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 wealth. However, like every investment, there are risks involved, especially if you don’t know what to look out for.
So, what are the typical property investment mistakes and how can you avoid them? In this article, we’ve identified 7 common errors, so you can steer clear of them and get the best return on your investment:
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 invest in a property without knowing how it will generate an income.
When you get started in property investment, consider your property investment strategy before getting caught up in the property-buying frenzy. Some questions you might want to ask yourself include: What type of property 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 just the beginning. Your plan should be detailed, but 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 can play a huge role in investment mistakes. But being a property investor means knowing how to put your emotions aside. You should always approach your investment property as a business. That means, don’t fall in love with your property so much 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 you like, sleep on it and gain more insight into the capital growth and rental yield before making any rash decisions.
3. Not doing the research
Looking for an investment property can be tedious, and it’s tempting to skip all the research and go straight to purchasing! But this step is one of – if not the most – important when it comes to property investment. Without proper research, you can end up with a property that fails to give you the return you want.
Here are some helpful research tips for property investing:
- Avoid basing decisions solely on recommendations from friends and family. While well-meaning, those without expertise in the field can hinder rather than help your investment plan.
- Do your homework on the local area: what are the market trends? Demographics? 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 and needs? Does it have the features and amenities that tenants want in that location?
Doing thorough research ensures you’re well-informed 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 consider maintenance costs, repair bills, strata fees, property taxes, and insurance fees. Understandably, this can all add up!
When investing in property, create a maximum budget and set aside an emergency fund for any unexpected costs or issues that may arise.
Additionally, make sure your investment is financially sound. Ensure you have enough money saved for a decent property deposit and monthly loan repayments. A good rule of thumb is to have 2-4 months' worth of rental income saved as a financial buffer to avoid stress.
5. Buying the wrong property
With a hot market and so many properties available, it’s easy for first-time investors to jump on the first property that becomes available. Word of advice: hold your horses! To avoid buying the wrong property, watch for the following:
- Is it an investment-grade property?
- Scarcity: investing in a new build property in a new residential estate may not offer the same 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, etc.
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 stay in the market, the higher your capital gains will be. If you hope to get a good return on your investment, avoid thinking short-term. Sure, it may provide higher returns, but it also comes with higher risk. Remember, as a first-time investor, slow and steady wins the race.
7. Not thinking about the tenant
If your goal is to rent out your property, keep in mind who your tenants will be. Many first-time investors make the mistake of purchasing a property based on their needs but fail to consider the wants and needs of tenants who will actually be living there.
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 neighborhood and proximity to good schools. Singles or seniors may want access to public transport and shopping complexes. If your property is a vacation rental, make sure it’s near local attractions.
Why hire a property manager?
Property investing isn’t always easy, especially without proper planning and due diligence.
When you seek professional advice, you benefit from years of expertise and knowledge. A skilled property manager can help you avoid common investment mistakes and assist you in securing a property with the best potential for long-term return.
At #1 Property Centre, our experienced property managers are here to help guide you through the investment process and avoid costly mistakes. Book your free rental appraisal with us today!