Buying a property is probably the biggest investment you’ll make in a lifetime. In Australia, property has been the main stake of money-making strategies. And with small-scale investors owning 83% of all investment properties, the investment opportunity has become a viable solution for novices and experts alike.
For your property investment portfolio to be healthy and successful, it takes careful planning and smart decision-making. To be an affluent property investor, time, research and willingness to act is essential. The decision should not be led by the appeal of a physical asset, either. It’s not quite as simple as buy, set and forget. As with all investment opportunities, property investment has its own pros and cons. Here are the top mistakes to avoid if you’re thinking of buying an investment property:
1. Not Researching the Rental Supply and Demand
Lack of solid research and due diligence is a big culprit of property investment failure. Whilst it’s not rocket science, researching the property market in your area of interest is a step that can be easily skimped on – especially for time-poor people. This research should incorporate a range of factors, including the rental supply and demand, and future developments that may be scheduled in the pipeline for the location.
Naturally, some areas will offer higher rental yields than others. Target areas that have new shops, schools and transport links springing up. To gauge the supply and demand, the population must be on the rise and rental yield strong. This indicates that the suburb is popular among renters and will offer a good return of investment.
Tip: As part of your property investment strategy, it’s worthwhile engaging with a professional service that can assist with the research stages. Opt for one that provides multiple sources of data and suburb information – but double-check the research and do your due diligence, before jumping in and committing to the buy.
2. Not Researching the Demographics of the Area
Other factors that must be included in your research are the demographics of the area. There is no point in purchasing a small one-bedroom unit if the location is family orientated and the demand is high for family homes. Therefore, understanding the demographic trends and your target market is key to choosing the right investment opportunity for the desired area.
What does your target market want and need in a property? Trends come and go, so it’s vital that you know what drives them to make the decisions they do.
3. Failing to Budget Figures Properly
What will your ROI be? Failing to run through the numbers thoroughly before purchasing can leave you with a hole in your pocket each month. To ensure that the rental will cover the mortgage for the best return of investment, adequate research and number crunching must be done.
The key purpose of property investment is to make a profit. Underestimating the costs involved in developing, converting or constructing real estate can end up an investment nightmare if you’re not prepared. You’ll also need to budget for government fees, taxes and registration costs.
Tip: Avoid overstretching your finances with carefully planned budgeting. It’s also a smart move to have a cash reserve to cover extra costs, like insurance and council rates, if you find yourself without tenants. Make sure you budget for repairs or maintenance too.
4. Making an Emotional Buy
Purchasing an investment property is a decision that should be made with your head, not your heart. The decision is all about the numbers. Whilst it’s easy to get caught up in the things you want in a home for you, it’s important to remember why you’re making the purchase in the first place. And what you want or need might not be the best fit for the target market or location.
Property investment decisions based on emotion can lead investors into taking unnecessary risks, or failure to look at the figures. Getting too emotionally invested in a property when house hunting is the biggest price driver. Once a buyer ‘falls in love’ with a property, issues can be easily overlooked and judgement is clouded. Ultimately, this leads to people paying too much for something they won’t get the desired ROI from.
5. Skimping on the Surveying Report
Is the property that you inspected the same as that noted in the contract? Skimping on getting a surveying report done can result in additional costs and headaches down the track. A detailed property survey is essential in order to find out the important details about the house and the land it sits on. It’s an easy step to miss in an effort to save money, but these reports are paramount to protecting your investment.
Surveying reports will indicate whether or not the property is structurally sound with no expensive fixes required. By sending a licensed property expert to review the house, every detail is noted. From the boundary lines to subdivision opportunities, underground utilities which may affect construction, and existing improvements, these reports are designed to give you the full picture of your investment opportunity – and help budget for any issues should you decide to go ahead.
Building a property investment portfolio is a big, but an exciting step. To make sure your opportunity is the best one for you, avoiding these mistakes is crucial.
Read Also: Is a Modular Home a Good Investment?
This article is written by Jayde Ferguson, who recommends Momentum Wealth. Offering market leading research and advice on the Australian property market, the company helps clients accelerate their wealth through property investment by assisting them in the strategic planning, financing, acquisition, management and development of their commercial and residential investment properties. Catch Jayde on Google+.