Property investing doesn’t seem like it’d be all that difficult, right?
You buy a place, jazz it up, rent it out and enjoy the returns.
How could anyone make too much of a mistake?
If only it were that easy.
In reality, there are actually plenty of different mistakes, missteps and errors that can derail your investment – and if you’re not prepared, they could cost you a bomb to rectify.
Here are nine of the most common mistakes investors make time and time again:
You don’t need to have a degree in finance or accounting in order to invest in property, but you do need to have at least a little knowledge of money and how it makes the world go round.
Investing will usually require money being borrowed, and without the basic knowledge of how funding and finance work, you might accidentally limit the amount the bank is willing to lend you, thereby starting off on the wrong foot.
You also need to know how to budget and save money, because your property investment will require a certain amount of financial upkeep over the years.
If you don’t prepare properly, you could wind up consumed by debt.
It’s fine to admit that investing can be an intimidating idea.
Parting with such a large amount of money and making such a big decision can seem daunting, but if you’re well-prepared, it doesn’t need to be so scary that it stops you from taking action.
Unlike the share market, real estate is much less volatile and can provide better stability than other investing choices.
It’s also much more predictable, so you can rest assured that once you’ve done your research, you’re likely to see a great result.
You also have the option of surrounding yourself with advisors who can assist you in making the best decisions and minimise any room for error.
When you diversify your investments, it essentially means you’re including several different types of investments in your portfolio, such as stocks, bonds, shares and property.
This sounds like a good idea – in theory.
In practice, diversification can lead to averageness; average performance, average results and as a consequence, average wealth.
This is because property can be too lumpy and expensive to effectively diversify.
In fact, it’s the one area where it can actually pay to put all your eggs into one basket and look after it – just make sure it’s the right basket you’ve got all of your hopes and dreams pinned to.
We would all love to outsmart the market by trying to time our entry to the exact perfect spot, right at the bottom of the cycle, poised for massive gains.
Sure, property might be relatively predictable – but if your plan is to attempt to time the best moment to break into the property market, you might find that the pay-off of waiting just won’t be worth it.
Many property investors go by the advice that “the best time to invest is yesterday”, which is a philosophy I adhere to myself.
Yes, it’s ideal to buy at the bottom of the market if you can.
But if you invest in a good quality property in a blue-chip location with a high rental appeal, then your long-term outlook should be positive regardless of how much you paid.
You also should avoid trying to fight the trends seen in the market.
They’re trends because they’re working, so don’t make the mistake of thinking you know better.
Aim to stick to the big capital cities where there are plenty of jobs and infrastructure and people earn higher wages.
Property investing isn’t something you can do on a whim.
You need to have a decent plan in place in order to maximise your potential returns, and there are plenty of different ways you can go about this.
One of the most popular strategies is known as buy and hold, where you buy a property with the aim to generate long-term capital growth by adding value through renovating or redeveloping.
Personally, my strategy is to buy high-growth properties, before adding value through renovations or redevelopment, then refinancing and holding for the long term.
Wealth is created by building a substantial asset base and you achieve this by holding good investments for a reasonably long time, reinvesting your income, and allowing your capital gains to build up.
Of course there's much more to a successful property investment strategy than that.
You see...attaining wealth doesn’t just happen, it’s the result of a well executed plan.
Planning is bringing the future into the present so you can do something about it now!
At Metropole my team helps investors by building them a personalised Strategic Property Plan
When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because we’ll help you:
- Define your financial goals;
- See whether your goals are realistic, especially for your timeline;
- Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
- Find ways to maximise your wealth creation through property;
- Identify risks you hadn’t thought of.
And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.
Do you have a plan for your financial future?
If so does it contain the following components:
1. An asset accumulation strategy
2. A manufacturing capital growth strategy
3. A rental growth strategy
4. An asset protection and tax minimisation strategy
5. A finance strategy including long-term debt reduction and…
6. A living off your property portfolio strategy
If not please click here and find out how Metropole's Strategic Property Planning service could help you.
Property investing isn’t something you can "set and forget".
- Also read:What makes an A-grade property?
- Also read:Latest Asking Prices State by State | Listings and asking prices steady in lead up to market hiatus
- Also read:Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
- Also read:Here’s how to avoid these 12 common reasons property investors fail to build a Multi Million Dollar Property Portfolio
- Also read:Heat comes out of the housing market as values across Melbourne dip and Sydney slows | Corelogic Home Value Index
It’s something that takes time and dedication, and frequent reviewing.
At least once a year, you should sit down with an independent property strategist and take the time to review your investments.
A qualified outside opinion is beneficial because, over time, you can become emotionally attached to your portfolio, so an objective viewpoint can help to clear your judgment.
This is a common mistake many people make because they feel like they can get better results if they focus on their own comfort zone.
But even though you might’ve lived in the area for years or even your whole life, that doesn’t mean it makes good financial sense to invest there.
If you’re not in one of the three big capital cities – Sydney, Brisbane and Melbourne - consider becoming a borderless investor and investing in a different state.
Property is cyclic in nature.
To make the best and most profitable investments, you should aim to make the most of these cycles by understanding what they are, when they occur and how they can impact your investments.
History doesn’t necessarily repeat itself, but it can teach us a lot of lessons that can help us make better decisions, and ultimately, better investments.
This doesn’t mean you necessarily have to wait or time your purchase in line with cyclical conditions.
What it does mean is that you should be aware of how the market is moving, so you can best strategise how to take action.
Currently, I see a window of opportunity for property investors with a long-term focus.
This window of opportunity is not because properties are cheap, however, when you look back in three years' time the price you would pay for the property today will definitely look cheap.
The opportunity arises because consumer confidence is low and many prospective homebuyers and investors are sitting on the sidelines.
However, I believe early next year many prospective buyers will realise that interest rates are near their peak, inflation will have peaked and the RBA's efforts will bring it under control.
And at that time pent-up demand will be released as greed (FOMO) overtakes fear (FOBE - Fear of buying early), as it always does as the property cycle moves on.
And the problem is...
Consumer sentiment plays a big role in the performance of our housing markets.
When consumer sentiment is low, potential property purchasers sit on the sidelines and this shows up in the following demand indicators:
- Days on market (how long it takes to sell a property) rises
- Sales volumes reduce
- Listings (the number of properties on the market for sale) decline as discretionary vendors leave the market. Remember...the majority of Australians don't need to sell their property.
- Vendor discounting increases as sellers have to meet the market and price their properties realistically
- Auction clearance rates decline
- Premium properties reduce in price first - but remember...these are the properties that first led the boom
However, what tends to happen in Australia is that these sentiment shifts are usually short-lived, and when Greed overtakes Fear (as it most likely will early next year) we tend to see:
- People feel more confident and they look for opportunities including buying a new home or an investment
- The media changes their pitch - rather than just doom and gloom stories, they start by giving mixed messages and eventually stories of hope
- Buyers return to our housing markets and prices find a floor
- In due course property prices pick up
- This brings more sellers back into the market
- And the cycle moves on.
Currently, consumer sentiment is low, but Australia's housing and economic fundamentals are still very sound.
Sure the Reserve Bank is hell-bent on slowing our economy to curb inflation, but:
- Our economy is still bounding along
- Our housing markets are in great shape - nationwide Loan to Value Ratios are very low (the Australian residential p market is worth around $9.7 trillion and there is only $2.1trillion in debt against this.
- Australia's mortgage delinquencies are very low - in fact, many mortgage holders are a few years ahead in their payments as they kept up their regular payments over the last few years when interest rates fell.
- Households are cashed up having stashed their cash during the Covid pandemic. Now they're spending their savings and that's one thing the RBA is trying to quell.
- Property values have grown around 30% in the last few years, meaning that even if prices fall a bit further, the average Aussie has significant equity in their home
- Unemployment is so low anyone who really wants a job can get a job.
- We are in a rental crisis and rents are going to continue to grow strongly.
- Once migration really ramps up the rental crisis will only worsen
- There is a severe shortage of properties and no risk of oversupply in the foreseeable future as building approvals are trending lower. This will support property prices.
- With construction costs rising rapidly many projects on the drawing board are not financially viable and will now commence till end values rise considerably. This means the next round of apartments and houses will cost a lot more, pulling up the value of established properties.
So what should you do with this information?
I believe it's important to understand the window of opportunity that is available to you if you're finances are in order.
Poor consumer sentiment when other fundamentals are strong simply just means there is a cloud covering the sun.
This too shall pass and the long-term uptrend in property values will prevail.
Spring follows Winter. It has for thousands of years and will do so again.
In my mind, now is a good time to buy while others are sitting on the sidelines.
Of course, it is hard to buy property when it seems like the wrong thing to do.
The media keeps warning us of an impending property crash.
Our friends are saying “watch out!"
Everyone has an opinion on what's ahead for our property markets, but that doesn't mean you should take their advice!
There are many valid reasons to buy countercyclically.
History has proven this over and over again.
- There is less competition
- You have more time to research, select the right property and complete your due diligence.
- It's a buyers' market so you have the upper hand in negotiations
Now you can't just buy any property at present - in my mind, less than 4% of properties are investment great properties
And don't try and time the market...even the experts can't do that.
Our team at Metropole are in the market every day, watching buyer sentiment and velocity of sales and other signals that can pinpoint what's really going on.
And our research department spends hours analysing data.
The problem is most of the data typical property investors look at his backward-looking – by the time they find out the market has moved others have already moved the market.
If you’re chasing the next hot spot in property, then you aren’t investing, you’re speculating.
This is akin to gambling, and it’s a hell of a risky way to try and build wealth.
The trends in property fluctuate just like the trends in everything else, and this year’s hot spot will often be next year’s not spot.
Don’t make the mistake of thinking investing in property is a quick turnaround.
It’s a long-term game, and if you want to get the best results, you have to be dedicated to the idea of investing in property for at least a 10-year timeline.