Myths in the property industry

LMI has massive benefits to many investors starting to build their portfolio. It allows quicker expansion of the base via smaller deposits. Huge benefits for many which can allow earlier entry to capitalise on growth. Especially those just just starting out and wanting to expand rapidly.

Anyone suggesting it has 'zero' benefits its clueless imo.

 

Buyers are liars ...

 

"real estate agents never lie"

 

I don't think I've ever heard that one ....

 

You left out the important details.

 

Yes, and farmland makes a poor investment doesn't it
Commercial property investment is highly risky I heard once

 

And even if you have the cash, sometimes it’s good just to hold onto that extra capital for the liquidity. If I have an extra $100k in the bank due to LMI, sure LMI technically doesn’t protect me, but I feel pretty damn protected with an extra $100k there in case I lose my job or get hit by a bus.

 

Interest rates will rise in 2024.

 

Nope. 2022

 

We're talking myths here, that's the new reality.

 

And more to come….

 

• 80% LVR borrowing. Loads of example when its less...Perhaps more. Income to service is a factor.
• LMI is a cheap way to achieve goals. That is partly true. However I have also seen many instances where someone has paid $11K to acess $60K equity. The property they could afford was a shocker and equity growth is poor so its poorly invested.
• Tax deductions and refunds pay for the property.
• I can buy at auction and the lender will lend 80%
• I can bid at auction and lay down 5%
• If I cant settle a purchase I may just lose my deposit
• Positive geared is when the rent exceeds interest
• Cashflow positive is when rent less tax deductions is still positive.
• All debt for IPs is good debt
• Offsets are always good. Some people may barely use benefits ia offset and pay a higher rate for it.
• Redraw and offsets are almost the same thing
• I can borrow the equity on a property and its tax deductible.
• Maximise loans to maximise deductions (it actually maximises debt if looked at in isolation). Debt recycling could be a LIMITED expection. I have also seen older investors parlay and defer debt on IPs so at retirement they are hugely indebted and yes its all deductible but its still debt. This strategy then encourages CGT disposals which are costly. Debt always reduces equity. Paying off $1 of debt improves equity by $1
• Using a buyers agent or property spuiker who sells property for a living will ensure I buy the right property. I have NEVER seen a property spruiker say its not the time to buy and you shouldnt buy any more.
• Not using a BA saves money
• Not using a PM will save me money.
• Tax is easy. I do it myself.
• I can list it on airbnb etc and make more money and have no issues
• All agents are liars. This is a very poor view of real estate professionals who have worked hard in the past X years to drive prices UP. They dont give away things they are selling.
• I must have saved 20% plus to buy property. Reality is you can often buy further property without any savings in a bank account.
• "I have a portfolio worth $X". Almost every instance you hear that its a complete lie. Their property may well be worth $X but they dont allow for debt. Net equity is far more meaningful. Often these people also miscount jointly owned so they count 100% when their spouse owns 50%
• Cheap regional property stories...Its often highly illiquid and is only demanded in boom times. Can also be exposed to things like commodity busts and drought etc eg Shepparton & the cannery woes, grape glut, floods, fire.
• Buying cheap property in boom times. Often like regional property can be poorly demanded and difficult to sell in tight times. Price then dictates sale. Regional bust may see rents plummte eg Pt Hedland when BHP went FIFO.
• All falshy real estate agents are successful. The car is leased and is as good as the sales that occur. When things tighten many jobs go.
• OTP sales....They almost could have book written.
  • You can drop a deposit and sell before it settles or soon after for a profit
  • Its brand new, what could go wrong ?
  • I can cancel and get my deposit back...(what do you mean they may also sue me ?)
  • I dont need to a do defects inspection for a new build
  • I can later borrow 80%....However lenders may not like the postcode and may see oversupply and trim the LVR or specific value.
  • If the build has defects I can rescind a contract. It may not be that simple. You may face years of delays and issues
• Always buy house and land as land appreciates and building dont. Buying the wrong house and land may be far worse then a decent apartment.

 

Good post, Paul.

Interestingly many points mentioned in your post can work with the disclaimer being:
*In certain economic climates (which you’ve mentioned with regional properties)
*For some people’s circumstances but not others, whether that be skill level, or financial means

 

“Don’t buy in Mt Druitt. You’ll lose money there.”

lol the only you might lose is some garden hose.

 

House and Land never makes money...

 

Yeah hear a lot of that for newbuild estates. I know several who bought land unreg land in the past few years who made substantial value before construction even started and now they have several hundred grand of equity. Just the replacement value of the dwelling has risen sharply.

A unique benefit of a new build can be large depreciation deductions for $0 outlay (eg $15K PLUS) but one downside to a new build can be inability to claim interest deductions until construct is fully completed and ready to tenant.

 

@Westminster - the real deal.


Oops, not every myth is a Myf.