Over the past 10 years and thousands of client meetings we have had the opportunity to learn many things from other investors, both good and bad! In this article, we have summarised the Top 5 common mistakes made by property investors and how to avoid them.
Mistake #1 – Emotional buying and following the crowd
Warren Buffet once said, “Show greed when others show fear, and fear when others show greed”. This is the philosophy of counter-cyclical investing, or doing the opposite to everyone else! Too many investors buy at the top of a cycle when the media and their peers give them the comfort to think it is a good time to buy. This is usually too late, with the prospect of the market continuing to rise, or bagging a bargain, being reduced.
If the decision to invest is made, it must be based on a strategic approach, rather than an emotive decision. ‘Would I live here?’ biases must be replaced with objective research and analysis to yield the best performing investment.
Mistake #2 – Not having a property investment strategy
Those who fail to plan, plan to fail! Too many investors don’t conduct the necessary personal due diligence before investing such as; cashflow projections, budgets and best and worst case scenarios. The failure to adequately plan the investment can result in significant financial challenges, and unexpected stress. Everyone is different and has different property requirements because of their unique financial positions, life stage, goals, risk profile and experience. Never buy someone else’s investment strategy. For example, an investor moving into the retirement stage of their life cycle may be requiring more of a cashflow orientated strategy, versus a younger investor who needs to grow their equity through a growth strategy.
Mistake #3 – Not doing correct property investment research
There are many things to consider when assessing the potential of an investment property, including where to buy. The media may report on the ‘Australian Property Market’ as a single entity, however, Australia consists of thousands of property markets, doing different things, at different times. Sound Property has developed an innovative research model that involves a ‘top-down’ approach across three tiers of research. The 15 Key Investment Drivers identify the best markets and property for growth and rental yield, and help reduce risk. Rather than starting with a property and trying to justify it as a good investment, it is better to start at a Macro level (i.e city) then move to a Micro level (i.e suburb), and then finally assessing the Property level. For example, if you are buying in a suburb with high vacancy rates, or a city with rising unemployment, then the performance of the investment can be severely impacted, regardless of the actual property and its features. Never look at 1 or 2 pieces of data in isolation, such as rental yields or capital growth, as this doesn’t give a complete picture of the market. It may hide other vital facts and trends that need to be taken into consideration for a sound investment.
Mistake #4 – Not having a team of professionals
If you think it’s expensive to hire a professional, wait till you hire and amateur! Buying a property involves many moving parts, and assembling the right team will help you minimise risk and costs in the transaction. This team of professionals will include a solicitor, mortgage broker, buyer’s agent, property manager, building inspector, accountant, financial planner… just to name a few! The cheapest service is not always the best, and sometimes paying more for sound advice can save you thousands of dollars and many hours of time. Buying property will be one of the biggest investments in your life, you therefore need the best support and advice available.
Mistake #5 – Not buying property with strong owner occupier demand
There is nothing like the demand of an emotional owner occupier to create price growth, especially in a market with low supply. Investment properties in a large high-rise unit blocks, or house and land in an expansive greenfield land estate on the edge of urban sprawl, are usually all sold to investors with glossy brochures and empty promises of demand fuelled growth. However, due to the ability to create more stock in these areas, and easily exceed actual demand, these investments rarely exceed the performance of well located, family orientated property in tightly held, established neighbourhoods.
Avoid these mistakes and get in touch with an investment property experts on 1300 655 899 or email us.
This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.
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