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While
some property investors get it right all the
time, others can, and do make mistakes. Here
are some common mistakes that we can help you
avoid.
- Starting without a strategy
The single biggest mistake investors make
is to simply launch themselves into an investment
property without taking the time to work out
what their goals are, and how they are going
to achieve them. You need a game plan. This
involves making a detailed analysis of your
current income and tax position, as well as
your plans for the future. Investment property
then becomes the vehicle to get you where
you plan to be. No architect would start building
a house without blueprints, and no engineer
would start on a bridge without extensive
planning. You have to be well prepared before
you start.
- Buying property on emotion
You have to invest using your head, not your
heart. Investment property is a rational process.
It involves property types, locations, affordability,
and the economic drivers of area growth. It’s
not a good idea to invest around the corner
from where you live so you can “Keep
an eye on it.” Nor is it a good idea
to buy a holiday house that you plan to rent
out from time to time. You have to be analytical,
and coolly rational.
- Choosing the wrong location
The property market moves in waves across
cities and states, and these waves don’t
usually move in unison. Choosing the right
location requires detailed research. As they
say, “You have to do your homework.”
Capital growth and good rental yields are
what you are looking for. Selecting a property
in a location that will deliver this is no
accident, and they are usually close to schools,
infrastructure, transport links and other
public amenities. The good news is that the
payoff is great when you put in the hard yards
in terms of getting the location right.
- Getting the financing wrong
There are many pitfalls for the unwary. Like
using the same bank that finances your home
mortgage, paying too large a deposit, and
underestimating the cashflow requirements
in the early years. Over-optimistic budgeting,
for example failing to provide for any period
of vacancy or not keeping accurate records,
meaning that you miss out on crucial tax benefits
are also traps that first time investors can
fall into.
- Selling too soon
Some investors enter the market with unrealistic
expectations and are looking to make a killing
in a few years. When this doesn’t happen
they sell and move on, wasting huge amounts
of money on transaction costs and fees in
the process. A typical property cycle is 7
to 10 years, so ideally you should plan to
go through several of these cycles to get
the best long-term returns.
- Trying to self-manage the property
The amount of skill and experience needed
for successful property management should
not be under-estimated. This is a field best
left to the professionals, and when investors
try to manage their properties themselves,
it often ends in tears. The process of getting
the right tenants, minimising vacancies, and
ensuring that the property is well looked
after and well maintained, is a worthwhile
expense when you consider the value of the
asset under management.
- Choosing the wrong agent
A cheap rate from a property manager will
simply result in a poor level of service and
ongoing frustration for the owner. As with
so many things in life, “You get what
you pay for.” A low rate usually means
that the agent will attract too many clients
and be unable to manage the volume. This could
then lead to staff turnover and inexperienced
people managing your property. Your property
is valuable, and it produces income. You need
to entrust it to the very best people available,
and be prepared to pay the market rate or
above to get the best results.
If you are considering investment property,
but are concerned about the pitfalls that can
exist for the novice investor, McCarthy Group
has the skills and expertise to guide you every
step of the way.
If you would like to learn more and discuss
how McCarthy Group can assist you, click
here. |
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