The top property investment mistakes to avoid!!
We are always talking about what you want to be doing right when purchasing investment properties. Today, I want to focus on some of the things to avoid. Whether you want to purchase one investment property, or want to build a large portfolio, every purchase matters.
Each property purchase is crucial, and this will better serve you moving through to your goals sooner. If you can avoid making the mistakes outlined below, you are going to set yourself up to be a savvy and knowledgeable property investor.
Timing the market and waiting for the perfect day!
We get this one all the time; ‘I’m going to hold off, the market is going to go backwards, and I will get a good deal in 12 months’ time.’
If people are waiting for the perfect time to purchase, at that point there will be another reason why they are not ready to purchase, and the cycle continues, and prices continue to rise.
Not having an impenetrable mindset
Your mindset is a huge factor! Everyone is an “expert” when it comes to property, this can be family, friends, your neighbor, or the bloke you met at the BBQ who is four VB’s deep and is suddenly a property guru. People will project their own fears and beliefs onto you, or their own bad experiences, because they made one of the mistakes listed here today, or the media might be flogging some new angle to create fear, doom and gloom for views.
Follow people who are doing what you want to do, understand what your goals are and what daily actions you must take to get there. Analyze and listen to the data and facts, this will be what tells the truth!
Not purchasing when you have finance in place
This comes back to taking action. Your finance may come in slightly lower than you ideally wanted, or you let analysis paralysis take over and then you fail to make a decision at all. Find a solution within your budget and get into the market. Time is your friend and if you are completing your data, research, due diligence, follow the numbers and are targeting the right areas, the best time to buy is now.
If you want to purchase a $600,000 property and your finance only allows for $500,000 property purchase, get in and purchase now, and before you know it, the $500,000 property is now worth $600,000 and you have made a solid return.
Buying a brand-new property
Buying brand-new can be a huge trap and developers will suck you into this one. Developers factor their marking costs into the purchase price – this means you are paying for their marketing. Brand new property will typically be on a smaller piece of land where you’re paying more for the building than the land. Land is the appreciating portion of the asset; the building is the depreciating portion. Essentially you have paid more for an asset that is going to depreciate more than appreciate.
In new green field areas, there will also be further releases of land. Growth comes from scarcity; scarcity is low supply and high demand. This will hinder your future growth in comparison to established areas.
This is a large topic on its own, if you want further information on New Property vs Established property email us at info@tayloredpropertywealth.com.au and we can provide a report which will inform you on the differences.
Buying in your own backyard
Buying in your own backyard rather than looking nationwide is dramatically limiting your opportunity and results. You might have a higher purchase price in your own backyard, it could be in a small regional town that may not perform well long term. The city could have just gone through a huge growth cycle and you’re paying for someone else’s profits.
Looking nationwide means you can target areas that are going to perform well in the short, medium, and long term. This can mean having a positive cashflow property, mitigating your risk and taking the pressure off your lifestyle. When selecting an area primed for growth, you can be in a position to leverage off your equity in a 12 to 18-month period to purchase again and build on your wealth base.
Buying directly next to a highway, main road, train line or shopping centre
When selecting your property, location is a crucial factor! The suburb is crucial as well as the pocket within that suburb. You want to be in the high-quality pockets that are going to generate the long-term desirability.
Ensuring you attract long term desirability will mean a premium for your rental income in conjunction with higher quality tenants as well as the long-term desirability from purchasers. This will ensure the long-term performance in terms of capital growth.
A property that appeals to the most people will have higher demand, creating more scarcity and ultimately growth from both a capital growth perspective and rental income perspective.
Taking your property advice from family or friends
This one is always challenging. For the most part, family and friends will want the best for you and want to see you succeed. Unfortunately, that isn’t always the case, and they may be envious of your success and convince you not to purchase a property or invest at all. Sometimes your family may tell you not to take action on something based on fear they have for you; this could be based off their own past experiences. The way to mitigate this is having a mentor you can take advice from and support you; your mentor needs to be where you want to be and has huge experience within the area you’re trying to develop and grow. Family and friends won’t always have the best advice and that’s okay, it’s just a matter of recognizing this and leveraging off your mentor instead.
Taking property advice from your mortgage broker
What is a Mortgage Broker’s job? To provide finance for a borrower. This doesn’t include providing information on where to invest or what to invest in.
Some mortgage brokers will have a relationship with a developer and try and push their stock as they may receive a commission, typically for new, off the plan builds directly from a developer. Be very careful and only obtain information around financing from your mortgage broker.
Buy with emotion/mix property investment with owner occupied property
When investing in property this must be treated as a business, based purely around data, research, due diligence and the numbers to meet your long-term goals. You shouldn’t decide against purchasing a property just because you would not live there yourself or because it has pink and purple polka dot carpets.
When I purchase for myself personally, I like to not physically inspect any properties I purchase until after; this helps allow my emotions to completely stay away from a deal and focus on the numbers.
Your owner-occupied property is not your investment property, don’t mix the two. They have two completely different outcomes, one is where you want to create a home and safe place, the other is to purchase to help you build long term wealth with more freedom and choices in your future.
Take advice from a selling agent
Not all selling agents understand fundamentals when it comes to long term property performance, don’t get me wrong there are absolutely agents out there that do! Remember that ultimately agents are selling a product, their stock, and it just happens to be property. Many sales agents don’t invest in property.
Sales agents use methods to motivate vendors to sell, prime example is ‘The market has performed well, you want to sell now before the drop’. Growth cycles can occur for many years, and this isn’t always accurate information.
Understanding an individual’s motivation is key to understand the information being provided.
Sell a property in the short term
I’m sure that you have heard someone in the past say, ‘I wish that I didn’t sell that property’. Property is a long-term investment, if you can hold that property for 20+ years and allow time to do it’s thing, you will reap the rewards.
This is where positive cashflow properties are powerful as this allows a property to pay for itself and not burden you financially. Purchase property, hold it long term and let time do it’s thing.
Build a team of specialist around you
You have to spend money to make money. Building a solid team around you is key, this ensures you can leverage each individual’s skills and expertise. Don’t make shortcuts to save a dollar managing the property yourself or buying a property by yourself with no system in place and buying a dud.
Leverage professionals around you, a Buyer’s Agent will ensure you select a property that will perform long term and a high-quality Property Manager will keep the property in check and automate your expenses for the property. Pest and Building Inspector will inspect the property and complete due diligence to reduce risk of something happening to the property in the future.
Not completing data, research or due diligence and having a strategy!
Without a strategy you are going in blind, you then don’t know what numbers you need to generate to achieve your long-term goals. Start with your strategy, identify the property criteria, and then complete your data, research, and due diligence to ensure the property aligns with your long-term goals. The numbers are key when it comes to investing, this can only be done through strategy, data, research, and due diligence.
If you have made some of these mistakes in the past don’t let it get to you. We all make mistakes, it’s part of life. It’s important to learn from these mistakes and not repeat them in the future. If you have any questions around today’s blog please email info@tayloredpropertywealth.com.au.
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