The three main reasons behind re-sale losses: John McGrath

The three main reasons behind re-sale losses: John McGrath
The three main reasons behind re-sale losses: John McGrath

There’s generally more gain than pain in property, but John McGrath has reminded investors us that it’s possible to lose money if you make the wrong choices.  

He says the biggest contributing factors to re-sale losses in real estate are: 

1. Selling too soon after purchasing

For the ordinary buyer, real estate should always be a long-term play. Buy it, sit on it, maybe make some improvements along the way and don’t sell for at least 7-10 years. I say this because on average over the past century, Australian property values have pretty much doubled during this sort of timeframe. Given the costs of buying in, you don’t want to get out until you’ve made some really good money, so a good rule of thumb is a minimum 7-10 years because this is usually enough time for a full-growth cycle to occur. 

If you get really lucky and buy just before a boom, you might be able to sell in a shorter timeframe and still make great money, but even so, I still recommend holding for as long as you can to truly maximise your overall gain. 

2. Buying in second-tier locations

This can be avoided through rigorous research.

Don’t buy in towns with declining populations or areas that rely on just one or two major industries, particularly volatile industries such as mining and tourism. When it comes to choosing areas within a suburb, or particular streets, talk to agents and become an expert on your target neighbourhood to ensure you make the right purchasing decision.

3. Stretching your budget too far

When buying, don’t stretch your budget beyond what is reasonable for your circumstances. Look ahead 7-10 years. Can you afford the loan repayments at 7-8 percent interest (the long-term average)? Can you keep up the repayments if you lose your job or take time off to have a baby, for example? Do you have enough savings for other unexpected costs? You need a ‘yes’ answer to all these questions before you buy. If not, the likelihood is you’ll end up selling simply to liquidate funds and that will usually involve a loss.

"Real estate is an expensive asset class, but it’s also one of the safest and most reliable vehicles to wealth creation in Australia," he advised in his Switzer blog.

"If you keep it simple – buy good quality property in good quality locations and hold for the long term, you have every reason to expect a very positive outcome." 

Tags: 
Mcgrath Property investment

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