5 COMMON PROPERTY INVESTMENT MISTAKES & HOW TO AVOID THEM
- Posted By Prince Lakshman
It pays to be informed when it comes to purchasing an investment property. Most mistakes made in property investment are committed by beginner investors, who haven’t had the experience to avoid them and haven’t done their due diligence when it comes to researching about their investment.
For first time investors, it’s crucial that they double check what they’re told. Investors need to crunch the number themselves to avoid being in a situation where the valuable asset they thought they were purchasing turns into an expensive liability.
- Poor Financial Literacy
Some first-time investors take interest-only loans without a safety net or borrow the maximum amount to get into the property ladder, which experts describe as “financial suicide”.
Although less common, there are people who buy assets in the wrong entity, such a using their personal name instead of a trust. There’s also an issue about cross-securisation; that is banks taking security across all an investor’s assets.
For example, you have five properties tied up with the same lender. The issue is that you can’t sell without the banks permission. Investors should use different lenders for different properties, to keep things as separate as possible.
- Lack of solid research and due diligence
Even if you are buying through an investment company, it is important that you do your own due diligence. Good investment companies will present you with a fully structured investment, including comparables, valuations, and rental letters, however this doesn’t mean you just turn your brain off and not do your own due diligence.
Experts recommend you use a service that provides multiple independent sources of price data and suburb information, so that you can verify what you’ve been told. Many of these can be found online as well. Look into any future apartment developments planned in the area as well, as a rising supply of units can cool price growth if the demand isn’t there.
- Letting Emotions Take Over
This is probably the most common mistake first-time investors make, and that is trying to get your hands on a property for its lifestyle benefits rather than its fundamentals. Our emotions usually get in the way, especially if a property meets our personal taste and comfort. However, property investing is a whole different breed. You are certainly going to lose money if you let your emotions take over property investment logic.
Using the investment property as a holiday home often have poor yields, poor capital growth, and requires a lot of maintenance. Stick to cold hard facts, it’s an investment decision and should be based on your budget and the return it can give you. The property should be within your budget, and sticking to it is key to success.
- Getting Overconfident
It’s not uncommon for investors to get overconfident when they had acquired multiple properties. Investors get a strong sense of superficial confidence leading them to go out buy all these properties.
However, refinancing can become very tricky if an investor has over-borrowed to their limit. They’ll have no more room to move when interest rates go up and rents don’t.
It’s crucial that you have a firm business plan in place. Have a long term strategy. Ask yourself how much do you need to retire? How much will be the running costs? How about the increases in interest rates? The last thing you need is to fall short of your optimum amount.
- Thinking You’ll Save Money by Self-Managing Your Property
The real hard work begins only after the investing part. You still have to find and vet tenants to ensure that they pay rent on time and keep up with maintenance issues. You’ll also need to contact and organise tradespeople to attend to repair work and keep all your paperwork in order. There’s also the regular property inspection part and the maintenance of your inventory list.
Managing an investment property can be hard. How much more if you happen to own and manage a portfolio of properties that are geographically dispersed? Our advice is to hire a great property manager from the very beginning. Professional property managers like NDL Realty takes the hassle away from you, while you concentrate on reaping and enjoying the benefits of investing in property.