Investing in property is a dream for many. It is an investment that you physically own, and like former US President Franklin D. Roosevelt said: “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world”.
When done right, a property investment can set you up with a comfortable nest egg to support you and your family through life’s adventures, and into retirement. However, like every investment, there are risks involved, especially if you do not know what to look out for.
To get the best return on your investment, there are several common mistakes you may want to avoid. Here is some advice to help you avoid those mistakes.
Have a solid plan
Just like all great things in life, a plan is what helps you get ahead. One of the biggest mistakes people make when investing in property is failing to set a specific goal from the beginning. It is important that before you invest in a property you know how it will generate an income.
From the beginning, consider your property investment strategy before you get caught up in the property buying frenzy. A few question you may want to consider include: What type of house am I looking for? Where is my target location? Do I want to rent my property or flip properties for profit? What will happen if the market sours?
While the answers to these questions are just the beginning, your plan should be full of details. This is a good starting point for your planning process.
Put your mind over emotions
Many of us are guilty of thinking with their heart and not their head, and when it comes to an investment you need to be analytical with your decisions.
Decisions made using the heart strings play a significant role in investment mistakes. It is important that you approach your investment property as a business and put your emotions to one side when making critical decisions. This means that you should not fall in love with your property so much that you begin looking at it from the viewpoint of a homeowner rather than a property manager.
Being analytical and objective is the name of the game when buying an investment property. If you see a property that takes your fancy, sleep on it and gain more insight into the capital growth and rental yield prior to making any rash decisions.
Research, research, research
Finding the right investment property is not something that is going to happen overnight, it can be tedious work. At times, it may be tempting to skip all the research and go straight to purchasing, but that would be a vital mistake. If you do not take the time to do your research first, you can end up with a property that fails to give you the return you want.
Some helpful research tips for property investing include:
- Avoid basing important decisions off the recommendation of friends and family. While well-meaning, those without expertise in the field can hinder rather than help your investment plan.
- Do your homework on the local area: what are the market trends? Demographic? Demand and supply?
- What’s the condition of the property? Will it require major renovations or maintenance?
- Does it meet the healthy homes standards?
- Does the property align with your target tenants wants and needs? For example, does it have the features and amenities that tenants want in that location?
Doing your research will ensure you are well-informed about the property and can make better real estate investment decisions - avoiding costly mistakes.
Do the maths
It is important that you are familiar with the numbers before you commit to an investment property. You need to make sure you are on top of your mortgage repayments, as well as other costs, such as maintenance, rates and insurances.
To make sure you are prepared for any additional costs, it is a good idea to create a maximum limit and to set aside an emergency fund for any unexpected costs or issues that crop up from managing a property.
On top of this, always make sure that your investment is financially sound. Make sure you have enough money stowed away to put down a decent property deposit and have enough to pay back those monthly loan repayments. A good rule of thumb is to have 2-4 months of rental income saved up as a financial buffer to avoid being in a constant state of financial stress.
Don’t settle for the wrong property
With a number of different properties to pick from, it is easy for first-time investors to jump on the first property that becomes available. A word of advice? Hold your horses. If you want to avoid buying the wrong property then keep an eye out for the following:
- Is it an investment-grade property?
- Scarcity: investing in a new build property within a new residential estate may not have the investment potential as an older home.
- What is the land value?
- What is the past sales history of the property?
- Consider the property’s proximity to shopping centre, hospitals, schools, arterial roads and so forth.
When in doubt, always consult with a property manager for professional advice to avoid investment mistakes.
Think long-term
Real estate needs time to grow in value. The longer you own the property, the high your return will be when it is time to sell. If you are hoping to get a good return on your investment, then avoid making the mistake of investing short-term. Sure, it may provide investors with a higher rate of returns, but it also comes with a higher risk. Remember, as a first-time investor, slow and steady wins the race.
Consider your tenants
If you have decided to have an investment property you can rent, keep your potential tenants in mind. Many first-time investors only take in account their needs when purchasing a property, and fail to notice what will and won’t work for potential tenants who may call your investment property their home.
Try to match your investment property with the types of tenants most likely to rent in that area. For example, families will want a safe neighbourhood and proximity to good schools. Singles or seniors may want access to public transport and shopping complexes. If your property is to be a vacation rental, make sure it is nearby local attractions.
Why hire a property manager?
If property investing was easy, everyone will be doing it! The truth is, it can be a difficult enterprise, especially without proper planning and due diligence.
When you seek professional advice you are benefiting from someone who has years of expertise and knowledge. A skilled property manager can help you to avoid all of these common investment mistakes and assist you in securing a property that has the best potential for long-term return.
Our property managers can help you avoid property investment mistakes, so book your free rental appraisal with an LJ Hooker property manager today.
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