5 Reasons Why You Shouldn’t Invest in Property
With the interest rate being so low and some really strong market in Melbourne and Sydney, it’s not unusual for people to be really excited with the idea of investing in property. Well, I’m actually going to give you five reasons you shouldn’t invest in property right now and the first one is the Fear of Missing Out (FOMO). Now, the obvious example of that is in Sydney. It’s going up so incredibly strongly that anyone who lives there just thinks, “Well, I feel like I’m missing out if I don’t buy an investment property now. I should just buy one.” For me that’s a very very good reason why you shouldn’t invest in property cause that’s a really bad idea. Also, when you are not in such strong market like Sydney, you could be in Perth or Adelaide and you are at a barbeque and some friends of yours actually got two or three investment properties and you’re feeling like you’re missing out as well. You are thinking, “I better go home and chat with my partner and see if it’s a good idea to start investing”. So my number 1 reason why you shouldn’t invest in property is FOMO because its not a good reason you should base on in the first place.
My second reason is not having your own house in order currently and by that I mean if you don’t know where your money goes under your own roof, chances are adding another layer of complexity with an investment property is only going to make things worse. So unless you know exactly where your money is, how much surplus you have left at the end of the month, where your money is allocated to and if in fact you do have any money left at the end of the month.
Until you know that I don’t think you should really be considering buying an investment property at all.
The third reason why I think you shouldn’t buy an investment property is when you don’t know what is a LVR or a strata title is. Chances are you should ignore it right now and get educated. It’s not just a matter of buying a property cause it’s something that you lived in. There’s so many things that you need to consider outside the bricks and mortar. So education is really crucial. It’s kind of a difference between knowledge and wisdom. Because knowledge is knowing its a one way street but wisdom is knowing that you should check anyway and with so much information out there about investing in property, it’s really really hard to decipher what you should take on board and what you should actually discount.
The fourth reason why I think you shouldn’t be buying an investment property is you are afraid of debt. And that’s different with someone who is a little bit nervous about debt but if you are absolutely fearful of debt, you shouldn’t be considering to buy an investment property at all because unless you’ve inherited money or you’ve just had a big lotto win, chances are you are going to have to use leverage. You are going to have to borrow money to invest in property and if you are fearful of debt, that’s going to create a whole lot of anxiety and a whole lot of fear that you don’t really need. Ultimately, leverage is the reason why you get into the property in the first place because you can use a small amount of money and go into the bank, some lending institution or your mortgage broker to give you a larger amount of money so you can control a bigger asset and get a bigger return on the asset whilst not having to put all your own cash in. So leverage is a big thing but if you are afraid of debt, that’s why you shouldn’t.
And my fifth reason on why you shouldn’t invest in property is because of tax reason. Quite often people get seduced by the fact that, “Geez, I’m paying so much tax. If I buy an investment property I’ll get all these tax money back.” But here’s the facts, when you get your refund back you don’t see it at all. It’s not as if you are going on a big shopping spree where you can actually go and spend the money for yourself. You might be getting a dollar back in tax but you might be spending a dollar and ten in the property for every dollar that you get back. So ultimately you’re actually not seeing the money. So it should be seen as a cream rather than the core reason to buy an investment property.
Make no mistake, I’m a very very strong advocate on investing in property. I think it’s a great way to create a passive income and more financial freedom and whatever it is that you’re looking for in terms of your financial goals but it shouldn’t be entered into lightly. If any of those five reasons apply to you, chances are you probably aren’t ready to buy an investment property yet.