The most common mistakes new property investors are making
Property can almost be considered the ultimate risk-reward investment - for every success story and pathway to financial freedom, there is also a tale of catastrophic and costly failure. Buyer’s agent and author Lloyd Edge shares the most common mistakes made by first-time investors.
Property can almost be considered the ultimate risk-reward investment - for every success story and pathway to financial freedom, there is also a tale of catastrophic and costly failure. Here are some of the most common mistakes made by first-time investors.
Not having a plan
Even in a booming property market, you can’t just buy “any” property and instantly retire. Sure, you may earn some cash in the short term if you’re lucky, but it will get you nowhere towards your ultimate goal.
Having a balanced portfolio is key, and each purchase should be the next step towards your long-term strategic plan and enable you to grow your portfolio.
A strategic investment plan should always be drawn up with the ultimate end goal in mind, and should be reviewed annually, as well as after each property purchase.
It is also wise to review your plan if there has been a dramatic change in the investing environment.
Taking advice from friends or family
This mistake is more about taking the wrong advice, and being cautious of whose advice you choose to listen to.
Everyone seems to have an opinion on the property market and, unless they are a successful property investor themselves, you should always consider whether the advice of friends and family is the best advice.
We often hear people being turned off purchasing an investment property because someone has scared them through an overly risk adverse opinion without having all the facts.
What I know is that so many people regret not making a property purchase years ago before the market rose - I often hear “if only I had bought” so often.
If they had performed their own research and understood the risks, then they would have been well on their way to financial independence.
Free advice always comes at a cost
Keep in mind that ‘free’ advice is usually not good advice, and comes with its own costs. If someone is offering you ‘free’ education, or property advice, then be very cautious.
Everything comes with a price and they may be receiving kickbacks for recommending certain property developments or off the plan apartments.
Purchasing an investment property based on this advice should be taken with caution as it may not be completely independent, or have your best interests at heart.
You should always ensure any investment advice is independent and in line with your long term goals.
Not understanding all of the risks
We can not emphasise enough how important it is to do research on both the property, the area, and the market.
You should never avoid doing a building and pest inspection just to save costs, and this should always be budgeted into your cost of due diligence.
These reports can really save you from buying a property that requires a lot of repairs or has unseen issues lying beneath the surface.
Performing extensive research on the area, growth trends, comparable rental and sales, and the investing environment can also really ensure you purchase the most suitable property for your portfolio.
Understanding the economic drivers is important, and weighing up all the benefits and risks of each option is important.
Purchasing the wrong property will not only cost you thousands but can instantly stop your portfolio growth in its tracks!
Buying close to home because you know the area
I see this happening a lot. Just because it is a great area to live, doesn’t mean it is the best place for an investment property.
Buying close to your home may be an emotional purchase and not in line with your long-term strategy.
You should never buy a property based on emotion as the risks could be overlooked, your due diligence may not be as thorough, or your market research isn’t performed extensively.
Always research which is the best market that suits your particular goal, and you will be on the right path to creating your investment portfolio.
Avoiding these mistakes will put you on the right path of property investment.