5 common property investment mistakes
Investing in property can be finicky business. Every state has fruitful cities, every city has profitable suburbs and every suburb has gainful properties, but it can take a lot of elbow grease and footwork to ensure you’ve got all three lined up.
Without a crystal ball, knowing what property will provide you with profits further down the line can be difficult. Fortunately, doing the hard yards with your research and enlisting the services of a buyer’s agent can help you make an informed decision. There is an abundance of information about what investors should do to ensure success, but what about the potential pitfalls that should be avoided so that you don’t become a statistic of the real estate game. As they say, a smart person learns from their mistakes; a wise one learns from the mistakes of others. Here are a few common property investment blunders that you can learn from:”A wise one learns from the mistakes of others”
- 1. Using your heart and not your head
Given that you’re going to be living in it for an extended period of time, buying a home can be a very emotional time. This often results in people buying property based on the feelings from their heart rather than the logic from their head. This is completely understandable, as your home is your sanctuary where you will likely raise a family. However, when it comes to investing, letting your heart take command of the final decision can be a crucial (and costly) mistake. Instead of negotiating the best possible price, your emotions can cloud your judgement and result in you spending more money than the home is worth and/or what you can afford. Any decisions you make should be based on investigative research. Will the home provide you with the gains you require? Will the location appeal to quality tenants? Is it in good condition? At the end of the day, as an investor intent on making financial gains you should be focused solely on the numbers, not the beautiful curtains, the amazing facade or the beautiful fittings.
- 2. Planning as you go
Statistics from CoreLogic RP Data show that in the 12 months to August 2015, combined capital city home values rose 11.1 per cent, with Sydney and Melbourne the main drivers of the growth. It’s not hard to fathom that people would see these figures and decide they want a piece of that profitable pie. This often results in people investing in a property that they think is a good deal, and then wonder what to do with it. It’s somewhat similar to going bush with no form of navigation, as you’ll likely go the wrong way and find yourself lost! If you want your investment to be successful, you should set goals that determine where you want to be, and how you’re going to get there. When it comes to income, are you looking at pursuing short-term gains or long-term capital growth? Once you’ve set your goals, you need to find out what property you should purchase to meet your objectives. You’re essentially creating a map to take with you into the bush that will guide you exactly where you want to be. Taking the time to plan your investment can be of huge benefit to you in the long-term.
- 3. Diving in or dawdling
A recent report from BIS Shrapnel stated that the property market still has another 18 months of strong residential building activity before the current home investment cycle begins to slow down. Using this piece of information, you should then be able to make an informed decision on your next property purchase. However, it is common for first time investors to either act too impulsively and buy a piece of real estate they might later regret, or being overly cautious and consequently miss out by not acting at all. The ones that are in a hurry think they need to have their hand firmly on the investment ladder as of yesterday. This can result in rash decisions, paying more for a home than necessary and more often than not, regret. The second group are procrastinators, experiencing paralysis from over-analysis. They’re overwhelmed up by a sheer overload of information on the property market which results in inability to make that final step. To avoid making this mistake, you should aim to find a happy medium. It’s important to study the various reports and forecasts, but you shouldn’t be afraid to commit to a property as the old adage asserts, one of the best ways to learn is to do.
- 4. Failing to do your homework
Comprehending a property market is not something that you can learn overnight – it takes time and effort. What’s more, given real estate’s fickle nature you often need to keep your knowledge constantly updated. While a few seminars and books will certainly help you get a better grasp of the market as a whole, you will need to go more in-depth to fully understand the community where you would like to invest in. Pound the pavements and speak with the locals, property agents, and people who are selling their homes. Make yourself familiar with all the amenities in the area, schools and public transport, in addition to the vacancy rates and the history of dwelling values in the area. Once you know the neighborhood like the back of your hand, you will be able to come to an educated verdict on whether an investment in the area will help you reach your goals. It pays to have a professional team to help choose and manage the right property.
- 5. Going solo
Many investors believe they can save a significant amount of money by going through the whole process of finding, purchasing and managing a property alone. However, this can be an extremely costly mistake to make in the long-run. Often the key to your success in the investment property market is building the right team of professionals around you. Using a buyer’s agent or can bring not only an extensive list of local rental hunters but also unique insight into the areas promising the greatest growth and the properties that are delivering the most appealing yields. Not to mention gaining access to private sales that are yet to hit the market.
Furthermore they can take care of any negotiations with sellers and bidding in auctions. Having an experienced third party to act on your behalf is an effective way of removing the element of emotion and ensuring that you’re not overextending yourself financially. If you’ve found a property that you think could be the one, the Australian Securities and Investments Commission strongly recommends that you get a professional building inspection done to ensure that you’re buying a home with no nasty surprises. According to Your Mortgage, a combined pest and structural examination can cost you anywhere between $300 – $600, but it’s well worth it as you will either receive peace of mind or negotiating power! Once you’ve purchased the property, you should consider the services that investment property managers can offer. You can put your feet up as they will take care of advertising for and choosing suitable tenants, collecting rent, dealing with any tenant or property issues including maintenance and repairs and conduct inspections to make sure your investment is being looked after.