Don’t invest in mistakes
EXPERTS SHARE FIVE OF THE BIGGEST PROPERTY INVESTMENT BLUNDERS TO AVOID
Property’s position as Australia’s most popular investment has been boosted by booming house prices but many first-time investors are making costly mistakes. More than 2.2 million people own investment properties and their ranks are growing, with Australian Bureau of Statistics data showing investor housing loans are rising at their fastest rate in three years.
Here, property specialists outline the five common mistakes made by beginners, and sometimes by experienced investors too:
1 MONEY MISUNDERSTANDINGS
Investors who don’t get loan preapproval can find themselves in a bad bargaining position.
And borrowing to the hilt for investment property number one is not the best way to start a portfolio because it leaves little room for growth.
The Investors Agency co-director Bobby Haeri says understanding your finance limit is crucial, as is a property’s income and expenses.
He says the wrong property “can bring your income down, which results in the banks lending you less money for the next property”.
“Lower income earners should buy higher cash-flow properties so that they can repay the mortgage easily but also create higher serviceability.”
2 POOR ADVICE
Getting advice from family and friends may be outdated, Haeri says.
“There was a time when negative gearing more commonly made sense, however, with record-low interest rates and cheaper money, it is far easier to capitalise from positive gearing than when our parents and grandparents were investing,” he says.
Family and friends won’t know all the changing tax rules, and you should avoid property spruikers who have their own agenda.
Real estate specialists often recommend surrounding yourself with experts including mortgage brokers, accountants, solicitors and buyers’ agents.
3 BUYING IN THE WRONG AREA
A property investment should be a business decision, so take emotions out of the equation – especially when choosing suburbs.
Haeri says many first-time investors wrongly buy in a location they personally desire, even though they never plan to live in the property.
“Find a vacancy rate which is low in an area expecting population rise, with little housing availability and large employment support,” he says. “Ultimately this will result in high demand.”
4 MISREADING MARKETS
Property markets move in cycles and they vary between states, so try to avoid buying at the top of a boom.
Aus Property Professionals director Lloyd Edge says not knowing the market can lead to overpaying.
“Buyers need to do research around what properties have been selling for in their local area so they know what true market value is,” he says.
Many people buy in their own suburb but this goes against the important investment rule of diversification.
“Where they live might be good for lifestyle but may not be a good area to invest in and may be out of their budget,” Edge says.
Attend auctions and speak to real estate agents, he says.
5 MISSING STRATEGY
Edge says buying without a strategy is a mistake: “Why are they buying the property? How will it help them with their goals?”
“Often people don’t know what they are trying to achieve,” he says.
Beginners should also know their exit plan, even if it’s decades away.
Hayley Giarrusso, 29, says her property investment journey has been “a learning experience”.
“I rely on my rental income to cover my mortgage repayments and my first tenant was notoriously late with their rental payments, which made managing my finances tricky at times,” she says.
“Tenants have more rights than you realise. Investing in property isn’t a set-and-forget financial exercise and you need to remain up to date with regulations.”