The issues around property investment can be confusing and with a plethora of advice available to succeed as property investors, well-meaning experts can only add to that confusion.
To bring it back to basics, there are some simple tips to help you avoid the potential risks of investing in property and lay the foundations for a positive experience building a property portfolio to build your secure financial future.
Although many people enter the world of property investment with big dreams about making millions the reality is that only a small percentage will get past their first investment into the market.
To help you avoid the traps many beginning property investors make, it’s critical to be aware of these 4 common mistakes.
1. Buying On Emotion
Buying an investment property is different than buying a property for you and your family to live in. While you may be willing to overlook certain obvious flaws in the quest for that home that just feels right, as a potential landlord, you need to have a more discerning eye and be buying with a view to making long-term profits.
Separate your emotions from your home loan application when buying an investment property.
It all begins with being sensible about your budget and then sticking to it. If you are buying a fixer-upper, be realistic about the funds required to do all that fixing. Cold, clear facts from analytical research should guide you.
2. Rushing In
So you’re all fired up from that property investment seminar and now you want to rush out, pre-approval in hand, and buy the first property that catches your eye. Slow down! Always do your research and engage with a professional conveyancer to ensure the properties you are interested in don’t come with any nasty surprises that will prevent them from being a solid investment.
Rushing into property purchases can, occasionally, mean that you do snap up a bargain but more often than not, it leads you to make a huge financial commitment you may regret.
3. Not Knowing The Market
Making money as a property investor is about buying well, in areas that have a greater chance of substantial growth. Knowing the neighbourhood and the sales history of comparable properties is critical information to understand.
Talk to local real estate sales agents and property managers, to ensure you understand where you’re buying and the likelihood of being able to find a tenant quickly. By knowing what tenants in that neighbourhood are looking for, you can avoid buying a property that doesn’t suit your target tenant market.
Research local amenities, proposed developments, vacancy rates and historical values before you jump in. The research may seem onerous but it will help you make the best possible decision for long-term success.
4. Managing Your Cash-flow Badly
Life as a landlord comes with ongoing costs and it’s important you have a clear understanding of them before committing to a mortgage. As well as engaging with an experienced mortgage broker to help you find the best interest rate and tailored home loan to suit your circumstances, it’s vital that you talk with a professional accountant with experience in real estate investment to guide you through the process in terms of understanding tax minimisation strategies and other important financial considerations.
As a very general rule, allowing around 20% of the property’s value for costs such as rates, land taxes, insurance, maintenance and management fees is a good starting point.
By entering the property investment market with your eyes very clearly wide open and doing your appropriate due diligence to protect yourself, you have the best chance of seeing all the potential risks.
Having money to service the home loan is one thing but having money to help cover things like emergency repairs and ongoing rates, as well as ensuring you have some wiggle room in your budget if the property does not have a tenant for a period of time, is essential to smart property investment – without the stress.
For professional advice about getting the right home loan to match your property investment goals, talk to our mortgage broking specialists at Lending Specialists today.