As a new property investor, the whole investment process can seem a little overwhelming. There’s so much to think about, and as with any financial decision, there’s an element of risk.
To help you prepare, let’s take a look at five of the most common property investment mistakes made by new investors – and, more importantly, how you can avoid them.
Mistake #1: Not conducting proper research
If there’s one golden rule when it comes to property investing, it’s this: do your homework!
Completing your due diligence is the most important thing you can do when buying your first investment property. This includes things like:
- Understanding the local property market
- Learning everything you can about the area in which you might purchase, including:
- Local features and amenities
- Property values (current and historical)
- Vacancy rates
- Any future developments in the area, such as apartment complexes (which might contribute to oversupply)
- Obtaining independent financial and legal advice
- Having the proper checks conducted on the property, such as building, strata and pest inspections.
Allowing emotional decision-making to influence you is another of the most common property investment mistakes made by new investors, so it’s important to focus on the facts you uncover through your research.
Investing in property is vastly different to the process of buying your first owner-occupier home. Obviously, when you’re purchasing a property for yourself, factors such as whether you personally like the home and the area are a big consideration. But these factors need to be left behind when you’re investing. You need to look at the property as objectively as possible in order to determine whether it’s the most viable investment.
Mistake #2: Waiting too long to invest
While due diligence is of vital importance, we also acknowledge that there is such thing as doing too much research!
For new investors especially, it’s possible to get so caught up in trying to learn everything you can that you never end up actually investing at all. This could mean missing great opportunities and wasting valuable time you could have spent securing and furthering an investment.
It can be easy to feel immobilised by scaremongering in the news – there’s never a shortage of articles about plummeting property values and softening markets. But by looking past the media and speaking to experts, you should be better able to determine the safest and most prosperous time to start your investment journey.
On the other hand, though, it’s also important not to jump too quickly into property investment. Having a proper plan in place is key – which brings us to the next of our common property investment mistakes…
Mistake #3: Not having a long-term investment plan
One thing many new investors don’t consider is the long-term strategy and planning involved in successful property investing. There’s more to it than just purchasing a place and renting it out!
If you’re serious about property investment as a wealth creation strategy, you need to have long-term goals and a plan in place to achieve them. Ask yourself questions like:
- What do I want to achieve with my property investment, and when? Immediate cash flow, long-term capital growth, ongoing income in retirement, etc.?
- What kinds of properties/how many properties will I need to purchase to achieve this?
- How do my current finances fit in with this plan?
Having a long-term investment plan is key, especially if you eventually want to own a multiple-property portfolio.
Mistake #4: Trying to self-manage your property
Many new property investors might think that self-managing their property is a great way to cut down on costs. But it’s really not that simple.
Keep in mind that when you self-manage an investment property:
- You are responsible for absolutely everything to do with the tenancy – from seeking tenants, to collecting rent and chasing arrears, to organising maintenance and repairs… The list goes on!
- You are the tenants’ first and only point of call for any problems
- You’ll need to be able to travel to the property for inspections, maintenance and so on – this could limit your investment opportunities to a smaller area
- You run the risk of selecting bad tenants, which might lead to losses incurred on your investment (not to mention a terrible first investment experience).
Think about that long-term investment plan we mentioned above, too. If your plan is to expand your investment portfolio in the future – perhaps even to the point that one day you may be able to live off your investments – that’s going to mean a lot of properties to manage. Wouldn’t you rather leave them in the hands of a professional to free up your time and ensure your entire portfolio is handled smoothly?
If you still need convincing, check out our full rundown of reasons to use a property manager.
Mistake #5: Not claiming tax Deductions
As a brand-new investor, you might not be aware of all the tax deductions you’re able to claim on your property. All kinds of property-related expenses – from interest on your loan, to landlord insurance, to property management fees – are tax deductible.
Things like depreciation and negative gearing might also be unfamiliar to you at the moment, but we’d advise discussing them with your tax adviser to ensure you’re maximising the tax-deductible benefits of owning an investment property.