Property can look inviting, but mind the traps

BUYING real estate is a big step, and with investment properties the complexity can increase dramatically.

Australia’s growing army of first-timers joining the ranks of two million-plus existing real estate investors can save thousands of dollars by understanding the potential traps.

Here are a few to watch out for:

Binnari Property managing director David Hancock said wealth seminars that used highpressure tactics were catching out plenty of new investors.

“A lot of people have realised later in life that they won’t be able to live off their super, a degree of panic sets in and they get sucked into these seminar based environments,” he said.

“Beware of sales agents that require you to sign a contract immediately, and do your research before making any decisions.”

Property investor, author and university lecturer Peter Koulizos said buying off the plan from developers was a potential trap.

“Generally in a development, it’s the developer that makes the money – not the investor,” he said.

Understanding the financial side of a property purchase is crucial. Problems can arise from something as simple as choosing a fixed interest loan instead of a variable rate loan.

“If you decide to sell out before the end of the term, you have penalties,” Mr Koulizos said.

Mr Hancock said many people signed contracts without understanding the mortgage process or even if their loan would be approved. “Prior to making any decisions or signing contracts, see a mortgage broker or bank for a finance assessment,” he said. “Keep in mind that you’re buying an investment, not a place to live,” Mr Hancock said. Investors should ignore their own tastes and instead focus on things such as natural colour patterns, functional layouts and things that appealed to a wider audience, he said.

“An investor may discover a hidden gem while on holiday and be convinced that others will fall as madly in love with it as they have. But buying blindly without understanding the seasonal nature of the area may negatively impact their rental income.”

Property investment is not a get-rich-quick scheme. Mr Hancock said fees, stamp duty and other taxes could easily erode a 10 per cent annual gain in a property’s value.

“Anyone who can hold a property for more than 10 years gives themselves an opportunity for significant capital growth and income growth,” he said.

If an area has an excess supply of investment properties, rental incomes get driven down, Mr Hancock said.

He said local property agents should have a good understanding of planning and supply issues.

“Pick up the phone and speak to local professionals.”

Mr Koulizos said property investments often struggled if they were too far from the city or too far from the sea, or were based on short-term trend such as a mining boom.