Whilst it’s easy to get caught up in the hype, it’s important to remember that property investment, like all investments, is not risk-free, and it’s not for the lazy investor. Like all investment options, it is imperative that an investor knows their product, their market, and has a keen eye on the future to develop a solid grasp of expected returns. But property investing is not for everyone. Here’s six type of investors who should avoid property. 

1. The investor who wants a quick win. Unlike shares, where money can be made and lost in a matter of seconds, property investing comes with lengthy transactional lead times and costs, meaning you want to be in it for the long run. It’s not a game you want to be jumping in and out of, and it’s not a game you can bet against. But for those who understand the potential of leveraged investment of physical assets in diminishing supply, property offers a unique opportunity to supercharge your retirement fund. 

2. An investor with a couple of thousand dollars. Some lenders will lend to people with a couple of thousand dollars, but the associated costs of Lenders Mortgage Insurance, stamp duty and other fees can put you seriously behind the eight-ball before you have even started. Unless you are purchasing to live in the property, sometimes it is better to dip your toe in the more liquid share market before taking on such a huge debt straight off the bat. 

3. The investor who’s buying because they fear missing the cycle. These are generally the people that buy high and sell low; forever burned by the market.  In extremely fervent and heated markets, it’s easy to get a bit carried away and pay more than the house was ever worth. So much of the equity in your property isn’t just made over time, but on the great deal, you negotiate at purchase. 

4. The fourth type of investor who should avoid property is the one who doesn’t have a clue where his current finances are going, let along those of a new debt. While you may have the income and equity to jump in the market today, if you are unaware of your monthly budget, it can be very risky to throw in a big new obligation without understanding the full potential of where that could leave you if things go awry.  It will also leave you vulnerable to being slow to react when a tenant may not be paying their rent and can sometimes be too slow to reverse the pain.

5. An investor who’s done no research and doesn’t know their product.  So often people come to me showing me flyers from spruikers based interstate, offering big numbers and returns. And when I ask them where the property is, or which suburb the property is in, they couldn’t tell me.  They’ve been sold on the idea of property investment, without understanding the critical factors that will influence the performance of the asset they are trying to buy.  If you don’t know the suburb, if you don’t know the demographic, if you don’t know the local schools and sporting team, you should not be buying that investment property. 

6.  The last person who shouldn’t be investing in property is the one who merely wants to invest to reduce their tax bill at the end of the year. Negative gearing and a tax refund only comes to you on money you’ve lost; it’s a safety net.  In no way is it an income-generating machine. So while it’s nice to have a bigger tax return than usual it’s imperative to make sure all the numbers stack up on the capital growth and cashflow side before you simply buy a place for the couple of thousands of dollars a year in tax refunds.

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