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5 costly mistakes smart property investors avoid

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If you’re buying your first investment property, it can be incredibly daunting to sift through all the information that’s out there.

Knowing where to start can be hard when you’re a novice property investor. In some ways, knowing what not to do can be just as important as knowing how to start.

Here are five things to consider when purchasing your investment property.

1. Buy with your head, not your heart

It may sound obvious, but buying an investment property is very different from buying a home to live in. When you’re buying a forever home, you’re buying with your heart. You want to fall in love with the property and make sure it suits all your individual needs.

But when you’re buying an investment property you don’t need to love it, so leave all your personal likes and dislikes at the door. Don’t like the terrazzo floors or the tiny 70’s bathroom? It doesn’t matter. You just need to make sure it ticks all the right boxes that a good investment property should. That is: it should be an investment-grade property in a location with the most potential for strong long-term capital growth.

2. Understand the target market

One of the biggest mistakes newbie property investors make is not understanding who their target market is and buying the wrong property for its location. For example, buying a young professional’s apartment that’s far from transport links to the city, or a family home that isn’t close to any good school zones, has no off-street parking and a small (or no) backyard.

Good property investors put themselves in the shoes of their future tenants and think about what they will want and need in a property. Ask yourself if you'd be happy living in the property if you were a young professional/family etc and if you are, there’s a good chance your future tenants will be too.

Smart investors also know to target properties that have maximum appeal to owner-occupiers so that when the time comes to sell, there’s more than one type of buyer for the property. Owner-occupier appeal is one of the foundations of capital growth because owner-occupiers tend to buy with their heart when buying a property, which drives prices up.

3. Do your research

Location does 80% of the work when it comes to capital growth so savvy investors always heavily research the suburb and the rental market.

First-time investors may be tempted to buy a cheaper property in an outer suburb, but prices can take longer to grow than in middle or inner-city suburbs.

Locations that are generally strong drivers of capital growth are often either close to either the CBD or the beach, as well as being in close proximity to lifestyle amenities like cafes, shops, restaurants, parks, good schools and public transport.

Smart investors also know they need to research other factors including rental vacancy rates and rental yields. Investors often use property reports to research data for individual suburbs, as well as to find out the estimated investment rental yield, vacancy rates, and what the capital growth trends are in the area.

Get a property report

4. Have a strong investing strategy

So you heard on the radio that “Property prices are about to spike by 20% in this suburb!!! Get in now before you miss out!!” but you should never make a property investment decision based on a news headline.

Smart investors know this and it’s why they always have an investment strategy - whether it’s to renovate to flip, buy and hold, or negatively gear it.

Sit down and have a think about what your property investment strategy will be and stick to your guns and long-term goals.

5. Do your due diligence with financing

If you’re investing in property, chances are you’re doing it to secure your financial future and build wealth- so don’t be lazy when it comes to securing financing.

There are many investor loans out there so it’s important to go over the details with a fine toothed comb. Is the interest rate competitive? Are there any extra costs with the loan? Does the loan have a redraw facility or offset? Is it an interest only loan? These are all important questions to ask yourself when comparing investment home loans.

It’s also important to make sure you have a financial buffer in place in case anything goes wrong, such as you have trouble securing a tenant. Being able to afford to hold the property and continue making loan repayments without the income from a tenant is important, as there may be periods of time in between tenants.

Thinking about purchasing an investment property? Find out if you qualify for one of our low rate investor home loans.

Other helpful resources:

How to make good return on an investment property
Refinancing your investment loan
How to choose the right investment property

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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