So you think you’ve got all the knowledge, the tools, money and resources to buy property, but you still have never done one. Well, we are here to impart the wisdom of pitfalls and failures, so you can avoid them.
The sad reality of property investment, is that while most people have the desires to become the next big property mogul, only a small select few will ever actually make it past the first investment property.
To seasoned investors, there are often some key mistakes that are made, yet easily avoidable, that many don’t realise, or completely dismiss until it’s too late.
We know you’ve read all the guides and you’ve got a mate who knows a guy who’s done it, but you don’t know it all, so do not dismiss advice, not from us, not from the old timer who’s done it all. Take it all in and consider it.
Listen to your property manager when they say it’s overpriced, or you are going for too much. If one of the 12 property managers tells you, the price you are going for is too much in the market, it’s not because the other 11 are better managers, there is a reason.
He’s not going to win the business any more by telling you that information, so why? Because perhaps it’s the truth? He’s not trying to buy your business. Some property managers will notoriously tell you what you want to hear, in order to get you to sign your life away.
You don’t have months to wait for your property to rent out. Don’t overvalue your property (you always will), because it’s not as great as you think it is. Be mindful, not heartful.
Dropping the price for example, could mean you’ll get a tenant in days, which means your repayments are taken care of sooner rather than later. At $500 a week, five weeks unrented equals $2500 you’ve missed out on. Drop it by $20 a week, to $480, and you’ve only ‘lost’ $1080. Which would you rather?
This tactic applies for when you are searching for the property in the first instance. Don’t think you know, know you know. Research the metrics, the data, the statistics and analytic data before you make a decision.
If someone was to ask you why you are looking in a certain area, be able to give them a reason, based on growth, employment drivers, vacancy rates, yields. Be a smart investor, not a trigger happy investor.
Don’t Manage your own property
Don’t stand too close to the fire. Tenants are a pain to deal with. You can’t do it all. The rates you pay are minimal. Area dependent, anywhere from 5.5% to 7.7%, it equates to $30 approx (off $500 per week) – that is a minimal amount to pay someone to deal with the absolute nonsense tenants can dish out. Be smart. It’s a vital investment, and often tax deductible.
Debts: Choose Wisely
Some people think it’s wise to pay down all your debts or forget that debts are different. Don’t fall into this trap. Some actually have benefits, some can be tax deductible.
When you have spare cash, use it to pay down non-tax deductible debt, so personal loans, credit cards, or debt accrued on your own home. Leave the debt that gives you extra dollars at tax time, and pay the ones that just simply cost you money. Maximise your debt.
Use your freaking brain
Don’t be an emotional buyer, seriously, one of the biggest rules. Emotions cloud your judgement immensely, waste your emotional connection with a home for the one you and your family will live in.
For investors, use pure logic. Base it on analytical research, will this property provide the gains and returns you are looking for? Is it of the best location to attract good tenants? What are the historical growth trends, what stimulated them, and will these repeat themselves?
Economics makes you money, use it, not the emotions.
The mistake here is lack of patience. Some people think they’ll be a millionaire overnight. The truth is, you’ll lose a bit of money before you make it. Be smart, take it slow, you’ll get there eventually.
Property is inevitably a long term game. If you make a short term profit, fantastic, but don’t expect it, nor plan for it. Plan for the future, approach it with persistence, and expect the hardships, you’ll have an easier run.
Property costs money – to buy, and own. Understand the costs, and be ready to put money aside to afford to hold onto it.
Many property investors do not realise that you don’t just have to make the mortgage repayable, but rather manage the condition as it inevitably runs into problems in the future. Broken tap. Great. No insurance on that, and not the tenants fault. You’ve got to fix it.
You’ve got to make sure you’ve got the cash for it. That’s the important side, Not to mention land tax, council rates, insurance etc. Make sure you’ve planned for these extra costs.
Use the 10% rule. Allow 10% of the property’s value for the other costs, and put aside an equivalent of 10% of the rent continuously on top to keep propping up the cash-flow.