Real estate can be an excellent way to build wealth for your future. You have the opportunity to take advantage of any capital gains the property makes over time. If your property is rented out, you also have the advantage of earning rental income during your ownership to boost your cash flow.
The majority of property investors are responsible about completing their due diligence before buying anything. They'll check their numbers and forecasts with a good accountant and work out exactly how each property will contribute to their overall wealth creation strategy. Yet, there are others who believe that investing in real estate is a great way to get rich quickly. Instead of focusing on a long term strategy that is based on actual figures, they'll follow the latest fad in an effort to bypass the waiting game.
Here are 5 common fads that have ripped hundreds of thousands of dollars out of Australian investor's pockets over the years.
- Timeshare Apartments - Timeshare apartments sounded like an awesome way to share the ownership of a nice holiday rental apartment in a great location. Clever sales spiels hooked tens of thousands of Australians into the idea. In reality, many of those timeshare apartments were really just a nice way for developers to get rid of properties they couldn't sell anywhere else.
- Off-the-Plan High Rise Apartments - There's nothing wrong with buying a property off the plan. Some apartments are in great locations with plenty of potential for capital growth. However, there are lots of stories about investors losing hundreds of thousands of dollars on overpriced high rise apartments they purchased off the plan that ended up being valued significantly lower than the purchase price. If only some of those investors had paid a couple of hundred bucks for an independent valuation before signing an unconditional contract!
- Flipping for Profit - Buying a run-down property, spending a few bucks on renovations and on-selling the home for a profit seems like a quick and easy way to get rich with real estate. In reality, the majority of DIY renovators tend to spend far more money than they originally budgeted for, which eats into their profits. The other aspect many people forget is the steep fees involved when buying and selling real estate in Australia. When you buy, you're paying stamp duty on the purchase price. When you sell, you pay agent's fees and capital gains tax on any profits you made. In some cases, you may also end up with a GST bill too. By the time you put a newly-renovated property back on the marketing, your fees and taxes could eat into a large chunk of your profits, so it pays to do your homework carefully before jumping in.
- International Property - The last time the Australian property market went off the boil, the seminar circuit was flooded with property spruikers pushing the benefits of buying international property instead. It became fashionable to buy real estate in New Zealand to take advantage of paying no capital gains tax or in the United States for cheap properties advertised with spectacular rental returns in that particular get rich quick fad. While there's nothing wrong with buying property in overseas markets, following a fad on the hope of getting rich is more likely to land you a lemon instead of a cash-cow.
- SMSF - Buying a carefully-considered investment property in a self-managed super fund (SMSF) can have plenty of benefits for some people. After all, you suddenly have a tenant contributing rental income directly into your superannuation savings every week. However, a spate of dodgy property spruikers around the country has sparked the next property investment fad of regular mum-and-dad investors setting up expensive SMSFs in order to purchase ridiculously over-priced properties that send their retirement savings backwards by decades.
Real estate is not a get rich quick scheme. Those people who do well with property investment are those who complete their due diligence and buy an investment property in a good location with strong demand from tenants and future buyers, and has healthy prospects for capital growth over time.
Don't be tempted by the latest real estate fads. Understand why you're investing, set goals that suit your own future needs, and complete your own due diligence before signing any contracts.