Most Australians with a sound income are in a position to buy property, however many avoid taking the leap to secure their financial future. With property consistently recognised as the major source of wealth creation for Australians and a range of investment options for all kinds of budgets and circumstances it is hard to believe why so many shy away from this investment strategy.
Here are some of the key reasons that we regularly see on why people avoid property as an investment strategy.
1. Fear of making a bad decision
Property investment deals with large sums of money, so naturally people want to make the best decision. The weight of this can sometimes hold investors back resulting in “analysis paralysis”. Too much information, some of it confusing or contradictory can make it very difficult to get to a decision. On top of this negative comments by friends, neighbours and headlines in the press can cause a potential investor to shy away from their would be investment.
The solution – It is important to form a clear property investment strategy from the get-go on how you will make money from property and when, how much and where you will invest. This will help to objectively analyse all the options and facilitate better decision making.
2. Fear of taking on debt
Many would be investors have a fear of getting into more debt and the concept that it will cripple them financially. They think that by buying property their finances will become more risky, but ironically the opposite is true. Buying well located property will give you less risk, because you are setting yourself up for financial security.
The solution – Would be investors with fear on taking on debt should educate themselves about what property investment involves and the ideal scenario for their financial situation. They should consider where they stand now and the steps needed to reach their financial goals.
3. High personal debts
There are many would be investors who would like to buy investment property but are restricted by their financial position.
Personal debts such as credit cards, personal loans and car loans can chew through your borrowing power and make banks reluctant to lend to you, especially if you have trouble staying on top of all your repayments.
These debts are classified as bad debts and are non-deductible, on the other hand good debt (such as an investment property loan) is tax efficient and ensure that your assets are working hard for you.
The solution – Potential investors should be well informed on their personal finances and have a firm plan in place for the rapid reduction of them. Comfortable debt levels are crucial for holding and investing.
4. An unsupportive partner
We often see in a relationship that one partner is keen to start investing in property but the other is not quite on the same page. The partner may be asking how are we going to afford it, but they do not realise that they could buy a cash flow positive property that will put money back into their bank account each month.
The solution – This is where education and research is crucial, as well as having the right financial and investment advice. It is important for both partners to be on the same journey together and receive sound advice to ease their concerns. This advice will help both parties map what they want to achieve and see the big picture of where the investment strategy can take them.
5. Low borrowing power
A potential investor may have spoken to their accountant who has told them their serviceability is low or have gone to one bank and told they can only borrow $200,000. But, in reality they have not explored all of the options and could have many more borrowing options available to them.
The solution – A good mortgage broker can look at individual financial circumstances and opportunities to leverage further. You could consider converting to interest only for your borrowing or consolidating and/or reducing your credit card limits.
These are the main reasons why people avoid getting staring in property investment. We see many people each day who overcome these reasons and begin their journey to financial independence.
Property investment offers an excellent vehicle for wealth creation and some markets, including Brisbane and Sydney showing early signs of improvement. Are you going to miss this next growth phase?