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Jun
8

10 Common Mistakes Made By First Time Property Investors

mistakesWhen it comes to property, there’s no shortage of information available about what budding investors should do in order to ensure success. But perhaps more important are the pitfalls to avoid so you don’t become a statistic of the property game.

To help you out, We are going to share with you 10 of the most common mistakes that beginning investors make and some tips on how you can overcome these to win big with real estate.

1. Heart over head

When buying a home, about 90% of your purchasing decision will be based on emotion and only 10% on logic. This is understandable, as your home is where you will raise a family. It’s your sanctuary. When it comes to investing however, letting your heart rule your buying decision is a common trap to be avoided at all costs.

You should always buy an investment 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 loved the curtains or thought it would make a good holiday retreat, you’re thinking based on financial gain rather than personal feelings. And at the end of the day, investing is all about the economics, not the emotions.

2. When you fail to plan you plan to fail

It’s an old proverb but very true. Attempting to build a lucrative property portfolio without a plan of attack is like setting out on a road trip without a map. You will inevitably take a wrong turn and end up lost!

Work out what you want to achieve with regard to income – are you chasing short term yields or long term capital growth – and how you can best manage your cash flow as an investor. What type of property do you need to buy in order to meet your income goals? With a carefully thought through outline of your investment journey, you will end up exactly where you want to be. So plan your action and then action your plan.

3. Diving in or undecided

Two of the most common traits of budding investors who never make it beyond their first property (or sometimes never even make it to their first!), are either acting too impulsively or being overly cautious and never acting at all.

The first is in too much of a hurry. They think they have to have it all yesterday. They attend one seminar and buy into the first crazy scheme they’re sold without thinking it through and when it doesn’t make them rich overnight, they lose heart and throw in the towel, saying property just isn’t for them.

The best you can do is find a happy medium – sure, learn as much as possible to make you comfortable with your investment decisions, but don’t think you can ever know it all before you begin. You will always have something else to learn and the best way to gain knowledge is to immerse yourself in the game itself.

4. Speculation over patience

Many people get into property investment hoping to become overnight millionaires. They think property will be a quick fix to their financial problems, but the truth is seeking short term gains in real estate is more about speculation than strategic investing.

The primary reason that bricks and mortar is a long term prospect is that it lacks the liquidity and hence the volatility of other assets classes, such as shares. In other words, it’s not all that easy to buy and sell property, and doing so will rarely make you rich. It takes time to sell real estate and then there are the numerous costs involved, including capital gains tax.

By approaching property investment with patience and persistence, you will gain far more success (and wealth) than if you seek out the “next big thing”. Securing proven, high performing property that grows consistently over the long term is the only way to ensure you make it to the top of the property ladder.

5. Not doing your homework

Understanding property markets takes time. And getting to grips with the cyclical nature of real estate is something that even eludes many experts. So don’t think you can attend a seminar or two, or read a couple of books and have a handle on exactly what to buy.

You need to know the neighbourhood you intend to invest in like the back of your hand. Make yourself completely familiar with any given area by pounding the pavement and talking to the locals, real estate agents and property managers. Find out all about the amenities, vacancy rates and historical values of properties in the area.

When you know the area, get to know the street you intend to buy in and the property you intend to buy. You can never know too much about your investment!

6. Buying the wrong property

Failing to do the above will inevitably lead to this big investment blunder!  By knowing your market, you will know what property to buy. In other words, are you investing in a suburb that predominantly attracts families or young, single professionals?

The demographic of an area will make a big difference when it comes to what type of property you buy. If you’re in a family market, you wouldn’t invest in a two bedroom apartment, whereas if you were targeting a young, childless tenant base, you wouldn’t want a large, family home.

The bottom line is – know your market and buy accordingly.

7. Poor cashflow management

It’s easy to fall into the trap of poor cash flow management as a beginning investor. Understanding all of the costs involved in acquiring and holding property can be difficult and you should always seek the advice of a professional accountant who knows about real estate investment to ensure you know exactly what you’re getting into financially.

Don’t forget to account for any contingencies, such as 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.

It’s great to dream about the riches you can make from real estate, but it’s critical to enter into property investment with your eyes wide open when it comes to all the out of pocket expenses you’ll incur along the way.

Examine each potential investment analytically and ensure you make adequate allowances. By underestimating your income and overestimating your expenses you’re more likely to avoid any nasty surprises.

8. Financing false step

The best advice we can give any beginning investor when it comes to financing your property investments is to seek help from a qualified, professional mortgage broker.

Going it alone can be daunting and time consuming and obtaining the right type of finance can save you thousands in the long run. Setting up an incorrect financial structure can be just as detrimental to your investment endeavours as selecting the wrong type of property.

There are numerous considerations to make here and a good broker who understands investment will be able to guide you in the right direction.

9. Being less than perfect

So you have found the right property and you are ready to make a move. Have you really done every little bit of research into the investment? Do you know why the vendor is selling? Knowing the vendor’s motivation can make a big difference when it comes to negotiating a good price.

Finally, is the property liveable from a tenant’s perspective? Remember, while you won’t be living here, someone else will, and they’ll be paying you to do so. Ask yourself, is the floor plan appealing and will the property provide a comfortable, practical home?

Always do a second and third inspection at different times of the day. Is it noisy during peak hour? How does the light work at different times? Are the neighbours party animals or quiet?

Ticking all of the right boxes when you inspect a property will ensure you buy the best possible investment every time.

10. Saving by self managing

You have done all the groundwork and secured the perfect property investment…now the hard work really begins!

In the short term, this might seem likely enough, but what happens when you have a portfolio of say twenty properties? The ongoing management of such a portfolio essentially amounts to a full time job!

Paying a professional property manager to handle all of these things on your behalf will not only mean you get the best outcome for your rental property in terms of a good tenant and the best possible returns, it will also give you something just as valuable as money when it comes to investing – time.

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Category : Flatons Advisors Blog

 

 

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