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Many people that own their own homes toy with the idea of going that step further and becoming a property investor, and this can be a very lucrative and successful move for those that go about it the right way. However, there are many aspiring property investors that make mistakes that can prove to be costly, and this is why it is important to know how to avoid mistakes before you take the plunge.
Below are few very important points when it comes to investing.
A common mistake amongst first time investors is thinking that because they dealt with the purchase or sale of their own home they know all that the need to know to be a successful property investor.
This is not the case, and could result in you missing out on valuable investment opportunities such as the ability to invest in property in an area that you may not be familiar with but which has far greater growth potential than the areas that you may be considering.
People tend to look in areas they know and are comfortable with aka their ‘comfort zone’. Most commonly within a 10-kilometre radius of where you live. The problem with this approach is that there may be suburbs with far greater growth potential outside your comfort zone. And the point of property investing is to grow your capital, so having access to independent and up-to-date property research is really important.
Close friends and family can be invaluable in certain situations, but unless they are actually experts in property investment it is best not to seek their advice about property investment opportunities. The advice that you will receive will most likely by based on their own personal opinions and experiences, and this advice could steer you wrong or result in you missing out on great opportunities.
It is a natural reaction for most first time investors to be cautious about ploughing their money into the property market, and some may spend long periods of time changing their minds and going back and forth with regards to their investment intentions. However, this procrastination could result in you never taking the plunge and missing out on what could be a huge money making opportunity.
There are two strategies that you can consider as a first time investor. The first is to buy a property very cheaply, and these are often ones that need work doing on them. You would then make the necessary improvements required to the property and simply sell in on at a profit once completed.
The second option is to hold on to the property, which will allow your investment to grow over time if you have purchased at the right price and in the right area, and could provide a good income for your retirement as well as providing you with a valuable asset.
Some people do get attached emotionally when it comes to properties, but it is important not to base your choice of property purchase on your emotions. Investors should always put finances first, and the money side of the investment should be the most important factor without letting personal taste and emotion get in the way.
One thing is certain, this is a business proposition. You are not going to live in it. Too many people get carried away with the emotional side of the property.
It doesn’t matter if you have a spa in the bedroom at home and the investment property doesn’t, or the window coverings are not what you have at home. It is a commercial decision – which property will give you the strongest capital growth, save you the most tax, with your contribution being the lowest?
Whilst some people may be tempted to opt for an older property as their investment property, this can prove to be a costly and time consuming mistake. Many older properties require a lot of maintenance, which will be the responsibility of the landlord even when tenants move in, and the time and money involved in maintaining the property can be shocking.
It is a good idea for property investors to look into buying off plan, as a new property will be able to generate profits far more easily. The ability to depreciate a new home more quickly means that as an investor you could qualify for thousands in tax benefits, as well as enjoying better rental income and avoiding the maintenance costs of an older property.
Avoid over-spending on an investment property: It can be tempting to see a property in a lovely area, with brilliant views and lots of facilities, and you may think that this is the ideal investment property because it will be popular amongst those looking to rent. However, paying a high price for investment property based on these factors can be risky, as any problems with the economy and the financial markets could mean that tenants cannot afford the rental required to justify the cost of the property, which in turn could mean that it remains vacant for long periods of time. Investors reduce their risks by opting for an average priced property that people are going to want to rent and be able to afford to rent.
Investing money in property can be very lucrative but can be risky for those that try and cut corners by failing to seek out expert assistance in particularly high risk areas such as financing the investment.
It is important not to assume that getting the money for your investment is all about looking for the cheapest loan, and then it's full steam ahead. This can actually be very risky, and with other financial factors to consider, such as taxes, rental returns, maintenance costs, stamp duty, and more it is vital that as a first time property investor you get the right financial advice from experts.
One mistake that many people make is to wait until the end of the year before claiming tax deductions for depreciation of the property. However, this can actually be paid on a fortnightly basis, and this means that the interest earned on the money comes to you rather than to the tax office. It also means that you are less likely to have a cash flow problem in the event that you have to make up any gaps where the property is not tenanted.
The theory behind renting out your investment property may seem simply but in actual fact it can be hard work and very time consuming. A bad tenant, in particular, can have a serious effect on your investment and your peace of mind, which is why it is seriously worth considering having an property manager to deal with tenant issues, conduct credit checks, ensure that rent is kept up to date, prepare paperwork and tenancy agreements, and deal with many other areas of your investment property.
Your property is a big investment and you need to ensure that it is properly protected. Failing to take out adequate landlord protection insurance can be a big mistake, especially considering that this cover is both affordable and offers valuable peace of mind.
Landlord protection insurance is very affordable. For what it covers, it is essential that each property you own, is covered.
Written by Michael Sanz