We’ve spent years advising property investors and we think there are four common ways that an investor will pay when it comes to buying an investment property.
As an investor, you have to ask yourself which payment method best suits your personal circumstances.
While only you can decide which option is best for you, we reckon we can predict which method you’re most likely to favour.
1. Buying the wrong asset
Have you purchased the right property? Picture: realestate.com.au
The fact that we all live in a property – whether through ownership or as a tenant – can lead us to believe that we automatically know the market through familiarity with the product.
But interestingly, investors are more likely than owner-occupiers to sell at a loss.
It’s not uncommon for us to see an investor with only 3-4% compounding growth performance in their portfolio over time, whilst historically it’s been relatively straightforward to achieve 7% or more in the same time frame – if you know what you’re doing.
So the key here is to know the difference between a property that is investment grade versus simply investment stock.
Other factors that can lead to buying the wrong asset include investors becoming impatient and experiencing Fear of Missing Out. This is when an investor will buy anything just to get into the market rather than purchasing the right property.
2. Procrastination
Waiting can be costly. Picture: realestate.com.au
The market waits for no one. It will go up or down with or without you as an investor.
Generally speaking, the longer you wait to buy the higher the price, and the more your gains are foiled.
Here are the most common reasons we’ve heard over the years from those waiting for the right time:
‘I should’ve bought 10 years ago’,
‘I’ll just wait and see what the government does’,
‘I’ve been meaning to get to this’,
‘I’m too late to get into the market’.
Who hasn’t wrestled with similar thoughts?
We can all relate to the fear and uncertainty, but procrastination is by far the most expensive way you’ll pay as an investor.
It’s largely a hidden cost as it’s about opportunity cost more than pain in your pocket yet it can have a huge impact on your overall wealth accumulation.
The key is waiting for the right property but not for too long.
3. Paying too much
You need to make sure you don’t pay too much for the property. Picture: realestate.com.au
Most buyers – both investors and owner occupiers- fear paying way too much or even more than they should have for a property.
We all know agents work for vendors and their job is to get buyers to pay top dollar.
So in some ways, this fear is justified.
But property is a forgiving asset and you can mitigate this risk largely by ensuring you buy the right property and take a long-term view.
Need more investing info? Here’s a look at other Property Couch videos:
4. Professional advice
The right advice will help you avoid paying too much for the property. Picture: realestate.com.au
An experienced independent advisor will ensure you won’t buy the wrong asset, wait too long or pay too much.
Whilst it may seem like you’re paying more upfront, having professional advice in the early stages, will ensure that the benefit of compounding will see you come out financially on top in the long run.
Remember, the price is what you pay but the value is what you get.
For more from The Property Couch, visit thepropertycouch.com.au or subscribe to The Property Couch podcast, available on iTunes or Android.
The Property Couch provides a general opinion based on current market conditions. These opinions should not be treated as investment advice. Always obtain advice based on your individual circumstances.
