Buying an investment property is a dream for many. When done right, it can set you up with a comfortable retirement and even the opportunity to buy multiple investment properties, increasing your assets and your money. However, like every investment, there are some risks involved especially if you do not know what to look out for.
So what are the typical property investment mistakes and how to make sure you don’t make them? In this article, we have identified 7 common errors, so you can avoid them and get the best return on your investment:
- Not having a solid plan
- Using your emotions rather than being analytical
- Not doing the research
- Forgetting to properly calculate costs
- Buying the wrong property
- Not thinking long-term
- Not thinking about the tenant
1. Not having a solid plan
All great things (and solid investments!) start with a plan. One of the biggest property investment mistakes people make is failing to set a specific goal from the very start. The last thing you want to do is to invest in a property without knowing how it will generate an income.
When you get started in property investment, consider your property investment strategy prior to getting caught up in the property buying frenzy. Some questions you might want to ask yourself include: What type of house am I looking for? Where is my target location? Do I want to rent my property or flip properties for profit? What will happen if the market sours?
These questions are only scratching the surface. When it comes to your plan it should be more detailed than this, however, these prompts give you a good starting point for your planning process.
2. Using your emotions rather than being analytical
When it comes to property investment, think with your head and not your heart!
Emotions play a huge role in investment mistakes. But let it be said that being a property investor means knowing how to put your emotions in the back seat. You should always approach your investment property as a business. That means, not 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 analytical and objective is the name of the game when buying 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 rash decisions.
3. Not doing the research
Looking for an investment property can be tedious work. It is tempting to skip all the research and get straight to the purchasing! But this step is one of - if not the most - important steps to property investment. If you do not do your research, you can end up with a property that fails to give you the return that you want.Some helpful research tips for property investing include:
- Avoid basing important decisions off the recommendation of friends and family. While well-meaning, those without expertise in the field can hinder rather then help your investment plan.
- Do your homework on the local area: what are the market trends? Demographic? Demand and supply?
- 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?
- Does the property align with your target tenants wants & needs? For example, does it have the features and amenities that tenants want in that location?
- Doing your research will ensure you’re well-informed about the property and can make better real estate investment decisions - avoiding costly mistakes.
4. Forgetting to properly calculate costs
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. Understandably, this can all add up!
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, always make sure that your investment is financially sound. Make sure you have enough money stowed away to put down a decent property deposit and have enough to pay back those monthly loan repayments. A good rule of thumb is to have 2-4 months of rental income saved up as a financial buffer to avoid being in a constant state of financial stress.
5. Buying the wrong property
With a red-hot market and so many properties to choose from, it is easy for first-time investors to jump on the first property that becomes available. Word of advice? Hold your horses. If you want to avoid buying the wrong property then keep an eye out for the following:
- Is it an investment-grade property?
- Scarcity: investing in a new build property within a new residential estate may not have the investment potential as say, a Victorian cottage built in the 1800s.
- What is the land value?
- What is the past sales history of the property?
- Consider the property’s proximity to shopping strips, hospitals, schools, arterial roads and so forth.
When in doubt, always consult with a property manager for professional advice to avoid investment mistakes.
6. Not thinking long-term
Real estate needs time to appreciate in value. The longer you spend in the market, the higher your capital gains will be. If you are hoping to get a good return on your investment, then avoid making the mistake of investing short-term. Sure, it may provide investors with a higher rate of returns, but it also comes with a higher risk. Remember, as a first time investor, slow and steady wins the race.
7. Not thinking about the tenant
If you have the goal of investing in a property to rent, keep in mind who your renters will be. Many first time investors make the mistake of purchasing a property to meet their needs but fail to take into account the wants and needs of the tenants who will actually be living in it.
Try to match your investment property with the types of tenants most likely to rent in that area. For example, families will want a safe neighbourhood and proximity to good schools. Singles or seniors may want access to public transport and shopping complexes. If your property is to be a vacation rental, make sure it is nearby local attractions.
Why hire a property manager?
If property investing was easy, everyone will be doing it! The truth is, it can be a difficult enterprise, especially without proper planning and due diligence.
When you seek professional advice you are benefiting from someone who has years of expertise and knowledge. A skilled property manager can help you to avoid all of the above common investment mistakes and assist you in securing a property that has the best potential for long-term return.
Our property managers can help you avoid property investment mistakes, so book your free rental appraisal with an LJ Hooker property manager today.
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.
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