The road to successful property investing is littered with the ghosts of past mistakes, with each one taking its toll on your future wealth. But it needn’t be that way!
Here are the top seven mistakes real estate investors make – and most importantly, how you can avoid them.’
Mistake #1: A narrow focus
Particularly in the current climate, narrowing your focus to properties in your own city could be seriously limiting your potential as an investor. Regional markets can offer excellent opportunities for prospective landlords, as do smaller ‘big’ cities such as Hobart and Launceston. Don’t be afraid to look further afield and examine the possibilities available outside your hometown – you may be pleasantly surprised.
Mistake #2: Not having a back-up plan
Owning an investment property sounds great, and it is – while the tenants are diligently paying their rent and nothing is going wrong! But what happens when you’re faced with a few months of vacancy, or a costly major repair? If you’re relying on rent to pay your mortgage and don’t have an emergency fund, events like this could cripple you financially. To protect yourself, try to save at least three months’ worth of repayments in a separate account. You should also put money aside regularly for maintenance and repairs.
Mistake #3: Scrimping on insurance
Taking out an appropriate level of building and landlord insurance is critical, even if you know and trust your tenants. Accidents can happen, and being adequately insured is a must. You may find a better deal on a suitable product by going through a broker or comparison website, so shop around to ensure you have great coverage at a good price.
Mistake #4: Failing to research
In the internet age, there really is no excuse for failing to research properly. There are plenty of resources online that will guide you through median rents, vacancy rates and suburb demographics, and talking to local agents will give you a good picture of what tenants in the area are looking for. Try View’s Price Estimate Tool.
Mistake #5: Not putting yourself in the tenants shoes
Buying an investment property means buying a home that tenants want to rent – not a home you’d love to live in. Rather than seeking out properties that meet your own criteria, speak to local property managers about the kinds of dwellings that are popular with renters in the area, and the value-adds that are important to them, such as a dishwasher or air conditioning.
Mistake #6: Falling in love with a property
Investing is a totally different ball game to buying a house for your family to live in, and falling in love with the property is among the worst mistakes you can make. Don’t allow your emotions to cloud what should be a clear-cut business decision. Choose a property with a good rental yield and solid growth potential, and treat it like any other business asset by using your head, not your heart. This way, you also stand to be less disappointed if things turn sour, such as when a dodgy tenant trashes the place.
Mistake #7: Trying to do it all yourself
A good property manager can be worth their weight in gold when it comes to getting the best out of your investment property. They’ll handle everything from advertising, vetting tenants and organising paperwork, to collecting the rent and performing routine inspections. They are experts in dealing with tricky tenants and their local market knowledge is invaluable when it comes time to increase the rent or make improvements to the property to attract tenants.
Mistake #8: Hoping to “get rich quick”
If you’re hoping to build your wealth through investing in property, you need to banish ideas of overnight success from your mind! Whether it’s through long-term capital growth, positive cash flow, or buying properties to flip and sell for a profit, timing and good management are essential. If you’re seeking immediate gratification, property probably isn’t the asset class for you – for every lucky millionaire mogul there are thousands of investors who lost it all because they gambled too much, too soon.