Some of my mistakes – Michael Yardney

Doing good research about property investment is key to a strong portfolio. For dedicated investors, there is always room to grow and improve. It’s easy to find a lot of investment advice, but not all of it is good.

We spoke to Michael Yardney of Metropole Property Strategists. Michael has been investing in property since the Whitlam era and has seen it all. He shares 7 of the most common tips for property investors that should be ignored.

  1. 1. Buy locally so you can visit the property

The common wisdom is that tangible property is one that is worth investing in something that can be seen and can be driven past. For many investors, this is a comfort zone. “Using this as the basis of your investment strategy”, Michael says, “there are a lot of potential dangers. “There are lots of different markets around Australia. They all have different growth drivers, … growth rates, so investment based on location is important, but not necessarily your location.”

2. Look for high yield opportunities

Michael highlights two big schools for investment: “Some suggest strong cash flow … but in my mind, cash flow will never make you rich.”Of course, cash flow is important to keep you in the game, but investing in capital growth will get you out of the rate race. In my mind it’s capital the growth that you require to build your asset base, to build your net worth, and then you transition to the cash flow stage.”

3. Invest in the United States because it’s cheap

One that has been circulating for about 15 years, people have suggested investing overseas because of low prices. But Michael says there are also cheap prices in Australia. “There are always cheap properties out there”.

4. Only invest in properties you’d live in yourself.

Michael highlights this as a mistake many people fall for. “[You need to] take your emotions out of the equation by looking at properties that suit that particular market.”

This requires sound judgment, taking the property on its own merits. Take into consideration the area, the property, and the land; not just your own perspective.

“I’ve owned many well-performing properties”, he says, “but I wouldn’t live in them myself.”

5. Invest to take advantage of tax deductions.

There are many tax benefits that are commonly eschewed to be a reason to invest: depreciation, negative gearing, and rental guarantees. But Michael says this alone should not be a reason to invest. “You’re leaving yourself exposed to changes in the tax rules.” In truth, things like negative gearing make investing more attractive, but really, they should be the “cream on the top” of your portfolio. “Your property should be a growth asset”.

6. Buy a holiday home you can personally benefit from.

Making a property purchase, with the view that it is an investment as well as a holiday home, is a common excuse that many investors fall back on. True, there can be an appeal to make a purchase that serves a dual purpose. But therein lies the problem. “[A home with] mixed uses means it’s never going to be a particularly good holiday home and probably not a good investment.” Without it being one or the other, the home will likely become neither. Instead, Michael recommends having “a specific purpose for your property.” “Holiday locations don’t usually make good capital growth locations”, he adds.

7. Buy off the plan at today’s prices.

People will try to tell you to buy off the plan, hoping to make a profit. But this is not a sound strategy for investment. “Off-the-plan prices are not set by the market; they’re set by the developer.” Often these prices aren’t even set for the local market, but for what overseas buyers are willing to pay. Many investors fall into this trap, eventually selling the property for a loss. “The real test of a property’s value is when it comes onto the secondary market”, Michael says, adding “You can’t forecast future growth”.

Michael highlights that these errors are very common, and he’s made them himself: “We’re human and [we] all have emotions and needs. We’ve all made these mistakes. That’s why I know these lessons.” Hopefully, by recognising their own irrationality, investors can avoid such pitfalls for themselves.

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