No-one is perfect and everyone makes mistakes, but when property investors stumble it could cost them dearly, especially when it is their first investment.
Having said that, there is no profit that does not have a risk attached to it, and there is no formula for 100% success.
However, what you CAN do is learn from the mistakes of others and not repeat them in your own property investment strategy.
So what are these mistakes that you should avoid?
Don’t rush into a purchase
Kathryn Sands, the founder of the Property Entrepreneurs Network, feels that people should wait and think before investing in any property, after all, “it’s not about being a property investor, it’s about investing for a lifetime.”
Many new investors rush into a purchase thinking that they will get instant benefits, only to realize much later that they could have picked a better house or that there are problems with the one they bought.
Properties are a long term investment, and it may take a while before you start making a profit on it – so why rush your purchase? Take your time and make the right decision, and that one right choice could possibly jumpstart your investment strategy.
Prepare your finances
From her experience in investment, Sands has noticed many first time investors who decide to invest and even start looking for property, but never take the time to prepare their finances.
According to her, buyers should clean up their credit history and improve their credit score by cancelling unused credit cards and paying off other debts.
Buyers applying for an investment loan also have the option to apply for a pre-approval on their loan before they start looking for a property. This not only speeds up the entire loan process, but it also helps you identify anything that banks and lenders will have an issue with.
Don’t make a purchase based on emotion
A lot of first time buyers end up picking a property because their friend “advised” them to or they liked the way it looked – which is a big mistake.
Sands emphasises that purchases should be made from a business point of view, not an emotional one. The investment guru advises that buyers need to do the appropriate research, plan their accounts and formulate their investment strategy before signing off on a purchase.
Tony Hayek, CEO of the property investment group, Blue Wealth Property, says that many people do not like to step out of their comfort zone and often buy a property near their residence. While this may seem convenient, it may not be the right property for your investment strategy.
Be careful of sales pitches
“Property Professor” Peter Koulizos, feels that many investors get enticed by real estate agents into paying more for properties than their actual value. This is also common with apartment units where the property has very little land component or house and land packages where the land is not worth much.
Don’t forget that in any purchase the building is the depreciating asset and the land is the appreciating asset. Don’t fall for the clever marketing ploys of agents – do your research and buy a property which will give you profits in the long run.
Do your research
Property deals are worth hundreds of thousands of dollars, so why do so many people take bad advice and buy the wrong property? Whatever the reasons are, all you need to know is that you should not do the same thing.
Do your research, look up the property online, look at the growth of the real estate market in that area, speak to more than one agent and consult investment experts if needed.
Don’t buy a property just because your mum or dad said, “Oh that would be a good investment,” or your neighbour down the street thought it was promising.
Don’t borrow to your limit and don’t over capitalise
As mentioned previously, property is a long term investment and once you buy, you are in it for the long haul. So when you take out an investment loan, make sure you can afford to pay back the repayments on time and still have the lifestyle you wish to have.
Remember that properties require continued maintenance, and that you might not always find a tenant. You also might need to cover unseen costs such as fire damage or issues with strata. Borrowing only how much you can afford leaves you less vulnerable to these uncertainties.
Determine your investment goals
Kouzilos’ tip for first time investors is that they should plan their goals first and figure out what they’re aiming for, be it an early retirement, a way to earn lots of money or just a way to give up their day job.
The Property Professor explains that he has seen many would-be investors do research, read books and attend many seminars. However, most of these people get into an “analysis paralysis” stage where they have the information, but do not have the direction to move forward and make a decision.
“The perfect property doesn’t exist,” he explains, “so you need to find something that fits your needs and just take the plunge!” However, this is not possible without forming clear goals.
Borrowing hundreds of thousands of dollars is a definitely a big step in anyone’s life but with a clear sense of direction, it is less of a wild idea and more of a calculated risk since you already know what you are doing.
“The key is to get your foot on that first step of the property ladder. If you don’t get your foot on that ladder, you are going nowhere,” the property guru adds.
Account for extra costs
Most professionals who work in property finance are investors themselves, and Tina Pham is no stranger to buying properties. Her advice to new entrants to the investment game is to not forget the additional costs such as stamp duty, GST and land tax that come with purchasing a property.
Therefore it is important to learn about the other purchase costs that you have to pay when you buy and the regular expenses associated with owning a property. These come into play especially when you are building, and you might need to pay 10% GST which reduces your profitability.
Stamp duty is another cost you must not forget. Sometimes property investors forget about this when calculating their costs and may not be prepared to pay the additional amount.
How will avoiding these mistakes help me?
Your first property can make or break your property investment career, so putting some more thought and effort into your first purchase can pay off in the long run. This is because investors usually use the profit they make on their first property to finance their second one, and so on.
Unlike shares, properties are not liquid assets, and they can take months or even years to sell. This makes it all the more important that your first purchase be well-planned with a long term vision in mind.
The eight mistakes that we’ve shared above are just some of the most common ones that our panel of experts have noticed or made themselves.
What mistakes did you make or do you think others should avoid as well? Let us know!