Deciding to buy your first investment property can be a nerve-wracking experience, especially since there is so much that can go wrong. But by knowing the most common mistakes those new to investing can make, there is a greater chance of avoiding them!
Check out the main property investment mistakes many people make when investing for the first time.
Letting emotions rule decisions
Investing is about the economics, not the emotions.
So if you ever find yourself favouring a particular property over another because you like its garden, or it has a good feeling about it - stop. Sure, some things could be good for attracting tenants and higher rent, but logic and research should be the only factor in making a decision on buying an investment property.
If you buy a rental based on emotions, you are also more likely to make bad decisions further down the track - like not selling it when it’s time to, or over-capitalising on renovations. Don’t get attached to an investment property for any other reason that it is to help you achieve financial goals.
Having high expectations
It can often seem like every person and their dog are property investors, and it probably looks like they are making a good income from it too. So surely you can jump on the bandwagon and make a quick buck right? Wrong. Unless you’re a skilled expert, investing in property is less about short term gain, and more about medium to long term growth and profit. Persistence and patience is key, and sometimes it doesn’t all work out the way you thought it would.
So if you assume the money is going to roll in immediately, and it doesn’t, you might decide to chuck it all in too quickly - and lose out financially.
Lower your expectations, focus on careful and thoughtful investment, and know that it can take time to reap any rewards.
Don’t do enough planning
Heard of the saying ‘if you fail to plan, you plan to fail’? This is true for property investing.
It is not enough to say ‘I’m going to buy a rental to make money’ - this isn’t a plan, this is a statement. So don’t make the mistake many other first-time investors do, sit down and ask yourself the following (at a bare minimum):
Do I want short term yields, or long term capital growth?
Am I just going to have the one property, or do I want establish a portfolio?
Is it just about a nest egg for retirement, or should I have higher ambitions?
When do I want to achieve my goals by?
What level of risk am I comfortable with?
Which experts should I speak to, and what should I ask them?
Not hiring a property manager
Many first-time investors make the mistake of thinking they can save plenty of money by self-managing their investment property (or properties).
Unfortunately, many people just don’t understand what is involved with thorough property management, meaning many landlords fail to see the value that comes from employing a skilled person to look after their investment.
Do you know how to find and qualify suitable tenants? Have a good grasp on the laws relating to renting out a property? Have time to conduct regular inspections to make sure your asset is being taken care of, as well as chasing up rent arrears? What happens if something goes wrong and you have to go to a tenancy tribunal? Not to mention having to be on call 24/7 for any maintenance issues that arise, and organising the right tradies to take of the problem.
Not hiring a property manager is one of the biggest mistakes first-time investors make.
Rushing in or holding back
It is vital that you find a balance between making a rash decision on buying a rental, and holding back for so long that you miss out on the opportune time to become an investor.
If you rush in without doing your homework, and carefully considering all aspects of a property, then it is likely you will miss out on any potential issues the home or the location could have. But on the flip side, if you hang back and spend too much time on overloading yourself with information, you might experience paralysis by analysis, and never become an investor!
Failing to understand the finances
It is one thing to have a deposit for an investment property, it is another to have a solid understanding of rental income, cash flow management, and the importance of a contingency plan for extended vacancy periods or unplanned maintenance.
Have you also accounted for insurance, council rates, water, and any other extra expenses relating to the property?
Thinking that having a rental property is a simple equation of incoming rent and outgoing mortgage repayments is a crucial mistake that many people make when new to investing.
Choosing the wrong property
When it comes to buying a property to rent out, it is absolutely critical that you do your due diligence to have a solid understanding of the market you are getting into. There are so many factors to consider - for a start there is the location, the amenities close by, the kind of tenants you will be looking to attract and what kind of vacancy rate the suburb has.
And once you work out what kind of property it is you are looking for, once you do start viewing houses or apartments, you need to be thorough. Why is the vendor selling? What work has been recently carried out and does the council have a record of it? For peace of mind you should also consider having the relevant inspections carried out to ensure it is structurally sound and that it hasn’t been used as a place to manufacture methamphetamine.
------
Don’t become a statistic. Do your homework, research, research, research, and never be too proud to call in the experts to help in the areas you aren’t sure about - it makes you a smart investor to know your strengths and weaknesses. Download our free guide to help you keep the risky tenants away.
