Make your first investment property a winner by avoiding these common mistakes before you buy.
1. Wrong property, wrong location
When you’re buying property as an investment, doing your homework on what type of property and where to buy is essential. And you need to be very clear that your choice is based on financial benefits, not lifestyle ones. Ideally, you should be looking at suburbs where you can expect a good rental return and a steady increase in the value of your property. So do your homework and look at data and profiles for a range of potential suburbs, including those outside your local area.
2. Don’t dive in or dither
By taking time to do your research, you’ll also avoid rushing into a purchase through fear of missing out. When the market is hot, it can seem like every other investor is making money hand over fist and you’re the one that’s being left behind. At the same time, you can wait too long and get priced out of the market. So when you find an opportunity that ticks the right boxes for your investment goals and budget, don’t hesitate to make an offer.
3. Poor financial preparation
Without the right finance in place, any offer you make is an empty promise. So your preparations should include arranging the right type of loan for your investment. Before committing to buy, you’ll need to do your sums to make sure you’ll have the cash flow to cover your expenses – from maintenance and mortgage to management fees. And it’s wise to have a little contingency tucked away to keep you from struggling if the property is vacant for a while.
4. Not taking advantage of tax breaks
From negative gearing to depreciation, there are all sorts of ways to make savings on your tax from your property investment. For owner-occupiers, it’s natural to want to save on the overall cost of mortgage debt by paying off your loan early. But this approach isn’t necessarily best for an investment property. If in doubt, seek advice from a tax accountant with expert knowledge of property investment.
5. Renovating for style not profit
Done the right way, buying a property to renovate and rent out can do wonders for your investment income. But make sure you look at costs carefully before buying a property to fix up. Choose renovation projects that are more likely to boost your property’s rental return and popularity with tenants in the area.
6. Managing your own property
It might seem like a great way to save on expenses, but never underestimate the work involved in managing your investment property. The time it takes to find tenants, deal with maintenance and strata issues can quickly turn into a full time job. So save yourself the hassle and find a good property manager to take care of these important tasks.
Property investing isn’t a get-rich-quick solution. And if you go into it expecting to buy low and sell high in just a few years, there’s a good chance you could lose money on the costs of your purchase. By taking a longer view and planning for long-term investment goals, you could be looking forward to a more secure future for your lifestyle and finances.
Are you looking at buying an investment property? What steps have you taken towards making the right choice?