Buying property means you need to be on the lookout for hidden risks and gems to bag the perfect home. As well as sleuthing through the properties themselves, you also need to double-check all the paperwork and contracts carefully for unwanted additions or costly omissions.

If that wasn’t enough to navigate, along with budgets, and negotiating with lenders, you also need to know which common property ‚’advice’ is true and which are flawed.

Friends and family can offer well-meaning advice, but not all property information is accurate or helpful.

The most important thing with any property purchase, whether for occupancy or investment, is caution. Letting emotions like excitement or fear-of-missing-out cloud your judgment can stop you from asking important questions and seeing the issues that lay beneath the facade.

This blog aims to uncover some of the most popular property myths so you know to tread extra carefully as you continue your property hunt and avoid buyer remorse.

Common Property Myths

As popular as the following six property ‚’knowns’ are, they can be untruthful, misleading, and give you false confidence when it comes to choosing your property.

Knowing where to tread with caution will help you avoid making assumptions or charging in with emotion that might stop you from understanding what you are really buying into.

1. All property increases in value

A great property choice will grow in value, but that’s not to say that every property is a money maker.

There are different kinds of properties on the market, priced according to value and popularity. Even in a white-hot market, there are lemons that savvy buyers will avoid. Why? Because some properties won’t give back the same way others do as prices mature.

Location is a big factor that influences long-term value. Every Australian state, region, suburban, and town has its own unique market temperament and growth expectancy. Median house prices are a good way to get a read on the current market but it will take some more digging to determine if the infrastructure, jobs, community, transport, and the local lifestyle surrounding the property will be geared towards future demand.

One area to be really careful about is investment properties because capital gains and income are important factors in seeing quality return on interest. Make sure the rental prices in the location will outstrip your investment costs over time, particularly with changing interest rates. You also need to make sure the surrounding location has a lot on offer that renters will be willing to pay to be close to.

You also need to carefully evaluate how long you will need the property. Most property purchases increase with time, so a quicker sale (unless you are fixing and flipping) can end up costing you in selling fees, transfer costs, and interest that might eclipse any increase in value.

2. Inner-city properties are what you need for high capital gain

Capital gain is determined by the difference in the price you pay and the price you sell for. It’s not especially dependent on a particular location. Historically, yes, inner city profits have risen quickly as the city itself gets too crowded and the population spreads out. However, in changing climates like we are seeing now, if you buy extremely high and are forced to sell low, you end up with a capital loss. Or, like we are seeing just now, there is a surplus of inner-city apartments, it brings demand and prices down and is not great news financially for those looking to sell or rent.

Rather than target a location you think will earn you the biggest growth, look at your budget carefully, see what locations you can comfortably afford, and buy the property that best suits your personal needs.

3. You can save stamp duty buying off-the-plan

This is an old fact that is no longer true. Unfortunately, the idea is still kicking around that off-the-plan homes offer substantial land tax cuts. For example, the state of Victoria phased out most of its stamp duty concessions some time ago, but most people are still getting information from what is known about older policies.

There are still a lot of advantages to off-the-plan purchases – as well as some added risks – so it’s well worth doing your due diligence three times over to make sure you are working with a reputable building company that will deliver as promised.

Be sure to check the current off-the-plan incentives available in your state before you agree to buy, and check in again throughout your buying journey as the policies can be quick to change. 

If you are investing in property then stamp duty becomes a significant cost that needs to be carefully factored into your overall budget and required earnings, so knowing what you need to pay before you buy is critical.

4. You Need a 20% Deposit To Buy a House

With housing prices still so high (even considering the demand cuts with inflation and rising interest) saving the massive 20% for a home is out of reach for average working Australians.

Because of the hardships of gaining enough funds, there are multiple avenues for covering the required 20% deposit by the bank, without actually having it in your bank account.

If you are a first home buyer (even if you have owned but not lived in an investment property in the past) you can look at the various initiatives provided by the government to guarantee your loan under the first home owner guarantee. You will need to pay the full amount of the property costs over the course of your loan, but it gets you into a property now, not at some unknown time in the future.

Keep in mind that you need to save more than your deposit. Property purchases have multiple upfront costs that need to be paid either at the time of signing, settlement, or shortly after settlement. Make sure you factor in all these additional requirements and ready your savings for:

• Stamp duty
• Lenders fees
• Transfer tax
• Conveyancing fees
• 3rd party building and pest checks
• Moving costs
• Connection costs
• Repairs and upgrades

5. Don’t bother with Loan Pre-approval

This isn’t exactly false, you absolutely can put an offer on a property without pre-approval and if the perfect property comes up in your price range, it’s better to go in with a shot if you are sure it’s within your budget… however, if you have the chance to get pre-approval on your loan, it’s absolutely worth doing for a number of reasons:

1. It gets your finances in order early
2. You get familiar with the loan approval process
3. You get an accurate indication of the properties you can apply for within your budget
4. It makes your offer look more appealing to a seller
5. You know you can meet a particular lender’s criteria so you don’t need to shop around for the right fit under tight deadlines.

At the very least you should have begun talks with a bank or mortgage broker to understand your repayment obligations and forecast potential repayment changes if interest rates increase before you start looking for properties. Self-assessment calculators aren’t the best for getting a true indication of what you can borrow as there is a lot that isn’t factored in – as a ballpark estimate it’s okay. Still, you want to be having more professional lending conversations before you come to signing a contract to know exactly what you are up against.

Also, keep in mind that you will be required to jump through multiple hoops and provide certified proof to back up your details so going through the process when the pressure is off for preapproval does help to get your finances in order and start collecting the paperwork. That way if you need to submit again from scratch (which many lenders will ask you to do) you already know what’s involved and will have the majority of what you need in order and on hand.

Pre-approval doesn’t mean you can relax and put your feet up. Money moves quickly and your circumstances might change between you buying a property and settlement time. That means that lenders are going to have your finances under review right up until settlement day and can refuse your loan if they feel you are too much of a risk.

6. Fixed rates are best

It’s important to look at the options for both of the main interest term types and not just hone in on a fixed rate without considering the implications. There are pros and cons to both fixed and variable interest rates – otherwise, no one would bother taking out variable loans. Knowing the difference and what your options are is the only way to know for sure which option is right for your household income and long-term financial goals.

Crunch the numbers, play with interest rate variables and assess the costs both short and long term. As always read the fine print and make sure you ask a mortgage broker or lender about any terms or fees you don’t understand.

Buying property is exciting and nerve-wracking. Understanding your rights, financial obligations and the processes involved make a big difference to how you feel and how smoothly the purchase goes. Keep in mind that your hard-earned deposit might be lost if you sign a contract you can’t fulfill or no longer want. With so much at stake, it’s worth taking the time to check all your options, read the fine print, and talk to professionals about your options and obligations.

When it comes to your property terms and conditions we can help make sense of the jargon and clean up any inconsistencies that your sale contract might contain. Talk to our friendly, professional team about your property goals and what we can do to secure you a quality home.