Due to the complexity of the property investment process, first-time investors often need a lot of support with the first property purchase.
Unfortunately, the investors who get it wrong make a very expensive mistake.
Almost half of property investors sell their investment at a loss within 5 years and 20% do the same within the first 12 months.
So, what are the most common errors made by first-time investors?
1. No Plan Or Budget.
The selection of an investment property should be the last part of the investment puzzle, yet most investors make it the first.
Going into an investment takes careful planning, a great degree of due diligence, and a detailed understanding of all the costs associated using conservative assumptions. Not being able to hold a property when vacant or when interest rates rise is the most common reason investors must sell.
Lesson one, know your numbers, and know them well.
2. Buying On Emotion.
This would be the costliest mistake new investors make.
Now, remember, property investing is purely a money-making exercise. It's a decision for the brain, not the heart meaning that your taste should have nothing to do with your investment property selection.
Falling in love with a suburb or a house is no reason to invest there. Allow the research and the numbers to guide your decision.
3. Not Negotiating On Price.
It is never easy to understand the motivation behind each vendor and how to negotiate the best price.
Having a deep understanding of the costs associated with any particular project is crucial. We suggest familiarising yourself with the projects:
Location
Aspects
Floor plan
Materials used internally and externally
Similar properties within the local market, known as it's competition
Taking this knowledge to the negotiating table will strengthen your ability to negotiate on price but make sure you are comparing apples with apples and don’t be conned by the marketed “hook” price to get buyers in.
4. Chasing Yield vs Capital Growth.
Many investors are quickly seduced by a high yielding product. Comforted that the outgoings are covered by the rent and give you an added income.
There is an adage “Those who invest for yield very rarely find growth, whilst those who invest for growth, the yield will take care of itself."
It is the capital growth of a product that ultimately makes the big money, not its yield.
5. Over Budget On Renovations.
Investors who purchase old dwellings to renovate and then on-sell, more times than not, over-capitalise. There are so many unknowns on what lies beneath the surface and most tend to spend far too much on things that may suit their taste but are not needed, wanted, or even liked by prospective buyers. This strategy is not a great solution for a first-time investor.
6. "I Can Do This Myself" Mindset.
Again, most investors feel they can do this alone, “who doesn’t make money buying a property? Right?”
Well, unfortunately, this approach is wrong.
The vast majority of investors fail because they don’t have the right team supporting them in this decision.
We suggest having the correct professionals in your corner to assist and guide you through the process. These professionals include:
Financial Planner
Accountant
Mortgage Broker
Solicitor
Property Investment Consultant
Property Manager
Key Takeaways.
These are costly mistakes worth every investor’s learning before you jump in boots and all, as the price one pays for these lessons can be far too costly and very difficult to recover from.
Get the first one right!
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Warren Jacobs - Senior Property Investment Consultant at Meridian Australia
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.