5 costly mistakes smart property investors avoid
Buying an investment property for the first time can be incredibly daunting. Sifting through all the information and jargon can overwhelm novice investors, making them prone to making easily avoidable mistakes. To help you on your investment property journey, we’ve listed a few tips to keep in mind.
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 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.
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, 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.
Do your research
Location does a lot 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 the CBD or the beach, as well as being near 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.
Have a strong investment 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.
Familiarise yourself with the rules of property investment
Before you start renting out the property, you need to know the rules, regulations, and requirements first. The last thing you want to do is spend all that money on a new investment property, only get in trouble with property laws and tax obligations.
This includes understanding tenancy and landlord laws, building codes, zoning laws, and safety regulations of the state or territory you’re investing in. If you feel like you’re out of your depth while shuffling through legalese and tax laws, it may be a good idea to hire a professional, such as a solicitor or real estate expert, for advice and guidance.
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 for 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 essential to ensure you have a financial buffer in place in case anything goes wrong, such as experiencing 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 between tenants.
Thinking about purchasing an investment property? Find out if you qualify for one of our investment home loans!
Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek professional advice tailored to your circumstances before making any financial decisions.
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