The 5 mistakes POTENTIAL PROPE INVESTORS MAKE
HERE’S WHAT TO LOOK OUT FOR WHEN CONSIDERING PURCHASING AN INVESTMENT PROPERTY
Many of us spend time on real estate sites, dreaming of one day taking the plunge. We might be researching areas within Australia where purchasing an investment property is achievable.
Some of us have seen friends and family members making good money from investing in bricks and mortar. That ’70s apartment your brother-inlaw bought in a booming suburb 10 years ago with the right infrastructure? Now worth big bucks. But some of us have seen the opposite too, with people not putting in the groundwork, and not reaping the rewards.
Rasti Vaibhav, author of The Property Wealth Blueprint, believes that many investors begin their journey in real estate with the intent to make it big, but only a handful ever achieve financial freedom.
“Successful investing entails making good choices and avoiding pitfalls,” says Rasti. “You have heard it before: ‘failing to plan is planning to fail’”.
Here are the investment mistakes, Rasti says, to avoid.
1 DON’T BE TOO LAZY TO DO THE RESEARCH
Many ineffective investors buy in their neighbourhood because they think they know the local market and consider it as a safe option. You might have heard stories where someone bought a property just because their family or friend purchased a property in that location. This is a costly mistake, often referred to as ‘herd behaviour’, as it misses the necessity of research altogether.
There is a vast difference between knowing about your neighbourhood and understanding the investment fundamentals of your property market. You must analyse the demographics and economic interplay to make an accurate property selection. You may have to look farther away to find suitable locations that are likely to outperform the average market in the long-term and short to mid-term.
Proper research plays a critical role in finding the property that will give you consistent returns.
There are more than 15,000 suburbs in Australia. Several key factors come into play when choosing the right suburb, including: industrial growth potential, rental return variations, supply and demand ratios and infrastructure development.
When you are ready to invest, you may find that multiple property listings are available, and it will seem effortless to find and buy a new property. However, most of these are not ‘investment grade’ for a variety of reasons, such as: little owner-occupier appeal, low land-to-asset ratio, missing uniqueness, premium price, and no opportunities to add value.
Appreciating property markets and their cyclical nature takes time. That’s why many property investors and homebuyers are turning to independent property strategists and buyers’ agents to help them progress confidently.
2 LACKING A BORROWING STRATEGY
Multiple factors influence your borrowing capacity. Typically, all banks follow similar guidelines, but some are stricter than others, with the policies being different. A good mortgage broker should pick the right lender for your circumstances and guide you through a strategic borrowing strategy from the beginning.
As you progress through your investment journey, you will realise that real estate investing is a game of finance. Sometimes, your borrowing is at a higher level; you might be deemed a risky borrower. Some lenders may become reluctant to lend you money due to serviceability constraints. To progress through your acquisition stage, you still need to rely on the borrowings to benefit from leverage. However, the lack of adequate borrowing capacity might slow you down.
Setting up an inefficient borrowing structure can be just as detrimental to your investment endeavours as selecting the wrong property. There are multiple considerations, and a good broker who understands investment will be able to guide you in the right direction.
If you have an ‘A-team’, they can help coordinate your financial strategy so that it works efficiently over the longterm. This includes meeting your lender’s particular lending criteria. So, when it comes to financing your property investments, seek help from a qualified, professional mortgage broker.
3 INACTION OR PROCRASTINATION
Ineffective investors often purchase only when the market is booming, which is often the worst time to buy as the prices are high. Savvy investors study the market and are ready to act as soon as an opportunity presents itself.
The lower the purchase price, the better your end result. Ineffective investors often let themselves down by not taking timely action and end up waiting too long to buy. Waiting for things to be ‘just right’ is not a winning strategy.
4 NOT CONSIDERING PROPERTY INVESTMENT AS A BUSINESS
Most ineffective investors think of property investment as a hobby, a side hustle, or a way to park their money. Moreover, they make emotional decisions. To succeed in property investment, no matter how small your budget, you must manage it as a business.
When buying a property, focus on your end goal to strategically plan your potential property purchases. Remember that you won’t use this property for residential purposes since it’s an investment. Then, keeping your emotions aside, assess the property that best suits your goals.
5 NOT GATHERING A TEAM AROUND YOU
Successful businesses have clarity of vision, a business plan and an A-team. So, in addition to having a strategy, you also need to have the right team around you. While you can follow a ‘do-it-yourself ’ approach to manage your property, it will not be easy to gain good results. Roping in the right professionals from the beginning is the key to finalising a profitable investment.
While it is crucial to keep your emotions out of it and consider your property investments as a business, it is also vital to remember the human element of conducting business. To maximise your returns, you must devote your time, energy and money towards the right places.