Avoiding these easy mistakes could be the difference between owning one investment property or a multimillion-dollar portfolio.
If you are buying or investing in property, have you noticed everyone else is suddenly an expert and wants to share their experiences and advice with you? This is all good and well, but rarely do people tell you what not to do and there are a handful of common mistakes many investors make.
These mistakes can be costly and often result in investors failing to build their portfolio beyond one or two properties. It’s not because they don’t have the opportunity or the resources to do so, it’s because they made one of the following easy mistakes.
Don't stretch yourself too far
Before you start looking at properties, take a careful look at your own finances and have a clear understanding of all your current expenses, plus the costs associated with owning an investment property. Be sure to leave enough of a buffer to cover any unexpected costs, loss of rental or changes in personal circumstances or interest rates.
Don't be afraid to explore new areas
Once you know how much you have to spend, don’t be afraid to step outside your comfort zone and explore new neighbourhoods. So many people buy investment properties close to home, because they know the area, when much stronger potential for capital growth can be found elsewhere.
Do your research and pay attention to the benefits of a location including proximity to public transport, shops, schools, health providers, public open spaces, sporting facilities, community amenities and more. But don’t just look at the positives; be aware of the negatives such as crime rates, graffiti in the area and the poor reputations of neighbouring schools.
Don't buy with your heart, buy with your head
Buying an investment property is not the same as buying a home you are going to live in and you must treat the process differently.
Write yourself a checklist of criteria your investment property must meet and never stray far from the list. If you can continually view your purchase as an investment decision, you will retain the ability to walk away from an opportunity if it doesn’t tick all the boxes.
Don't jump the gun
Buying an investment property is an exciting process and many investors are so enthusiastic they jump the gun and buy one of the first properties they see. This is not always the best decision so stop, take a deep breath, do your research and be confident you are making an informed choice. By hesitating you may miss out on a good property but you can be guaranteed there will always be another good one around the corner. It is much harder to fix the problem if you make a hasty or bad investment choice.
Don't forget to pre-approve your finance
You are in a much stronger negotiating position if you have pre-approval for your finance and you will be less tempted to blow your budget. It will give you peace of mind because you know what you can safely afford and it will give you confidence when buying your property.
Don't forget there are many ways to invest in property
Your bank might be willing to approve your finance but have you considered the different ways you can invest in property? You may choose to invest with someone else, via a trust or purchase an investment property via a Self-Managed Super Fund (SMSF).
Don't forget the devil is in the detail
Not only are mortgage documents detailed, but contract documents for the sale or construction of a new property are extremely important documents too and all should be carefully reviewed with a fine tooth comb. Understand exactly what you are signing and don’t gloss over the fine print.
If you are buying or building a new home, pay close attention to all the clauses of the documents prior to signing. Many contracts these days are watertight so it could be a very costly exercise if you don’t protect your interests, especially if you sign an unconditional contract.
Don't be afraid to ask for help
Property investment is an easy and rewarding process but it can be daunting at times. Regardless of whether you are a new or experienced investor, there is always more to learn and it never hurts to talk to the experts. Don’t be afraid to ask for help from your realtor, buyer’s agent, financial advisor, mortgage broker, lawyer or property manager – depending on what you need.
Don't forget to have fun!
Property investment is meant to be fun so take the plunge and don’t forget the long-term objective to build your investment portfolio. Constantly review and refine your strategy and enjoy the experience of building your own financial security through property.
Peter Gianoli joined ABN Group in 2011 to establish Investor Assist. Peter has more than 15 years of experience in the property industry working across some of the country’s premier development projects and throughout his career has overseen the sale and settlement of properties worth in excess of $1bn. Peter is also a highly sought after public speaker and has educated audiences throughout Australia and around the world on topics including property marketing and investment.