if you’re in a certain area of Sydney, you’re going to buy a bad asset, and you might be stuck for life like all those five per cent deposit people.”
