6 of the biggest property mistakes people have made in 2020
Property expert Lloyd Edge shares his insights on the property pitfalls buyers and owners have struggled with in this (unprecedented) year.
It's no doubt that 2020 has thrown many curveballs. When faced with some tough decisions, many Australians have fallen victim to property blunders, both as home owners and investors. As we're navigating uncharted territory and transitioning into recovery, here are the property mistakes you should be aware of in this "post-pandemic" time.
1. Only considering regional areas and ignoring capital city opportunities
Whether it was to avoid tough restrictions, fulfil a sea or tree change dream or for other financial reasons, a growing number of people have moved to regional towns, or thought about moving, since the start of the pandemic. This demand has driven prices in some areas of regional Australia to increase by nearly a third. Byron Bay has experienced a 29% increase in housing prices, Southern Grampians Shire has risen by 31% and Forbes by 22%.
Many people believe that they need to move to these areas because they are more affordable. But, as the regional price increases show, some regional centres have higher median prices than some capitals. There are a number of outer suburbs in capital cities that are very affordable. In Sydney, Campbelltown, Heathcote, Engadine, Riverwood, Bankstown, Condell Park, Oxley Park and Mount Druitt are great options. In Melbourne, watch out for Craigieburn, Melton, Cranbourne, Werribee and Carlton. Also, if you're craving a sea or tree change, look for national parks or undervalued beaches that are located in affordable capital areas.
2. Following the trends
If you invest where everyone else does, there is a risk you will see mediocre results. Think about it: if you're hearing about it, it's probably too late. Getting swept up in a trend to escape the city could cost you money, time and may not really suit your lifestyle.
Instead, use this time to take stock of your life and understand what you really want. Your own strategy and goals are so important when you're buying property, whether it's a new home or an investment, so make sure you don't just follow what your friends or neighbours are doing.
It's also important to do your own due diligence. Look at the facts and statistics available to you. Some valuable resources include CoreLogic, the Australian Bureau of Statistics, Real Estate Investor and SQM Research. You'll find many more insights and guides online or by talking to experts and asking questions. This approach allows you to take control of your own strategy, instead of relying on the "trend".
3. Waiting to see if the market stabilises or drops
At the beginning of COVID-19, experts predicted a major crash in the market, with some economists forecasting a 40% crash. This caused people to hold onto their mortgage deposits. Since late March, prices for the "five capitals" index are only down a relatively modest 2.6%. And in promising signs, the national home value index posted a 0.4% increase in October.
The property market is very resilient and it's important to seek individual advice or expertise, as everyone's situations and goals differ. Long-term investors know that you can't time the market and when you're ready to buy, you buy.
4. Not looking at non-traditional investment strategies
A buy and hold strategy, while popular, usually means you will need to wait until the property prices rise enough for you to make a decent profit. This can take time and it's not the only investment option.
Consider duplexing – through duplexing, I created enough equity to leave my full-time job as a music teacher. I believe duplexing can become the new "Great Australian Dream", as it's now so expensive for Aussies to own their quarter-acre block and big home. When you're creating these smaller units or smaller blocks, you're selling them to people who can afford to buy something smaller but can't afford the traditional home – at least not in their chosen location.
Another strategy is to renovate to add value to a property and achieve an "equity uplift". A cosmetic renovation, not a major gut-and-overhaul, will increase the amount of rent you earn and add significant value. As a basic guide, every $1 you spend on renovation should return $3 in value. Look at painting the property, replacing floor coverings or adding new blinds. And, of course, bathrooms and kitchens are the money makers.
Lastly, consider subdivision. Subdividing a block in a desirable suburb can provide an instant increase in equity and there are various strategies you can use. For example, you could sell the land, build and hold or build and sell. Whatever you choose, subdividing provides you with great scope and flexibility based on your investment or lifestyle goals.
5. Rushing to sell your investment or family home due to the concerns of a "crash"
Again, the fear-mongering of 2020 has scared some owners into selling their investment or family home. While property prices have decreased in some major areas of Australia, property is a long-term game and our economy and market will recover.
Also, be warned: although everyday life is starting to gradually return to normal, there is no doubt that other countries are still suffering through lockdowns and severe unemployment. As we don't know what is around the corner, investors may also be influenced by these factors and sell out of fear. Don't. Instead, seek advice and do your own research before you make any rash decisions.
6. Not thinking about property management and finances
Unfortunately, a number of property investors have lost significant income in 2020 due to reduced rent or no rent at all. While some tenants were genuinely affected by the pandemic, I have heard of a number of property managers getting "scared" and forcing their clients to reduce rent. This has long-term, negative ramifications so it's important to assess a tenant's financial situation and then take considered action.
The other side of this is that investors still have to pay their mortgages. So the financial pressures have led many landlords to consider relief options such as payment deferrals or interest-only payments. Some may have even considered dipping into their superannuation if the loss of income was significant. But all of these options come with risks and longer-term financial implications. Deferring payments, for example, means you may need to adjust your repayments once they resume. If you've made changes or are thinking about it now, make sure you do your research and ask lenders a lot of questions so that you know what's involved over the short and long term.
Lloyd Edge is a buyer's agent, property strategist and the director and founder of Aus Property Professionals. He is also the author of Positively Geared, a book that covers his property journey and offers simple steps to create a property portfolio that will future-proof your income, starting with a $40K deposit. Lloyd has been named a finalist in the 2020 Real Estate Business Awards for Buyer's Agent of the Year and the REINSW Awards.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
Images: Getty Images, supplied (Lloyd Edge)