Free Sample Report: CRITICAL INVESTMENT MISTAKES

The world of Australian real estate has been governed for years by one dominant strain of thought. i.e., in order to buy and hold property successfully, the average person must simply buy a property and hold it.

However, Australia's changing economy has meant that the "old" method of investing in real estate is no longer applicable in modern Australia. Investors can now obtain Australian mortgages using existing equity, have multi-currency loans, get professional property management, and buy in a variety of cities and price ranges, but the financial crisis has meant that timing and location have become critical.

Industry research has revealed that there are SEVERAL common errors many overseas investors make when investing in real esate in Australia. If handled correctly, these issues can have a dramatic impact on the investment's overall performance.

At first glance this seems logical of course. You try not to buy the "wrong" property. However, on further study, what can actually be defined as the "wrong" property?

After all, every week in Australia, thousands of homes, houses, and apartments are bought and sold for investment throughout Sydney, Melbourne, Brisbane and Perth. And they are all different. So what is the "wrong" (or the "right") type of property?

Research has shown that nearly 60 per cent of investors say they buy an Australian investment property that they could live in themselves

Some people buy only 2 bedroom apartments in Australia as "they are the best to rent out".

Well, let's look at that for a moment. While this argument may be sound, it's not always true. In a block of 200 apartments, of which there are 195 two bedders, and just 5 one bedroom units, the one-bedroom may well be the better investment because of the rarity factor.

But not if the adjoining two blocks are all one bedroom apartments! So hopefully you can see that there is in fact no "right" type of property -- but, it is important you buy for the right reasons.

One well known and extremely successful residential investor says he has "never seen" inside any of his rental properties before buying, claiming he would be so dismayed by the size, condition etc that he would never buy if he saw inside! He bases all his decisions on the figures, as well as other fundamentals of supply and demand, occupancy rates, ease of financing etc.

Research has shown that nearly 60 per cent of investors say they buy an Australian investment property that "they could live in themselves". Nearly twenty percent of investors select a property on the basis of "they may move into it in the future", while only 8 per cent say they bought it to make a capital gain!

Yet historically Australian homes in and around the capital cities has always moved up in value, giving investors capital growth. Yet only 8% of investors went into the property with this in mind.

These statistics raise two important issues all investors need to be aware of. Many investors are buying emotionally. They are buying Australian properties that they "could live in themselves". The rationalize that if they like it, "others will to".

Yet, they may be professionals in their late 40's, while their prospective tenants are young single yuppies. Buying a property they like, may not appeal to their future tenants.

Second, people invest because they love the property. They should invest because they love the prospects of the property achieving above average capital growth and rental income.

Are you buying for 3, 5 or a 20 year investment? Is your main aim high rental return, or capital growth?

The answers to these questions will determine to some extent the type of property you buy.

Everybody has heard of "Location Location Location" being all important for Australian real estate investors.

And there is nothing wrong if you base all your investment decisions just on this single criteria alone. You'll do very well. Sydney property, beach property, Perth property, and Brisbane real estate have all done very well over the years. However, Australia is changing. Investment real estate strategy needs to change also. The Australian Bureau of Statistics is forecasting an upper-level population of 28.2 million, and a lower level of 24.1 million by 2051.

Overseas migration into Australia has been averaging over 350,000 people annually. Over over the past 2 years between 2007 and 2008, over 870,000 new migrants arrived! If Australia's population grew in the 21st Century at the same 1.65% per annum rate it grew in the 20 Century, by 2100 the population would be 100 million.

All these people need to live somewhere! The three major states of NSW, Queensland and Victoria account for 77.5% of the population. Queensland is expected to overtake Victoria's population around the end of the first quarter of this century. West Australia is forecast to have the fastest growth over the next 5 years at 2.3% per annum, while South Australia (and Tasmania) are expected to have little, if any, growth. NSW should continue at around 1.2%. But Melbourne is still forecast to grow by up to one million more people in the next 30 years. Australian Society is not only ageing, but it is also becoming more diverse in attitude, behaviour and lifestyle, posing increasing challenges for investors.

There are over 1.5 million households in Australia with just one person.

Australia's National Housing Strategy identified that household structures were changing as a result of ageing, lifestyles and ever increasing incomes.

One and two person households are increasing inexorably in Australia, and now represent more than half of all households. There are over 1.5 million households in Australia with just one person.

And yet many investors will not buy one bedroom apartments. Experience teaches us these have outstanding occupancy rates with renters. And these may well prove to be the best investments in the future.

Many renters may well prefer a 2 bedroom flat, but can not afford it. They then look to a one bedroom flat, but because of the scarcity of these, end up having to share a 2 bedroom with someone else. Which may not be their preferred option. This is a very overlooked aspect by investors.

Families are changing too. Couples with children represent just over a third of all households.

All data points to the continuing demand for smaller properties closer into the city. The younger generation is flocking to be closer to the city. However, the traditional family unit until requires a "house with garden", and new estates catering to this market at affordable prices is booming.

Many investors make the mistake of assuming that "the city" means the Central Business District (CBD), when the inner area suburbs are in many cases more lively, affordable and popular. Many people are flocking to these trendy, "café style" suburbs near the CBD's, as opposed to living right in the city centre.

Then there is the "ripple effect". As prices go up in one area, the adjoining area is the next to benefit. Just because one area had good growth last year, don't assume it will have good growth next year. It may….. but it may make the adjoining area more affordable.

This applies city to city, as well as suburb to suburb. Don't base your investment decision on somewhere you enjoyed on holidays, reasoning that because you liked it "others will to".

You must try to see what type of property tenants are demanding, what is the occupancy rate, and what are the future trends.

A one bedroom apartment located in a prime inner suburb may not be what "you would live in", but could well prove to be a better investment than a mansion until in a country town. Be careful of your own preconceived ideas of what people want. A family home in a middle distance suburb may in fact be the last place you would live in, but thousands of people are desperate to get into these.

Don't base your investment decision on somewhere you enjoyed on holidays, reasoning that because you liked it others will too

Perhaps not surprisingly, this is a very common Australian real estate error.......

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