Buying the worst house on the best street is a classic real estate adage, but it could be among the worst investment advice for those who don’t do their due diligence.
Crumbling houses being marketed as a “renovator’s delight” or a “blank canvas” may appear to be a bargain or an entry in to the area, but it might also require a buyer with deep pockets to do a thorough update.
“It definitely falls into the lure of a renovator’s delight, and most people get badly caught out by what they have to do to get the foundations of the actual building right,” Mr Wakelin said.
Some property advisers point to seemingly attractive tax advantages and stamp duty concessions that come with buying off-the-plan, but buyers who overlook other fundamentals could find themselves stumbling into an investment pit hole.
Investor Neda Tesic, 32, was encourage by her ex-partner and a former financial advisor to buy an off-the-plan two-bedroom apartment in Maidstone, about eight kilometres west of Melbourne’s CBD.
She sold the property in 2015 for less than what she bought it for in 2008, during which house prices in the suburb took off.
“[They] talked about depreciation and I just took it for what it was, not realising the full story; in terms of how inflated it would be,” said Ms Tesic, who works in sales for an accounting software company. “It was so hard to get tenants in there as well because there were so many other apartments in the area.
“It was a very expensive lesson,” Ms Tesic said, adding that she would now take more time to research and look at comparable sales in the area.
Mr Wakelin said many poorly performing properties were marketed with tax advantages as their main selling point.
Tax attractions such as gearing strategies, depreciation allowances and stamp duty savings might assist the financing of an investment in early years, he added, but they should not be the primary reason to invest, because too often they mask the property’s scarcity value and propensity for capital growth.
While some investors try to time the market, many property experts argue it is better to buy when you can afford it.
“Time in the market” rather than “market timing” was the key, but investors needed to do their research very thoroughly, Mr Wakelin said. “Procrastination is the greatest thief of time.”
An investment offering high rental yields could also raise a red flag.
Allen Wargent Property Buyers principal Pete Wargent said the worst investments over the past decade in Australia had been those where people had focused on the rental yields to the exclusion of almost everything else.
Though mining towns offered rental yields of 15 per cent or more during the mining boom until 2012, it reflected the risk in the asset, he said.
“A lot of people have been badly hurt, particularly since 2012, and I think some of the high-profile locations that have been hit have been small mining towns, but even in some larger areas like Gladstone have had some severe corrections.
“That’s probably been the worst advice in Australia over the last 10 years.”
Sydney buyers’ agent Victor Kumar, director of Right Property Group, said one of his bad investments was a serviced apartment he bought in 2009, with the intention of hosting friends and family and using it as a holiday pad.
Though the gross rent could look really attractive, a lot it goes into the letting fee and running costs, Mr Kumar said, adding that serviced apartments were also very seasonal.