If you’re like many people, you’re interested in what property investment can do for your wealth and financial security. There is a lot of literature out there about how to become a successful property investor overnight, or how one or two investment properties can set you free from your 9 – 5 job. As a result, many people have built up incorrect assumptions about property investment and about climbing the property ladder. If you’re serious about property investment, these are the key things to avoid doing.
A Slow Climb on the Ladder
One of the most common mistakes is aiming for a slow climb on the property ladder and believing that a slow strategy is always the best. The investor is overly cautious, investing in only one or two properties over a ten year (or similar) period, waiting for the equity in their existing properties to increase before they expand their portfolio.
The weakness in this strategy is that property prices have gone up in the same period, leaving the investor without expanded capacity to purchase. Instead of carefully leveraging their existing equity to take advantage of investment property opportunities, they’ve acted overly cautiously and missed the chance to capture and hold capital growth properties from an earlier point in time.
Saving to Invest
Another common error to avoid is to believe that spending money scrupulously is the only way to build your property portfolio. You and your partner may cut back drastically on expenses to save an extra $10,000 per year. It may be at least 5 to 10 years before you save enough for a good sized deposit for a property.
In the interim, property prices have gone up again, so that the pool of properties that you can afford is as limited as before. The difference is that you’ve sacrificed lifestyle enjoyment for many years to arrive at the same point.
The fact is, income and getting financial assistance on how to best leverage your existing equity and funds is just as important as saving when it comes to climbing the ladder.
Not Committing for the Long Term
Some of those intending to invest are under the impression that it’s easy to get in and out of property purchases. In fact, any property you purchase needs to be carefully researched and due diligence performed before you make a decision.
Given the costs of purchase, the loan you’ll be committing to, and the length of the average mortgage, property investment should be seen as a long term commitment, not to be entered into without a significant amount of research.
A Lack of Specialised Knowledge
Property investment is a highly specialised area that calls for not just specific property and suburb profiling, but also financial and legal knowledge. To invest successfully for the long term, any serious investor should ideally be working with a team of specialists who can provide them with properties with high capital growth potential, help the investor minimise costs of purchase, and make sure the transactions are conducted in accordance with the law.
Commercial properties, in particular, need special attention and knowledge. These larger commitments can provide excellent returns, but for the uninformed investor, they can prove to be perilous and ridden with potential for disaster without appropriate guidance. Always invest with a view to working with property investment specialists who can guide you through compliance issues and do the hard work for you. In this way, you’ll avoid the common pitfalls on the property ladder, safeguard your investment and grow your wealth.