6 investor mistakes and how to avoid them
6 investor mistakes and how to avoid them
While investing in property is a smart way to take control of your future financial position, inexperienced investors often give away their purchasing power by making flawed decisions.
When it comes to property investment, knowledge is power. Buying investment properties can offer a steady source of income if you understand the balancing act between choosing the right property, in the right location with the right loan and strategy.
Whether you’re a first-time investor or have a portfolio of properties under your belt, mistakes are still easy to make. But property investment mistakes can be costly.
To build a successful portfolio, here are the top slipups to avoid.
1. Lack of education
Investors must always do their homework first.
Even if you’ve invested in properties before, it’s important to plan in advance and be well-educated about the market and location you’re buying into.
There are multiple factors to consider such as property price, your long-term goals, upkeep costs, potential growth and individual requirements.
Too many investors make the mistake of jumping in without adequate research. Before committing to a purchase, assess investment opportunities and economic drivers that may influence your returns. Understanding and researching the benefits and risks of each option will help you to make a better, more informed decision.
Tip: Be prepared to view several properties to find the one that best meets your goals and investment strategy, and delivers the steadiest income.
2. Not having an ‘expert team’
Similar to running a business, creating a team of professionals around you puts you in a better position for success.
Like business owners, investors should have experts to assist with the process. Some of these people to add to your team are:
- Financial planner: For crunching numbers and ensuring purchases are aligned with your goals and objectives
- Lender: The right home loan can make all the difference when it comes to making a profit
- Accountant: To help manage your investment property, offer advice on tax implications and keep your financial situation on track
- Solicitor: Without understanding property contracts and other essential documents, you could be setting yourself up for failure. A solicitor will ensure agreements are legally binding and help interpret the fine print and jargon
3. Financing with the wrong money
How your finances are structured impacts your investment returns.
First-time investors tend to use their savings as a deposit. But if you have a home loan, it’s more cost-effective to use your savings to clear debts and finance with equity. Investment loans are tax-deductible whereas home loans aren’t. Ideally, you want your home loan to be interest only.
Tip: Crunch your numbers. Make sure you have enough cash reserves to cover essential costs like insurance, council rates, maintenance and contingency savings if you find yourself without tenants.
4. Heart over head
The property market is unemotional – your decision should be too.
Purchasing an investment property based on emotions can lead to unnecessary risks. You’re not buying a forever home or a property because it looks good or you ‘like it’. Facts and figures must be the basis of investment decisions while ensuring every purchase is aligned with your long-term goals.
Property markets move in cycles. Property booms are in part driven by investors who buy too early in fear of missing out, downturns are perpetuated by investors who choose to stay out of the market in fear they’ll buy too early. If you allow your emotions to creep in, poor decisions are more likely.
5. No long-term plan
Property investment is all about long term gains.
Avoid buying into trends and “hotspot locations”. Instead, focus on properties in areas that have a solid, stable and consistent growth over time. For property investment to be sustainable, it needs to be dependable.
6. Changing your investment strategy
An investment strategy isn’t something you change because you found something else more tempting.
If you’re thinking about selling early, remind yourself why you initially invested in property and avoid worrying about market cycle ups and downs. The property market will always throw declines and unpredictable moments, but these are only temporary.