Common property investment mistakes
Before setting out on your property investment journey, making yourself familiar with common pitfalls of property investing can help you learn how to avoid these mistakes. Below we’ll uncover some of the common mistakes made when investing in property and how these can be avoided.
Insufficient research
The property research process can be tedious if you don’t know what to look for, yet researching is essential to get to know the suburb that could potentially become home to your next investment.
When setting out on your property investment journey in a particular area, look into demand for rentals, the area demographics including population age and the amenities tenants’ in the area crave the most. Young working professional couples may look for a different property compared to a growing family. It’s important to therefore be clear with your investment strategy, who you are trying to target and speak with professionals in the area such as real estate agents, to determine if a region is right for you.
Before jumping straight in to the property market to purchase an investment property, some questions you may consider to help you in the research process include:
- Where is my target location?
- Do I want to rent my property or flip properties for profit?
- What will happen if the market sours?
- What’s the condition of the property? Will it require major renovations or maintenance?
- What are the zoning requirements or landlord-tenant laws in your state/region?
Relying on emotion over logic
The saying goes think with your head not your heart, but in the heat of the moment it can be easy to become swept up in an investment decision - which may potentially end up proving costly.
Emotions play a significant role in investment mistakes, yet as a property investor it’s important to know when to let your emotions take a back seat. Look to approach your investment property as a business to take the emotion out of decision-making. This will aid in preventing you from falling in love with your property so much so that you begin looking at it from the viewpoint of a homeowner rather than a property manager.
Being rational and logical is the name of the game when purchasing an investment property. If you see a property that takes your fancy, sleep on it and gain more insight into the capital growth and rental yield prior to making any decisions.
Incorrect calculations
Buying, managing and selling an investment property has the potential to be a costly exercise. On top of mortgage repayments, investors also need to take into account finances including maintenance costs, repair bills, strata fees, property taxes and insurance fees - just to name a few. These expenses can all add up if not factored into calculations correctly.
When investing in property, it is a good idea to create a maximum limit and to set aside an emergency fund for any unexpected costs or issues associated with managing a property. On top of this, ensure your investment is financially sound.
Make sure you have enough money put away for a property deposit, with enough income to make loan repayments. As a rule of thumb, you should try and keep aside anywhere from 2-4 months of rental income as a financial buffer to fall back on should circumstances unwillingly change.
No long-term vision
Too many property investors look to enter the market as a cash grab, hoping to strike while the iron is hot in booming markets. However, it is important you understand the purpose of buying your property. Property investment is essentially a long-term investing strategy, able to generate positive cash flows for a number of years to come, if the right plans are applied.
Before investing in the property market, think about your investment goals and how you will achieve them. Ask yourself if you are planning to live in the property or is it a straight investment and what type of property will help you meet your income goals?
Purchasing the ‘wrong’ type of property
With the property market in a constant state of snakes and ladders in recent times, it is easy for first-time investors to jump at the chance to purchase the first property that becomes available. Investors may be enticed to avoid the property price horse potentially bolting and as a result missing out on a property entirely. If you want to avoid buying the wrong property, as mentioned above, it’s important to place emotion on the back burner and ask yourself the following:
- Is it an investment-grade property?
- Is the property scarce or in short-supply?
- What is the land value?
- What are the historical sale values of the property?
- What amenities are within close proximity? Consider the property’s proximity to shopping strips, hospitals, schools, arterial roads and so forth.
When in doubt, consult with industry professionals for professional advice to avoid investment mistakes.
If you are ready to take the first step in your property investment journey, or simply on the hunt for another property to add to your portfolio, check out our range of competitive investment property loans. To help get you started, or to answer any questions you may have, chat to one of our lending specialists today.
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