PROPERTY INVESTMENT
10 property investment mistakes
Property investment isn’t just easy money – if it was, everyone would be doing it. There are a number of mistakes which sink new (and even not-so-new) property investors well short of their investment goals.
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Property investment errors (and how to avoid them)
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Relying too much on property investment
An investment property is not a sure-fire solution to your financial difficulties, or a guarantee of a comfortable retirement. Nor is it going to make you money overnight with no work – profiting from an investment property takes time and effort on your part, so be prepared to be patient and careful.
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Not planning properly
You should have a plan for every property you buy, as well as an overall plan for your property investment goals. This will make it easier for you to get the right property first time rather than making errors which could turn out to cost a lot of time and money.
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Only borrowing from one lender
While it might be easier, having all your eggs in one basket means that if something goes wrong with one property your lender can pull the plug on all of them. It puts them in charge of the sales process and can mean getting less of the proceeds if you do decide to sell. It always pays to at least separate your home from your rentals and use two or more lenders.
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Not taking costs into account
There’s a big difference between your yield before costs and your yield after costs. If you only pay attention to the number that sounds best you may end up with a lot of properties which look great on paper but are making you no money in reality. To get a more accurate picture of what your investment is earning you, try using our finance calculators.
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Buying with the heart and not the head
When you’re buying a property for your family to live in, it can be an emotional process. You imagine your family in the house. But you need to be far more rational with an investment property – just because it’s somewhere you yourself wouldn’t mind living doesn’t mean it’ll make a great investment.
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Not getting enough advice
When you first start building a property investment portfolio you need to get good, impartial advice – from a lawyer, an accountant, a mortgage broker (like us), and other financial experts. And as you grow your portfolio the need for expert advice doesn’t go away – if anything it grows as well. Make sure you get a good team together and heed their advice.
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Not doing due diligence
This is especially for new investors – you need to look intensively into every property you want to buy. You also need to make sure you know what the market is like. Too often new investors jump in and grab the first property they come across, with no idea if they’re getting a good deal. Conversely, if you’ve been looking for that first property for six months you might be driven into buying something, anything, just to get going. Both those extremes are a recipe for ending up with a lemon.
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Not managing your property well
When you’re only dealing with one or two properties it might seem easy enough to manage them yourself and save on costs. But as your portfolio grows this can turn into a full-time job. Property managers exist for a reason.
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Not maintaining cashflow properly
Revolving credit mortgages are popular with property investors because when rent comes in it can go straight into that account to reduce interest. But it becomes very easy to use that revolving credit as an extension of your everyday account, or as a way to finance holidays. Then when tax time comes the account is a nightmare to sort out.
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Picking the wrong location
Moving away from the big centres can be an attractive proposition because the properties are cheaper and yields look good. But remember that smaller towns have fewer people moving in, plus any change in the local economy will have a bigger effect. You might be investing on the idea that you’ll have tenants all year, but find that your property is empty much of the time.