Every property investor wants to buy an investment property that performs well, but unfortunately this doesn’t always happen. We have complied a list of the 10 most common mistakes property investors make when buying an investment.
1. Not doing your homework. You need to understand the factors that determine the performance of a property market. (We list some of these factors –> Click here). You need to follow the market closely, carry out solid research and undertake due diligence, if you don’t have the time then maybe consider engaging an independent buyers agent. One of the keys is to buy an investment property that has owner occupier appeal. Ideally you should be looking for a property that will show a 4% to 5% gross return.
2. Waiting for the perfect time to buy an investment property or waiting for an absolute bargain. It’s never a perfect time to buy a property and you should be focused on time in the market and take a long term view on holding property. Obviously you need to do your research so you’re not buying in a market that is at the top of a cycle.
3. Buying an investment property that is close to home. You need to be open to considering longer distance properties or properties in another state. Buying a property close to home may be convenient and easy as you know the market, however it may not perform the best for your money.
4. Making an emotional buying decision. When buying a property to live in, it’s a different buying decision to that of buying a property to lease out. Don’t get emotionally attached to the property, you need to be looking at all the facts and figures of the state/suburb/property that you’re considering buying.
5. Not having a plan. Most first time investors buy a property and just leave it to take care of itself. You need to buy a property with the end in mind. A lot of astute investors start with a goal to create a passive income from property that is equivalent to their annual income. Some examples of a plan might be that are you going to reduce the loan to create an income or renovate the property to create value and refinance to buy another property or hold the property for 7-8 years then sell and pay out the loan. You need to work out a plan based on your circumstances. It’s a good idea to set up an appointment with your accountant, financial advisor or mortgage broker to discuss your situation.
6. Not playing the long game. A lot of investors sell their properties too soon without realising much capital growth. More than 70% of investors end up selling a property within the first 5 years of purchasing the property. You need to take advantage of the compounding effect and ensure you have enough time in the market. Also a property may not grow much for 5-6 years then rapidly grows in the next 2-3 years.
7. Not having a safety net or a buffer of money set aside. You need to set aside money for unforeseen life events, unexpected expenses, vacancy periods or increases in interest rates. Some property experts say in the current property market you should have cash buffers of up to 10% of your debt.
8. Not maintaining the property or carrying out repairs. You need to ensure the property is well presented and that you keep your tenants happy by attending to repairs. During routine inspections or when a tenant moves out, you should be looking to see if any improvements are needed. If you don’t make improvements overtime, then your rental income could decrease and you may find it hard to attracting suitable tenants.
9. Not reviewing ways to increase your returns. From time to time you should be reviewing ways to increase your return. Some examples may include obtaining a depreciation schedule, shopping around for more competitive interest rates, reviewing your insurance premiums as companies have automatic increases on coverage each year, can any improvements or renovations be carried out to increase the rent or value of the property.
10. Trying to manage the property yourself. Managing a property today is not just about collecting the rent, there is a lot involved and you should hire a professional that can add value and ensure your property performs better.