Top Property Investment Mistakes
Property investment is a proven way to accumulate wealth and personal security, although there are many pitfalls if you are unprepared or impatient.
The purpose of an investment property is to bring in some kind of return, either through some income from the rent or the increased value over time or ideally, capital gain and ongoing income. Yet many property investors stick with a property that is actually losing them money, and this situation can often be traced back to their earliest moves into the property market.
Here we look at some of the top property investment mistakes and how to avoid them.
Always verify and double-check any information about a specific location and price data. See if there are any plans for development in the area that might affect the value of the property you are interested in buying. Look for multiple independent sources of information, as you don’t want to be misled by someone who has an agenda. For example, properties that are selling for below market price are usually cheap for a reason – there may be a structural issue with the house or the local council might be planning development in the area.
Poor Financial Foundation
All your investment plans can unravel if you don’t start with a solid financial foundation. Be wary of high-interest loans, especially if they are structured to be tempting in the beginning. Learn all you can about the most financially sound way to set up your investment so you increase your equity rather than lose money in excessive interest payments. If you are purchasing a unit, you need to consider all the additional costs such as strata fees. You need to set a strict budget and keep checking the numbers. If your investment property isn’t turning a profit – even a small profit – then you need to let it go.
Lack of strategic planning
Like any investment plan, property investment is more successful if you start with a long-term plan. Property investment is not a “get rich quick scheme” – it takes time and patience to build the value of your portfolio. You will have more success if you start with a specific long-term goal, as then you can weigh all your decisions based on how they will contribute to achieving this goal.
Confusing lifestyle goals with investment goals
If you purchase a beachside investment property, it can be tempting to use the property as your own holiday house, but this will cut into your investment return. There are considerable costs involved in maintaining a holiday home to a professional and competitive standard, along with all the usual costs of maintaining a property. If the rent you receive on the holiday house already covers all these expenses, then you can convert your “profit” into the occasional holiday of your own. But if you consistently use the property for you own holidays, then you will make no progress with your investment and your holidays will become increasingly expensive.
Starting with a “Free Seminar”
Beware of any “free seminars” where the self-proclaimed expert invites you to participate in the deal of a lifetime. The true benefit of property investment is the freedom to build your wealth independently, rather than making someone else rich through your efforts – yet these “experts” are working to sign you into a scheme that will cost you money and make them rich. Save your money for your own property investment, don’t contribute to someone else’s wealth creation scheme.
If you are looking for expert guidance, talk to someone who offers independent advice, such as a mortgage broker or a financial planner.