I’ve said it before many times, and it bears repeating once more: as a property investor, you will pay for your education.
You’ll either pay for it by actively seeking to educate yourself, by investing in courses, seminars and mentoring programs that help you grow your wealth.
Or you’ll pay for it through making costly mistakes.
Unfortunately, it’s the latter path than most property investors end up taking…
Whether you’re new to property investment or you’ve been a landlord for some time, it is a good idea to be aware of some of the more common (and costly) mistakes you want to try and avoid when building a property portfolio.
As they say, a smart person learns from their mistakes; a wise one learns from the mistakes of others, so here are a few common property investment blunders that you can learn from – along with some strategies to avoid them.
1. Making hasty decisions
When the property investing bug bites, it can cause you to become laser focused on all things real estate.
This can be a real asset – but if it prompts you to get so excited about buying property that you glide over the (really important) finer details, it can become a very big problem.
A lack of careful thought and planning can cost you a fortune so make sure you take the time to formulate a strategy, then undertake due diligence to understand your chosen market, view a number of potential properties, and to interview a number of professionals before choosing who you want to work with.
2. Doing inadequate research
Along the same lines, many investors rush in and buy an investment property without doing adequate research first – and sometimes, none at all!
This is a very serious financial risk and yet investors seem to make this mistake all too often.
You need to review the property from every angle, including your prospective tenant’s.
Get an idea of the kind of people who are renting property in this area: how much are they paying?
What types of properties do the like?
Are new or older homes more ‘in demand’?
The answers to these questions will help you tailor your investment to the market, lowering your vacancy periods.
3. Thinking like an owner
This is one of the most common mistake made by those who are new to investing in bricks and mortar.
When considering an investment property, your judgement should be based on the perspective the local demographics.
Avoid allowing your own personal tastes and desires to affect your judgment.
Instead try and walk in the shoes of local buyers – those who would buy similar properties in the area as well as potential tenants and not its appeal to you at your age and stage of life.
4. Failing to consider your tenant’s desires
Think about it: the features, amenities and mod cons that appeal to you in your 40s or 50s are completely different to those that may appeal to you in your 20s.
So it’s important to stay focused on what your tenants want out of a property, not what you want.
5. Paying over the odds
Many investors, especially those who are new to property, are too timid to make a low offer on an investment property.
Remember: your portfolio is a business.
Your primary goal is to make a profit.
You don’t know the position of the seller so what does it hurt to put in a lower offer?
They may be after a quick sale, rather than being too focused on price.
The worst that can happen is they say no and you try to negotiate.
Of course, in a hot market, pitching a low-ball offer may not work in your favour if another buyer swoops in with a better offer.
That’s why in a seller’s market such as we’re seeing in segments of the Melbourne and Sydney at present, the best negotiation strategy is the one that secures you your chosen property, not the one that misses out by offering a low ball price.
6. Underestimating your running costs
Alongside over-paying in the first place, another huge profit-crunching mistake that investors make is to underestimate how much their investment is going to cost them to manage.
It is very easy (and very tempting) to downplay the amount of time and money it will take to get your property to the rental market.
But if you get this wrong, you can end up with serious cash flow issues.
7. Having no spare funds
Here’s my advice: if buying an investment property will leave you with no cash in the bank, you shouldn’t buy it.
Property investing can be an expensive undertaking and surprises always seem to crop up.
Things like property repairs, vacancies and rising interest rates.
That’s why you need a financial buffer in something like an offset account ready for a real estate ‘rainy day’.
8. Going solo
Many investors hope to save money by going through the process of formulating a strategy, finding a property, negotiation its purchase and managing a property alone.
However, this can be an extremely costly mistake to make in the long-run.
I’ve found professional advice is never expensive – it’s an investment not an expense.
This list is by no means exhaustive; there are a number of other issues that can crop up for first-time investors, such as:
- Failing to take out building and landlords insurance
- Taking out insurance, but opting for the cheapest policy – leaving you exposed to big financial risks
- Managing the property yourself to save a dollar
- Diving into DIY renovations, despite a lack of experience
And the list goes on…
Obviously, as a property investor, you can’t avoid making some mistakes along the way.
Hopefully you will be able to bounce back these ‘learning curves’ you experience.
But as the saying goes: knowledge is power.
So educate yourself by building your property and wealth creation is one of your best defences against making the kinds of costly mistakes that can derail your wealth.