In stable and rising markets, property investment seems to delivery easy wealth. In volatile or uncertain times, poor purchase decisions become more evident. Property investment is only a safe and stable investment vehicle if you work with the right people and structure it right to ensure that it’s tax effective. Here are the 10 common property investment mistakes.
Mistake #1: Being Your Own Advisor
Having gone through the entire purchase process of research, checking the property and finalising the sale, most people think that they’re well qualified to be their own investing advisor. In fact, this is a mistake that too many investors make to their detriment.
Most people will look within their own comfort zone, and most probably choose properties in areas similar to those they live in. They’ll overlook other suburbs and property types with greater growth potential. Professional investment property advisors understand the difference that a 10 per cent (as opposed to a 5 per cent) growth property can make to any portfolio. It may seem great to say, “I did it all myself” – but the reality is that this strategy comes with significant risk.
Mistake #2: Putting it Off
First time or even experienced independent investors find it hard to maintain the momentum to get started, take action, or to really make inroads into building a large portfolio for wealth. It’s often easy to put things off when you’re working alone or without professional advice, so the best way around this common error is to seek good professional advice.
Mistake #3: Inappropriate Purchase Structures
Whether it’s your finance or purchase structure, this mistake is about tax and cash flow. Structuring your purchase and your loan the wrong way, without sufficient flexibility and cash flow can mean you’re constrained by cash flow or paying too much tax. Cash flow problems can result in investors having to sell a property because they’re no longer able to maintain the holding costs. Obtaining professional advice from experts will help you realise your investment wealth sooner.
Mistake #4: Emotional Purchases
Your investment property should not be an emotional purchase. It’s appropriate to be emotionally attached to the home in which you live and raise your family, but not an investment property. Instead, they should be purely financial decisions determined on the numbers, not how you might imaging yourself living there yourself. Due Diligence checks and the prospects for growth and rental yields are the key things to consider.
Mistake #5: Buying Old Properties
A very common mistake that investors make is to buy old properties, then underestimating the cost of renovation and upkeep. Buying new and off the plan helps you maximise depreciation benefits, attract great tenants at a higher yield, and ensure the building is fully compliant with changes in the building codes and construction technology.
Mistake #6: Doing it All Yourself
Some people insist on doing it all themselves, not realising that often they simply lack the expertise and time to make the right decisions during the crucial stages. You’ll need plenty of industry knowledge and market research to source the right property, to screen it, and then to negotiate a good deal. The best way to avoid a bad deal is to have the experts look after it for you.
Mistake #7: No Long Term Strategy
Many stumble into property investing without a clear long term strategy of aggressive purchases during the appropriate stages. Lots of people, having no clearly set out plan, lose momentum along the way. It’s all too easy to become distracted by all the “opportunities” without a plan. If you don’t have a clear plan and goal, like building a portfolio of 4 properties over a 10 year period, how will you know that you have reached your goal? It’s important to have a goal to work towards.
Mistake #8: No Periodic Reviews
While property investing is a long term strategy, any portfolio needs a periodic review and re-assessment. Speaking to your advisors about cash flow, tax, speeding up your five or ten year plan to take advantage of changing market conditions – these are all ways to stay ahead of the game.
Mistake #9: Insufficient Risk Management
Lots of independent investors don’t understand risk management or have sufficient financial literacy. Hence they can’t protect their property against cyclical downturns. Structuring your buys in the right way to minimise tax and smart financing will help you create buffers and prevent exposure to risk.
Mistake #10: Not Buying the Right Properties
The smartest decision you’ll make in property investment is in which properties to buy, and where. Aligning yourself with a company that can strategically consider all property types in all locations around the nation, will certainly make a difference in determining the best property to buy. Never allow yourself to be restricted to only local area when making a big property decision.