OD #16 - The Silent Killers Smart Property Investors Learn to Avoid

Most investment properties don’t fail loudly... they underperform quietly.
 In this episode, we unpack the silent killers smart property investors learn to avoid before they buy.

Chapters

• 0:00 Framing The Silent Signals
• 1:10 Location Friction: Noise And Roads
• 2:58 Psychological Neighbors And Buyer Pull
• 4:00 Environmental Risk: Flood And Fire
• 6:33 Area Fundamentals And Growth Drivers
• 7:00 Why Compounding Risk Matters
• 9:05 Employment Depth And Oversupply
• 11:20 Layout, Livability, And Turnover
• 13:05 Water Issues And Inspections
• 14:15 Easements, Zoning, And Future Options
• 15:25 Strata Costs, Levies, And Disputes
• 17:20 Avoid Stacked Risk, Seek Clarity
• 18:45 Starter Strategy And Portfolio Momentum

Transcript

Oscar Don: 0:00

Most people think property investing goes wrong because the market turns or because they bought in the wrong suburb. But more often than not, it goes wrong because of the quiet signals. The things that don't feel urgent, don't get talked about much, and don't show up clearly in a listing. Property rarely fails dramatically. It underperforms slowly. So today I want to talk through the silent signals that can quietly work against an investment property. Not to scare you off investing, but to help you slow down and think more clearly before you commit. Before we get into it, please note. Get the job done properly. Sit back, relax, and enjoy the show. Let's get into it. Welcome back to another episode of the Finance Bible Podcast. As mentioned, today we're going to be talking about silent signals that can make or break an investment property. And no better way to start off with the location. So I'm not talking suburb names or medium prices. I'm talking about the things you only noticed when you get to the property or physically stand there. Airports and flight paths. So a property doesn't need to be next to an airport to be affected by one. Flight paths stretch much further than people actually expect. And the problem is the noise. So the noise is one of those things you subconsciously tolerate at first until later on you don't. And this is really important with tenants as well. So if you're buying an investment property, your tenants aren't going to want to live in a property under a flight path when they hear planes come every 10, 15 minutes. Tenants notice it early and future buyers notice it during comparisons. So if you've got a few different buyers coming through and they're doing their due diligence on the property, they're going to look at and figure out the proximity of the airport. And then obviously they'll hear the flight path and they'll probably do their research as well and see that you are right under the flight path. So noise, it look, it doesn't destroy value, but it narrows the demand. And that's what matters over time. Secondly, main roads and major intersections. Properties near main roads often look fine on paper, but with the constant traffic noise, the headlights at night, safety concerns, and sometimes a bit of an awkward access can create friction. So anything that really chips away at comfort for owners, for tenants, at the end of the day, chips away at demand as well. So down the track, that will definitely affect your resale value and even just getting demand in for that property. Cemeteries and psychological neighbors is another one I want to talk about because there are some good properties out there. Unfortunately, some of them are next to cemeteries and some people don't mind it. Some people can't stand it. Cemeteries, industrial sites, you know, as I mentioned, some people won't even bother and go inspect it because they're next to a cemetery or an industrial site. Every time a property turns someone away before the numbers even matter, the buypool continues to get smaller. So if you're going into an investment property and you love the look at it, but the only thing is there is a cemetery or there's something near it which you think might impact your purchase price down the track. Pause and think about the numbers and the overall strategy. Are you wanting to sell this in five, 10 years? Are you just wanting to hold the value and you could look at the equity and pull that out? What are you wanting to do? Because I guarantee you that's going to have a massive impact on the decision that you actually will actually will make. The next category is one of the most underestimated, and it's an environmental risk because these aren't issues that show up every year. But when they do show up, they matter a lot. So we're talking, first of all, flood zones. So a property can look perfect, and we've found so many great properties for clients that tick all the boxes, that look great on paper. The numbers make sense, but it's in a flood zone. So that wipes everything out. Even properties that haven't flooded before can sit within flood-prone zones. So flood risks affect more than just water damage. It affects your insurance premiums. For an owner buying a property in a flood zone, you are increasing that insurance premium by quite a bit. It also affects your bank valuations, uh, resale confidence, which is a massive one if you're wanting to flip properties down the track, and also your buyer psychology. And once a property is perceived as flood affected, that perception is very hard to reverse. That's where you do your research to figure out if it isn't a flood zone or if it's had water on the property in a previous flood many years ago. But you must do that research because once you sign the contract and you're unconditional on your clauses, unfortunately it's too late. And that leads me to the next one: bushfire prone areas. So bushfire zones are very, very similar. You might never experience a fire, but being in a bushfire prone area can also mean higher insurance costs, uh, stricter building requirements, and also limitations on future renovations if that was something you wanted to go down the path of. So these things don't always hurt you right away, but down the track, pending what you're wanting to do with the property, like let's say you're wanting to renovate it or put a granny flat on the back to increase your rental income, you may or may not be limited to do that because you might be in a fire zone. So they influence long-term ownership and resale. So the question you may be asking is long-term, why does this actually matter? Well, these risks compound very quietly. They don't ruin the deals overnight, but they erode the flexibility. They can increase your holding costs. And the most important thing, which I've mentioned mentioned many times already, is they reduce your buyer confidence over time. And confidence is one of the biggest drivers of the performance of your investment property. So if you have low buyer confidence, then your property is probably not going to perform as well as you'd want it to. So after location and risk, the next question is simple. Like if I'm buying a property in an area, I'm asking myself, what's actually happening in the area? What's actually improving? So we're looking at infrastructure investment, employment depth, is it oversupply pressure? What is going on? So if there's little to no planned investment in transport, healthcare, schools, employment hubs, you know, hospitals, demand has no catalyst. Property growth isn't magic, it's funded. So I would not go anywhere near a location if there was no planned investments coming through, no government spending, no internal migration, no population growth, no nothing, no building. So it's there's there's no point. So you must do your research to figure out, you know, if you're looking at this area, what is actually happening in that area? Like there's a lot of locations right now where governments are putting a lot of money in some regional locations, you know, might be an hour out of the city, an hour flight out of a major city. But that's a good indicator that the government is backing these areas, which leads to employment, leads to, well, internal migration. Then you obviously that's the infrastructure spend. So property growth, as I mentioned, isn't magic. So you need to look at what is happening in the area. As mentioned, employment death. So areas supported by one or two industries generally are more fragile than they appear. So you need just like investing, you need to have diversification. So that also means diverse employments. So that so diverse employment means resilience. And over time, resilience supports prices during the tough periods. So definitely when you're doing your research or if you have professionals doing the research for you, you want to make sure that there's more than one or two industries in the area. Last one I spoke about here was the oversupply pressure. So if supply keeps coming to an area and demand doesn't grow at the same pace, well, what happens in terms of property is the rents stagnate. That's that's what happens in the past, that's what happens now, what's happened in the future. The main thing to think about and realize is oversupply doesn't always crash prices, but it quietly caps the performance. So if you're looking in an area and there's heaps of you know, supply coming and no one's actually snatching it up, and there's all these vacant properties. Well, that's probably not the best place for you to be looking because you know, one, there's too much going on, as in too many properties being built, very oversupplied. And there's nothing, no one's really getting into it from their from the location. So that is pure economics and that's oversupply pressure. So that is something you need to make sure you look at. Now let's zoom into the the actual property itself. So one of the first bits I look at when I'm looking at a property is the layout and livability. So if the property is dark, you know, impractical, awkward, people will move on quickly from that property. You can you can look at it within three minutes, you know exactly how you feel about it. You know, if it's a good investment, if it's a bad investment. So if it's dark, impractical, a lot of people just move on. So shorter tenancies mean higher turnover, which if you're the owner of the property, which means more costs for you, and then more vacancy. So you want to make sure that your property is, first of all, in good condition. So even if you're purchasing an older property, have you put aside money in your budget to you know you might want to put 20 grand in in additional works to get the property up to a bit more of a livable standard, which will also increase your price as well, potentially if you do enough. Then you want to make sure that it is, you know, you have some natural light coming in. You want to make sure that you're in a good location, that you might have the adequate blinds, the adequate fans. A lot of things go onto it. The layout, is it practical? Can a family of four live in there without stressing? Are they going to be restricted at any any sort of way? Another one is the water issues and surface fixes. So water damage is, especially with older properties, this is where a building and pest inspection comes into it. But yeah, water damage usually isn't a one-off, it's a recurring pattern. So you might be able to patch it up and fix it for you know for a couple months, but over time it's still going to continue. So this just costs time, money, and energy. So make sure with your property, you are looking at the water damage and any other surface issues that need to be fixed. This is obviously what I mentioned just before: building and pest inspections will put all this in a report for you and give their recommendations. Um, and lastly, this also comes to having a good solicitor and conveyance in your side when you do own through the property side. So you want to make sure that you look at restrictions and limitations. So are there any easements on the property? Is there any access issues, any zoning limitations that will hinder what you're wanting to do down the track? They don't always matter now. But if you're wanting to build and subdivide later on in five, 10 years, if that's your overall plan, and then you find out that you can't actually do that because there's limitations, that's going to affect your whole plan. And, you know, it's because you didn't do your due diligence and figure this out before you leapt into the property. So anything that limits future options limits future value, as simple as that. Now, I've met many people before who have purchased into strata properties, and there's always a common phrase afterwards when they mentioned, you know, they didn't realize how expensive the strata was actually going to be until they're in it. So when you buy into strata, you're buying into collective behavior, underfunded sinking funds. So if the building hasn't been saving, you, future owner, you'll pay the price. So you will pay for all the upgrades that need to be done, as well as all the other owners. So this is where due diligence comes into it again. Figure out, you know, where are you buying? What's the actual standard and condition of this property and this shared building? First of all, what is a strata fee? How much is it annually? How much do you have to put aside? And what are you getting out of it? Are you actually getting anything out of it or are you just giving money away for the sake of it? So, strata, definitely look at it, figure out can you can you actually make the repayments? Because a lot of times it's too late. And then people who are already in the properties without realizing how high their strata fees are, they have to pay it. Otherwise, they're selling for sometimes a loss if it's a quick turnaround, but definitely something you need to do. Special levies and disputes as well. So they hurt cash flow and disputes hurt confidence. So both of these affect resale. So definitely keep saying you've got to do your research and figure all this out before you jump into a property. I know when you're especially wanting to get your first investment property, it can be a bit daunting but also exciting at the same time. And if you find something that you think is a great option, you might get emotionally attached to it. But you've really got to pull yourself back before you jump into it because you know, more times than not, it there's going to be something which might be a strider issue, might be a cash flow issue, might be the actual structure and quality of the property. But there's there might be something which isn't so good. And you need to make sure that you're aware of it before you jump into it. So great investors don't avoid every floor. You know, there's there might be 10 things to the property, seven of it might be great, three might be bad. But with that three, you might do the renovations and increase the rental income over time. But but the great investors, they avoid stacked risk. Now, the main goal isn't perfection, it's clarity. And if you can spot the silent signals early, you give yourself more control, more flexibility, and better outcomes long term. And that is definitely what you need to do in this long game of property investment. If it is your first investment property, you need to make sure you get into the right property, which will assist you and propel you into your second, because there's a lot of investors who purchase one property and it stagnates in value for five, 10, even 15 years, and they just bought a property for the sake of it. And then 15 years has gone by and they haven't added to their portfolio. So you need to make sure you're doing all the research, you've got the right team in your corner, you're avoiding these silent signals early, and you're getting one which can help you, you know, assist you in reaching your goals, whatever goals you may have. If you have any questions, queries, or you know, want to talk about this episode, feel free to DM us on Instagram. We've got an updated Instagram account back. So we're good to go. Um, until next time, ciao. We hope you enjoyed the episode as always. We know exactly what to do. Hit that follow button, subscribe, whatever platform you're listening to this podcast on. Also share it to your friends, family, co-workers, whoever you think may benefit from. But uh, unfortunately, the end of the scene next week.