Common mistakes made by property investors and how to avoid them

If youre thinking about getting into property investment or you’re new to the game, there are many pitfalls that you should be aware of. To help you out, were going to share with you 8 common mistakes that beginning property investors make and some tips on how to avoid them.

When you fail to plan you plan to fail!

The single biggest mistake property investors make is buying an investment property without taking the time to work out future goals and how to achieve them. Successful wealth creation through property investment requires you to set goals, determine where you want to end up and then devising a plan on how to get there.

An investment property is a commercial business so you need to be well prepared and have a clear business plan and strategy in place before you get started.

Invest using your head, not your heart

Your investment property is not your home, its simply a vessel to create greater wealth for your future and provide passive income. You have to be analytical and rational. Its very different from buying your family home, so avoid the temptation of investing in a property thats too expensive or that you would like to live in yourself. Allowing your emotions to cloud your judgement means that you are more likely to over-capitalise on your purchase, rather than negotiate the best possible price and outcome for your investment goals. Rental yield, capital growth, tenant quality and demand should be your main considerations.

Putting it off and letting fear paralyse

Youve been to all the seminars, read all the books and watched all the DVDs, only to end up overloaded with information and unable to act. Being risk adverse is natural, and usually a very sound tactic, but beware of risk aversion that leads to analysis paralysis. Its easy to feel overwhelmed with all the information out there about property investment, but property prices are increasing and building isnt getting any cheaper. So if youre truly interested in, or committed to, property investment as a wealth building strategy, procrastination can be costly.

Learn as much as you can to make you comfortable with your investment decisions, but dont think you can ever know it all before you begin. You will always have something else to learn and the best way to gain knowledge is to immerse yourself in the game itself.

Saving by self-managing

Many investors think that by self-managing their property portfolio will save them money and give them a greater profit. Property management is a very specialised field and the amount of knowledge and experience needed should not be under-estimated. This is a job best left to the professionals, and when investors try to manage their properties themselves, it often ends up in tears.

Your property manager knows the market best and can advise on the right rentals for the area. They can advertise your property, screen tenants, show them through the home, and send you a tenant recommendation. They can also conduct regular inspections to ensure your tenants are looking after your asset, attend to anything else that goes wrong or needs fixing, collect rent for you, represent yourself at a tribunal should things go awry and be on call 24/7 for your tenants.

Paying a professional property manager to handle all of these things on your behalf will not only mean you get the best outcome for your rental property in terms of a good tenant and best possible returns, it will also give you something just as valuable as money when it comes to investing time!

Not doing your research

It takes time to understand the property market, so dont think that by attending one or two seminars or by reading a couple of books, that you have a handle on exactly what to buy and where.

Its imperative that you know the neighbourhood that you intend to invest in like the back of your hand. Pound the pavements and talk to the locals, real estate agents and property managers. Find out about the amenities, vacancy rates and historical values of properties in the area. Once you know the area, get to know the street that you intend to buy in and the property that you intend to buy. You can never know too much!

Buying the wrong property

By doing your homework and knowing your market, you will know which property to buy. The demographics of an area will make a big difference when it comes to what type of property to buy. Are you investing in a suburb that predominantly attracts families or young, single professionals? If you were in a family market, you would look to buy a large family home, whereas if you were targeting young, single professionals a two bedroom apartment would be more suitable and attractive to this market.

Do your homework, know your market and buy accordingly.

In Australia, most properties move in cycles that repeat themselves and double on average every 7 to 10 years. By selling to early, you will be missing out on the next cycle and property growth period. So it makes sense to keep your investment property for 15, 20, 25 years or even more so that the cycles can work for you delivery excellent capital gains over the long term.