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Five common mistakes property investors make

Five common mistakes property investors make

Low interest rates and flat or falling house prices in the past few years, combined with rising rents, have provided a healthy income boost for property investors, research shows. But, while anyone can become a property investor, not everyone can be successful.

Experts say becoming a successful property investor takes time, a lot of research and a willingness to act. So if you harbour dreams of getting rich quick, you might need to rethink your approach. And before you apply for your first mortgage as a property investor, take the time to consider the most common mistakes to avoid.

1. Not doing your homework

Just like buying a property to live in, buying an investment property requires a lot of research, if not more. Attempting to bypass this crucial step in the process is where many would-be buyers go wrong, often choosing to buy in an area they would like to live or becoming emotionally involved in the purchase.

The key to success is researching and comparing sale and rental prices in a number of suburbs, rental vacancies, capital growth trends in those areas, as well as comparing home loans, according to the experts.

Investment property expert Chris Gray, author of The Effortless Empire, said a successful property investor will be prepared to view several properties to find the one that will deliver the steadiest income.

“Instead of seeing one hundred properties, some investors will only see five,” he said.

2. Waiting for the right time

While you wait for the stars to align – and they never will – the market will leave you behind, prices could rise and you could sacrificed time on the market, says Gray.

“Everyone’s trying to wait for the best time to buy a property investment – with the highest capital growth, lowest interest rates, cheapest properties, stability in the market,” he said. “You’re never going to pick the peaks and troughs of the market.”

“As an investor, I buy when I have the money to buy.”

3. Predicting the next hot suburb

“Up-and-coming” suburbs may fail to achieve the returns you need for a successful property portfolio and could end up losing money, says Gray. So rather than attempting to pick the next “hot” suburb, stick to areas that have proven their staying power time and again.

“Where there’s high return, there’s high risk,” Gray advised. “As a long-term investor, I buy in inner city areas around Sydney, Melbourne, Brisbane and Perth. I might not double my money but I will get 10 percent return every year guaranteed.”

4. Concentrating on saving money

As the old adage goes, you have to spend money to make money. Whether that’s on an investment course to provide you with the know-how for a smooth transition into property investment, or valuation and building reports to ensure the property you buy won’t cost you money due to a leaky roof or rising damp, don’t be reticent when it comes to initial outlays.

5. Not having enough cash reserves

Before you jump onto the property investment ladder, you must ensure you have enough cash reserves to cover costs such as council rates, insurance and other fees if you find yourself without tenants. Rising interest rates can hurt if you’ve not planned ahead too, so consider budgeting for interest rates 2 percent higher than you’re likely to be paying if you bought at today’s low rates.

Better yet, follow the experts’ advice and calculate all likely costs before you buy and factor in a 10 percent margin for unexpected expenses. Your property investment career will come to a quick end if you run into financial troubles and are forced to sell.

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