The world is full of advice on how best to invest in property but many supposed nuggets of wisdom are merely myths that need debunking.

Investing in property offers investors a chance to build wealth; nevertheless, it’s crucial to be cautious because misleading and deceptive information is prevalent, potentially leading investors astray.

Common myths and potentially dangerous advice on property investment abound, and we point out five of the most prevalent misconceptions

Myth 1: Only wealthy people can invest in property 

Having cash is helpful when purchasing an investment property but it’s not the be-all and end-all. Contrary to popular belief, most Australian property investors are ‘mum and dad’ investors: non-professional, small-scale investors.

Most investors own just one investment property.

Purchasing an investment property isn’t exclusive to having accessible cash flow; investors can use the equity within their home and refinance their mortgage.

Another strategy is rentvesting, which is a home-owning strategy where you rent a property to live in that’s right for your lifestyle, while you own an investment property that’s right for your budget. 

Rentvesting is increasing in popularity due to its accessibility and flexibility for first home buyers.

Myth 2: Investors should only buy new 

The notion that tenants exclusively prefer newly built properties and that older ones do not qualify for tax deductions is inaccurate. Older properties not only make attractive rental properties but also yield lucrative tax deductions.

Frequently, older properties come with a more budget-friendly price tag, offer greater potential for value enhancement, and are more readily accessible for purchase.

These properties may also currently house a long-term reliable tenant that the new owner may choose to retain. 

Myth 3: It’s best to limit purchases to familiar locations

Investors shouldn’t succumb to the notion that only familiar areas are worth buying in. 

Acquiring an investment property requires a distinct approach from buying a family residence.

When evaluating potential locations, it’s crucial to factor in elements like population and infrastructure growth, proximity to public transport and shopping hubs, as well as rental demand.

After researching these factors, the information found will often help investors decide on the type of property, tenant and location they’re after.

Myth 4: Property investment guarantees quick wealth accumulation

Investing in property has the potential to build wealth and create a strong long-term financial plan, however, it’s not guaranteed.

No investment scenario is a guaranteed way to get rich, regardless of the ‘foolproof’ or ‘never failing’ method often promised to investors. 

Investing in property is typically a long-term strategy that involves experiencing and preparing for the ups and downs of the property cycle.

Investors must be mindful of their risk tolerance; consulting an accountant or financial adviser is the safest way to maintain these boundaries. 

Myth 5: Don’t worry about claiming depreciation; it only raises your property’s cost base

Since property investment is a long-term strategy, investors should experience the benefits throughout the journey, rather than solely relying on them at the time of sale.

Claiming depreciation deductions can reduce a property’s cost base, however, claiming depreciation each year will improve both the investor’s annual cash flow and overall tax outcome. It’s also worth mentioning that a capital gain is never guaranteed, so, it’s best to claim the deductions along the way as a reliable way to optimise cash flow. 

This is general advice only. When researching or acquiring advice it’s important to ensure sources and professionals are appropriately accredited, failing to do so can result in dangerous and financially unstable outcomes. 

Property investors have much to consider when assessing the property market but four key factors stand out heading into 2024.

Migrants accounted for 78 per cent of Australia’s population growth in 2022, highlighting the important role international migration plays in the property market. (Image source: Shutterstock.com)

Successful property investing doesn’t just involve recognising a well-priced property or a prime location.

As investors, we also need to be mindful of broader factors that can play a role in the performance of our residential markets.

Below, I discuss four key macro-factors that are crucial in assessing a property market’s full potential.

Economic performance

A country’s overall economic performance has a crucial flow-on effect for residential property values.

The health of our economy determines job opportunities, wage growth and employment levels. This in turn shapes consumer sentiment and disposable incomes – the funds people have to buy, rent or invest in property.

The upshot is that it’s important to stay up to speed with the drivers of our economy.

Right now, we’re hearing a lot about how the world needs to transition to renewable energy and energy storage capacity. Australia is well-placed to help the world do this, particularly the more resource-rich states.

The International Energy Agency, for instance, has forecast that demand for lithium will increase as much as 42-fold by 2040. Australia has one of the world’s biggest lithium reserves, with most of its production coming from mines in Western Australia.

Other minerals such as cobalt, copper, and nickel are also expected to experience rapidly rising demand.

That’s good news for the mining sector – and the broader economy in general.

A growing economy translates to rising incomes, meaning more people investing in housing, which underpins value growth.

Population growth

Population growth is essential for a healthy property market. New residents mean more demand for housing, which supports rising values.

ABS data shows our population in Australia grew by 496,800 people (1.9 per cent) in 2022.

Migrants accounted for 78 per cent of this growth, highlighting the important role international migration plays in the property market.

Of course, new migrants do not disperse evenly around the nation. They tend to be attracted to areas with plenty of jobs, affordable housing and a quality lifestyle.

As well as looking at the overall trends in population growth, it’s therefore important to consider which specific areas are set to benefit from these demographic shifts.

Interest rates

Interest rates have an obvious correlation with demand in the residential market, in that they directly impact a borrower’s ability to purchase property.

However, much like population trends, rising interest rates don’t impact all Australians equally.

One factor investors often overlook when analysing the impact of rising rates is the significance of demographic composition.

Renters and young homeowners, who are likely to have large mortgages, tend to be impacted more by interest rate rises than older homeowners with smaller home loans (and in many cases, savings that are actually benefiting from interest rate movements).

In these cases, interest rates can have little to no impact on home-buying decisions.

Understanding a suburb’s demographics can help investors predict how rate movements are likely to affect local property values. A rate hike can hurt values in some locations (such as first home buyer areas), while having negligible impact in others.

Government policies

Changes to our tax regime or initiatives that impact housing demand or supply can have a profound impact on property values and investment opportunities.

However, this is an area where governments tend to tread carefully.

In 2019, former Opposition leader Bill Shorten went to the polls vowing to scrap negative gearing on certain properties. A resounding election defeat saw Labor hastily dump these plans.

Nonetheless, it pays to stay abreast of what’s happening in politics.

The future of the Australia Future Housing Fund, the government’s key policy to address the housing supply shortage,  hangs in the balance.

Right now, the Federal Senate is conducting an inquiry into the rental crisis, with the terms of reference firmly centred around renters’ rights.

Yet we know that 2.2 million family investors supply private rental homes Australia-wide.

For these mum and dad investors, the prospect of rent freezes or rent controls is genuinely worrying.

Given that only 3 per cent of tenants rent from a government housing authority, according to the Real Estate Institute of Australia, it’s a no-brainer that we need more private investors to support the rental market – not less. It would, in my view, be a much wiser step to consider initiatives aimed at boosting supply.

The bottom line

As you can see, there are many broader macro-factors at play in shaping a property market’s potential. However, as with most market drivers, these don’t impact all areas and markets equally.

Knowing how to critically apply these factors alongside the right data can be crucial in pinpointing which specific areas are set to benefit from these trends – and which are set to lose out.