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If you want to know the best way to invest in property, learn from the mistakes of others. Here are six common property investment errors to avoid.
If you want to know the best way to invest in property, learn from the mistakes of others.
It’s no secret that not everyone is successful at property investment. Some try it for a few years then sell up. Others never make it past their first investment property. But naturally, you want to be one of the successful ones – a property investor who enjoys ongoing passive income and the prospect of capital gains when you sell.
So how you get to be that investor?
By not making the mistakes of those who have never made it to the top of the property ladder. Here are six common errors to avoid.
- Letting someone else make the decisions for you
If you’re going to be successful in the property market, you need to understand the fundamentals of the market yourself. So, attend seminars, read blogs and listen to podcasts, all the while realising that no single ‘expert’ has all the answers.
Don’t hand your decision-making over to an advisor or developer because they seem to talk sense and offer an easy solution. By educating yourself about the property market, you will soon spot the scams perpetuated by property spruikers.
- Not researching the property and the market thoroughly
Be wary of finding yourself in a situation where you’re rushing a decision or feeling an emotional attachment to the property. Either way, it probably means you won’t do the research that’s needed to get an objective view of the purchase.
Ensure your research is thorough. Know the population growth and the economics of the area you’re thinking of investing in. Are there jobs? Schools and amenities? Places families want to go? What is the likely rent? And, is all this information coming from a reputable source, not the developer?
Look at multiple properties and conduct a financial analysis before committing to buy. Remember the real estate agent is there to sell the property so although they can be a good source of information, don’t rely on their word alone.
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- Not making use of equity
Equity is the key to purchasing more properties with little or no deposit.
Buy what you can afford with a clear view of how this property is going to build your wealth. Perhaps this means buying ‘the worst house in the best street’ and renovating it to generate equity. Or you might prefer to play the long game and wait for property prices to rise and with it the value of your property.
Over time your equity increases through a combination of a reduced loan balance and growth in your property value. Equity is the key to purchasing more properties with little or no deposit. With a process called cross-collateralisation, your properties can be used together to support all mortgages.
Speak to your Yellow Brick Road mortgage broker about how to tap into your existing equity. We’ll explain the risks and benefits of using equity, including how important it is to have a buffer margin in your repayment calculations.
- Over-burdening yourself financially
Overpaying for a property or relying on an over-estimated rental valuation are common reasons investors find themselves in financial trouble. If your cash flow is strained, and your out-of-pocket expenses are up, there’s little money left to drive faster repayments.
Conducting a cash flow analysis before you buy is a great way to build a framework for enabling the most effective and efficient use of available cash. It will also help you calculate the total costs of buying the property, including expenses like stamp duty, building inspections, lenders mortgage insurance, council rates and property management fees.
Contact your Yellow Brick Road mortgage broker for advice on property investment costs and how cash flow modelling can provide a broader view of your finances.
- Not enough systems in place
Consistency and persistence are behind most successful property transactions. Know what you’re in for and develop processes to ensure everything is dealt with thoroughly and systematically.