Yahoo Finance. Article by Andrew Crossley: 8 common mistakes people make when investing in property
Most people that set out to become property investors fail. Mistakes are made that can often very easily be avoided.
The following eight mistakes are simple to avoid and therefore potentially some of the most helpful ones to get someone on a better path toward more successful property investing:
1. The wrong loan structure and incorrect choice of lender
So often I see investors that have a loan type that works against them, rather than for them, and this can have serious consequences later on.
Also, many investors use the wrong lender for their investment property and this can also have negative consequences on the ability to borrow for their next property.
2. Not having a balanced strategy of capital growth and cash flow
If an investor focuses just on capital growth, they compromise on cash flow, and eventually will run out of borrowing capacity and not be able to continue to grow a portfolio.
Likewise, many investors concentrate on higher yield property and compromise on better locations for capital growth, this in turn leads to less wealth being generated for the future.
3. Lack of research
Often people are too myopically minded and purchase where they are familiar with, they take a short cut if you will, to deciding on a property and not spending the necessary time undertaking other, potentially more beneficial research.
Purchasing where you live, and where you are comfortable with can often lead to significantly limited opportunity.
4. Trusting someone who represents the seller
Too often people rely on advice from the wrong person. Why would a buyer trust a real estate agent if they agent is engaged by the seller in the transaction?
Yes of course, you have to negotiate with the person selling the property or the agent representing the vendor, but you should not trust them to provide you objective independent unbiased advice.
Worse still is purchasing from a property marketing company lining their back pocket by selling you only ‘off the plan’ properties from a stock list.
The solution is simple, engage the services of a buyer’s agent, and a buyer’s agent qualified to provide property investment advice.
5. Becoming impatient with their investment and selling too soon
If the property was purchased well, it is wise to consider holding onto the property. Property is often a long-term investment.
Unless you are developing/subdividing/ renovating for profit, you normally need to hold onto the property to allow it to benefit from the property cycle rather than be negatively impacted by the cycle it’s in.
6. Waiting for the perfect property
Suffering from analysis paralysis and never actually acting is usually due to fear. The risk is you then wake up to find you’re sixty-five, and have done nothing in life toward your retirement, except for growing a pittance in superannuation.
The fear of doing something is often greater than the fear of doing nothing.
7. Underestimating the cost of a property, until it’s too late
Costs like rates, insurance, agent fees, maintenance allowance, and water. This includes not engaging a quantity surveyor to undertake a depreciation schedule.
It is wise to always employ the services of a quantity surveyor to ensure any tax deductions are being claimed.
8. Listening to backyard experts (friends and family) who all have an opinion
Often they lack the experience to provide any valuable information, and often possess abundant ignorance. Ignore opinion and hearsay and seek out facts and figures.
Family and friends may mean well, or simply just want to feel important being able to give the investor an opinion. Seek advice from someone suitability experienced, with several properties of their own (over 5), and suitability qualified to provide advice.
By being aware of these mistakes, and implementing actions to avoid these mistakes, an investor will improve their chances of being more successful.
Ultimately it will come down to your borrowing capacity, having a tailored plan, and purchasing in the right locations to suit the plan, your personal circumstances and your goals.
Most importantly, fear is often what leads to would be investors to failure. Overcoming fear is something we all need to do, it manifests itself in so many ways, so understanding your fears and addressing them should help you succeed.
Investing for the future and being financially comfortable in retirement is a major contributor to a rewarding life.
Andrew Crossley is a property investment strategist and founder of Australian Property Advisory Group. He is also the author of the #1 best-selling books: The 100k Property Plan, Commercial Property and Residential Development Made Simple.
I believe you must engage a Buyers Agent with every property purchase, Using a Buyers Agents/Buyers Advocate and Property Advisor is key to more property investment success. These are extracts from my latest book “The Australia Property Investment Handbook 2018-2019”. In all good book stores now. Also Read Property Finance Made Simple and Property Investing Made Simple.