Common property investment mistakes and how to avoid them

Common property investment mistakes and how to avoid them

We always say that property investment is really not an easy peasy task but with a thorough research and learning one may be able to form an informed decision. We try to bring you the most of the information that can help you with the same. 

They say Mistakes are learning and stepping stones towards success and there are some common mistakes that 80% of investors make for the very first time and even later which you can avoid and deal better with it. So, let’s not waste any of your further time and jump right into it.

10 MOST COMMON PROPERTY INVESTMENT MISTAKES TO AVOID 

Investment as a general concept is quite tricky and subject to many factors determining the valuation and so is the Property investment. Even after all the ups and downs you can pull up a good strategy for property investment with due diligence. Understanding the What Not To Do is sometimes even more crucial than the What To Do List. Here is an accommodated List of Not To Dos as per our research and diligence:

[1] Lack of Due Diligence: 

Often people get trapped in too much information which is sometimes not even related and take them completely off track. At the same time, sometimes the aspiring investors forgets to be conscious enough to cross check everything in greed of a good offer. Paying your 100% due to diligence is a must. If you are investing for the very first time, you may not be aware of all things you must check before signing up for a property. Hence, you shall do thorough research and then finalize your decision. By whatever means you may be opting to buy a property, you shall never forget to back it up with proper reports and written communication to avoid any legal issues. You may always check on the DSR and other developmental projects that may take place in the near future because if the DSR is low and the suburb is getting loaded with new projects it may lead to less valuation.

[2] Letting the Heart Take Over Your Brain:

This is the ultimate mistake made by all first time investors. As we say Property investment and buying property for personal use are two completely different concepts. If you are buying property for personal use and residence then you are allowed to let your heart manipulate the decision a bit. But when it comes to property investment for profit, you must refrain from letting Heart rule out your Brain. Experts say people usually get trapped in buying houses that look and feel good neglecting their actual valuation and future probabilities. 

Hence, Buckle up your emotions in the back seat of the Rover and think like a wonderful Businessman. 

• Rather, you shall select a property or suburb based on numbers and reports along with thorough analysis of the past 5 years.
• How-so-ever lucrative the offer may be – Do not buy out of FOMO. Never. First and foremost analyze everything through, sleep on it and then invest.  
• If you really are in for a business here, you shall never rent your property to family and friends as that may incur you loss.
• Do Not let your heart fall in love with the property if you are looking for profitable business out of it because this may stop you from selling it out even after an irresistible offer.

[3] Occupying Property for Short-Term:

We have mentioned this several times earlier as well! Property investment is a Long-Term Game. A set of factors affect the valuation of the property and it need not stay stable every now and then. 

• People often get scared by the dropping values of property which may be caused by temporary phenomena sometimes and then they make the mistake of selling it off sooner then regret it later when the price gets hiked.
• History itself suffices reasons for holding the property for longer duration if you check it through. 
• Since the past 3 decades the property prices have evolved up to 400% and above.
• Instead of Timing the market, start giving time to the market. But it does not mean that you shall not sell the property that makes a constant loss over 5 years.
• Keep a track record of the property performance in your desired suburb or area, this may help you a little to understand when is the right time to sell.
• Property values in Australia tend to double in the span of 7 to 10 years.

[4] Trying to Be All-Rounder (Self-Management):

As property investment is a big decision, most investors make the mistake of trying to become an all rounder thereby worrying more and leaving fine details behind their eyes. For something to succeed one must learn to trust and delegate work and a true and smart Businessman is well aware of this fact. Managing everything by yourself leads you to a lot of chaos later on.

• Why jump into everything by yourself? Let the property managers take care of the chaos. 
• Property managers are generally well equipped with market knowledge and have super concrete strategies to manage your properties.
• Sparing a couple thousand dollars on the property managers will allow you more time and focus for your next property investment strategies without worrying about other stuff.
• Property managers can collect rent, fill up vacancy, do regular inspection of the property, ensure state level compliances, manage bills and prep your property for lease purpose as well all on your behalf. Hence, sparing your valuable time on all the tiny things and self-management is not really worth it and it is not just our words, these are words of all those investors who have had their DIY property management experience.

[5] Weak Financial Structure/Plan:

Financial structure is a crucial part of Property investment. A bad, weak or wrong financial structure can turn your property investment into a nightmare thereby making you finalize not to invest any further. So, like 60% of investors you shall avoid committing this mistake ever in your life. Manage your finances. Educate yourself about all the possible financial options available out there. 

• You must adhere to your budget. Many times investors dive into a property with expectations of more profit and fall into over borrowing.
• Prepare a very specific financial goal and consider how much risk you can take. Do not overboard with it. You shall always keep a check on affordability as a few months you may keep on going but how long can you bank on that exhausting your income?
• You shall check all the loan options being principal and interest or interest-only loan options and then decide what works best for you.
• Also consider how you want to Gear your property as in positively or negatively. Negative Gearing means holding a property at net loss calculating the rentals and other costs at the end of the year. Investors follow this trend to avail Tax Benefits and High Capital Growth Properties. Positive Gearing means your rental income is higher than all the costs that you incur to run the property.
• While preparing the Financial Structure you shall act smartly and keep your regular expenses and requirements and extra reserve for uncertainties and emergencies aside at the very first and then budget up keeping in mind the inflation rate as well. 
• Do not advance for Negative-Gearing when you can not afford it for longer run.

[6] Indiscriminately following the debt payment:

By the word Debt we don’t just mean the borrowings related to your property. 

• Debt includes all the possible Loans, EMIs, Personal Borrowings, etc. Often people get stuck with their credit card bills, EMIs, other loans and at the end limit their capacity to borrow any new money or finance. 
• When you are planning for property investment either you avoid taking any further debt incurred products or you first pay off or settle down all the previous debts or at least 80% of it. 
• Debts could be with or without the benefits of Tax Deductibility. Above mentioned debts come into non-tax deductible category. So what you need to do is repay them first and then repay your Tax Deductible debts.
• Do not forget to consider the Tax Depreciation Deduction while capitalizing your investment property, it can provide enormous potential benefits or returns.

[7] Letting Rentals Stagnate:

Rentals in Property market tend to change quicker compared to the overall property market. Do Not forget to watch the rental market as neglecting this may cause you potentially better income. By the time you come to a realization of this, it may be a little late. Then further you try to keep up with it by increasing the rent suddenly by an unreasonable amount. Instead of sudden increments, it is better to add baby steps i.e make increments of nominal amount at regular intervals of lease which can be affordable by the tenant as well and that can only happen if you do not let the rents stagnate for a longer period.

[8] Ignoring Probable Setbacks:

Investment in general can be a bumpy ride every now and then and the same rule applies to Property Investments as well. You can never predict the future and what may and may not come your way. But looking over past years’ records, you can definitely get a hunch of what usually can be thrown on your road to investment in properties. Hence, Never Ever make a mistake of overlooking or ignoring the possible issues or additional costs that may give your investment a major setback. Keep an eye on world economy and analyze what events can take place in the near future and how it can affect your property investment strategy.

[9] Improper Buying Strategy:

Buying strategy constitutes that major part of your property investment business which can decide all the favourable and unfavourable outcomes. It can turn the whole game upside down. You need to be very much clear in regards to this part. 

• Proper Buying Strategy includes considering historical growth figures, unemployment rates, vacancy rates, rental yields, median prices and population growth to make a more informed indication of whether a property will perform well or not. 
• One shall avoid paying highest bids and buying houses in an auction. A good deal though is welcome but usually auctions simply sell the properties at way higher price then their real value.
• Buying in local or rural areas is also a big mistake because due to surplus land and lesser demand it doesn’t make a good revenue or profit.
• A lot of investors usually get pumped up with too much information and then they try to time the market and wait for the perfect time to purchase the property. But there is no such thing as perfect time and one need not to overthink on the same. Until and unless you do not hop in you do not get the real understanding of the market. Being aware is a good characteristic but Procrastination is not. 
• Buying more of a new property can be more helpful in terms of low vacancy rates and tax depreciation benefits.
• Step into the shoes of a tenant while buying or renovating a property and understand the strategy and their buying capacity.
• Buying a property closer to education centers or universities can be beneficial too and you can always keep it on sharing residents.
• While buying a property also keep an hawkeye on the repairs that property may need as it may burden up your budget.

[10] Getting attracted towards the lowest interest options:

A lot of people think that they have got an amazingly irresistible deal when they hear about the lowest interest rates but that is not always true. We mean you must explore your options and find relatively lower rated loan options but if anything comes with unbelievably lower rates then do not fall for it. Usually they come with many hidden clauses and if you do not check the agreements thoroughly then it could be a problem. Many investors have experienced that these considerably lower rated loans ended up being the most expensive later due to various hidden charges and clauses. 

Some banks and organizations may put a higher minimum payment clause or limit the offerings out there. Sometimes the dropping out charges or EMI overdue charges could be way higher too which may not be disclosed in the conversation. Just like these there can be many fine details that an investor may not be aware of and later may regret it.

So, go for lower rates but the Relative ones, not the Absolute ones and always remember to read your agreements or contracts thoroughly before signing up be it be from any known or unknown source or person.

CONCLUSION

If you take care of all the fine details and consider all the opportunities and threats then we think you may be able to succeed with multiple property investments as well starting from one. These are just a few of our findings and some experts experience based listing. There can be more to it which you will come across throughout your research

. 

Do not get trapped in agents’ words, salesperson or flashy advertisements without your due diligence and research because in the end you need to deal with it in the long run. Listen to everyone and go with your Gut backed up with numbers. 

Stay updated with the market trends regularly to formulate finest decisions and strategies. Do not forget to update your rental strategies in regular lease intervals.

We hope this article was helpful to you. Mistakes give you life lessons and somehow help you to grow. Nothing is mistake proof in the world, not even life. But when you are enlightened with the common mistakes, you can avoid falling for those and make your own unique mistakes!

Tell us, have you ever heard anyone falling for these common of all mistakes and what solutions would you give to them? If you are a seasoned property investor already then enlighten us and our readers – what mistakes you have made in your initial stage of investment properties and how others can mistake-proof themselves of it.