Don't Confuse Google With Proper Property Investment Expertise
Your goal to build wealth through a profitable investment portfolio shouldn’t be based on a Google search, but this is a common mistake made by many new investors. Armed with the vast amount of information online, they develop plans that neglect lending strategy, operating budget, property location selection, cash flow and goal-setting. Limited by the extent of their knowledge, they’re unable to imagine the best future for themselves - and the cost for would-be investors can be huge. It becomes almost impossible to achieve goals, further restraining an investor’s ability to get the most from their portfolios. So what exactly do you need to know when you buy an investment property? Read on to discover my top five tips to avoid the most common mistakes made by new investors and you’re partway there…
1. Get your finance in place and know your limits
Before doing any property research, consult an experienced mortgage broker for advice regarding finance products suited to your situation and around bank criteria to qualify for your preferred loan. If the bank says you’re pre-approved for $500k, most people think ‘Oh good, I’ll spend that’, however you may not have to purchase a property that uses the full extent of your funds. You may only need to spend $400k to get the right property - spending far less money and achieving a higher rental yield.
2. Develop an operating budget for your property
Essential to successful real estate investment is working through exactly how much a property will cost to own. You’ve heard the saying “do your numbers”, but also factor in all costs including council rates, water rates, body corporate fees, emergency fire levies, landlord insurance, contents insurance, property management fees and money for future maintenance issues. The mistake most people make is they look at the mortgage cost alone without factoring in these expenses. This can be the difference between buying a great investment and making a huge financial mistake.
3. Buy in a location at the right end of the cycle
Where to purchase an investment makes all the difference to the speed at which capital growth occurs. Property market cycles can take 7-10 years and are always predictable - slowing and correcting themselves once they’ve reached their peak. Once a market returns to the bottom of a cycle, it slowly recovers and usually goes above its previous peak. Unfortunately, most new investors buy at the top of the cycle and have to wait 7-10 years for capital growth. With expert advice, they could have invested in a rising market and capitalised on the upward trending cycle.
4. Know the best cash flow position for your needs
Purchasing properties cash flowed to match your personal circumstances puts you in the best position to buy your next investment. A property’s cash flow can mean the difference between costing you $200 per week (negatively geared) or putting $200 per week back into your pocket (positive cash flow). If you’re an average wage earner, negative gearing will slow your property portfolio building aspirations by impacting on your personal cash flow. If the intent is to “buy and hold” long-term, it’s much easier on your hip pocket to buy a positively cash flowed property.
5. Understand what’s best for you
Determining how to make property investment work for your personal circumstances can take years, costing time, money and heartache before you get it right. The mistake that 94% of investors make is that they don’t consider using an experienced property specialist, therefore missing out on their market knowledge, understanding of the property cycle and best location selection strategies. This experience helps them to see a far brighter future than you can, backed by the expertise to put your personalised strategic plan into action.
Moving forward without the right approach - and solely relying on Google - can put the brakes on building an investment portfolio. If you’re truly committed to building wealth through property, give your plan to an investment specialist and get them working for you. They’ll be able to build on your goals and improve your preferred strategies - achieving exactly what you want and more.