Less volatile than the stock market and more rewarding than buying bonds, property has performed relatively well as an investment strategy over recent decades in Australia.
Anyone can become a property investor, but not everyone can be successful. If you harbour dreams of getting rich quick, you might like to rethink your approach – experts say becoming a successful property investor takes time, a lot of research and a willingness to act.
So before you apply for your first mortgage as a property investor, take the time to consider the top five mistakes property investors make.
1. Waiting for the right time
“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,” said Chris Gray, investment property expert and author of The Effortless Empire.
While you wait for the various factors to align – and they never will – the market will leave you behind, prices may go up and you would have sacrificed time on the market, according to Gray.
“You’re never going to pick the peaks and troughs of the market,” he said. “As an investor, I buy when I have the money to buy.”
2. Not doing your research
Buying an investment property requires a lot of research. Many would-be investors attempt to bypass this crucial step in the process, often choosing to buy in an area they would like to live in or allowing themselves to become emotionally involved in the purchase.
A successful property investor will research and compare sale and rental prices in a number of suburbs, rental vacancies, capital growth trends in those areas, as well as compare home loans.
And 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,” Gray said. Not doing your homework is not an option.
3. Trying to find the next hot spot
Rather than trying to pick the next “hot” suburb, stick to areas that have proven their staying power time and again. Up-and-coming suburbs may fail to achieve the returns you need for a successful property portfolio and could end up losing money.
“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.
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.