COMMON MISTAKES to avoid
1. putting emotion first
Buying an investment property is not the same as buying a home. It is a business decision.
You should always buy investment properties based on analytical research.
Will it provide the gains and returns you require? It is in the best location to attract quality tenants? Will it appeal to the owner occupier market that sustains property prices in the long term?
By answering these questions, rather than buying a house because you thought it would make a good holiday retreat, you’re thinking based on financial gain rather than personal feelings.
2. jumping in or not moving at all
1. Acting too quickly
These are the people who attend one seminar and buy into the excitement without thinking it through. When the property doesn't make them rich overnight, they lose heart and think property isn't for them.
2. Overthinking and hesitation
These are those who attend all the seminars, read all the books and watch all the DVD's but then are overloaded with all the information that they don't know where to begin. They will never overcome their fears.
The best is to have a balance - research as much as you need to make you comfortable with a investment decision but don't think you can ever know it all before you start.
3. no patience
Property investment does not make you overnight millionaires.
It takes time to sell property and there are other costs involved such as capital gains tax. However, it is a proven stable investment avenue.
The gains you make from one property will help to buy another property, the combined gains from these two properties will help you buy more properties and so on. Another way is to get loans from banks to develop your portfolio.
As long as you approach property investment with patience and persistence you will achieve success. Just ensure that you buy high performing property that grows consistently over the long term.
4. not doing your homework
Don't think that after reading a few articles and attending a few seminars that you understand the property market. The cyclical nature of investment properties takes time to understand.
You need to thoroughly know the neighbourhood where you plan to invest. Research the amenities, vacancy rates, historical values of the properties in the area as well as the street where you intend to buy.
Before you commit to buying, make sure you know the vendor's reason for selling. Are they going through a divorce? Although it might seem insensitive, this gives you the opportunity to get a bargain.
Have you done thorough inspections for any structural defects or pest infestations? Fees for these are tax deductible and paying to fix these problems now will save you thousands later on.
Lastly, is the property practical to live in from the tenant's point of view? Is the floor plan appealing and is it a comfortable practical home? Even if you aren't going to live here someone else will be paying you to.
Do inspections at different times of the day. Is it noisy during peak hour? Are the neighbours loud or quiet?
Answering these questions will ensure you buy the best investment property.
5. buying the wrong property
Through understanding your market, you will know what property to buy. For example, are you investing in a suburb that attracts families or young, single professionals?
Understanding the demographics determines which type of property you should buy. For family markets, don't invest in two bedroom apartments, or for young professionals don't buy large, family homes.
6. poor cash flow management
You should seek out a professional accountant with knowledge about property investment to advise if you are financially able to invest in a property.
You need to make sure you can hold onto the property. How much income will your investment produce and will it cover the outgoings. If not, can you manage these expenses?
Don’t forget about possible extended vacancy periods or unexpected maintenance costs.
A good rule of thumb is to allow about 10% of the property’s value for costs such as rates, land taxes, insurance, maintenance and management fees.
7. BAD FINANCIAL STRUCTURE
It is critical to get help from a qualified, professional mortgage broker to finance your property investments. They can save you time and possibly thousands in the long run.
Having an incorrect financial structure can be as bad as investing in the wrong type of property.
8. SELF MANAGING your PORTFOLIO TO SAVE
Many investors think by self managing their portfolio they will save a lot to gain better profits. This means finding their own tenants, acting as their own property managers by organising collection of rents, dealing with maintenance issues and tenant inspections etc.
This may work in the short term but when your portfolio increases to many properties this becomes a full time job and isn't sustainable.
Paying for a professional property manager to handle these things, it will get you the best outcomes with good tenants and good returns, but more importantly - time.
Time spent managing all your properties could be better spent finding more investments to add to your portfolio and increasing your wealth.
Note: Based on tips suggested by Michael Yardney, voted Australia's leading property investment advisor in 2011 by readers of Your Investment Property magazine.
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