5 Common Mistakes New Property Investors Make
Feb 08, 2018
Australians are well known for their obsession with property. It was once called the Great Australian Dream, but it seems these days owning your own home is simply not enough. Building a property portfolio is now the end goal for many.
And while there are plenty of canny property investors out there, there are also those who flounder about and wind up being burnt simply from their own lack of knowledge and failure to educate themselves.
New investors, in particular, are more prone to making mistakes, errors in judgement that can adversely affect them for many years to come. As such, RiskWise Property Research has identified five of the most common mistakes new property investors to help save newcomers years of regret:
1. Not Having a Documented Plan
As the adage goes, failing to plan is planning to fail. Much like building a house, establishing a lucrative property portfolio also requires a plan, something that most new investors do not understand.
It’s important to identify goals: what is the end goal, how to get there and why. A cohesive plan should guide investors to these goals. It should include income projections, a cashflow management plan, lifestyle adjustments and the timeframe to achieve these. The plan should consider both short and long-term strategies and what the income objective is. Is it short-term yield or long-term capital growth?
A documented plan not only serves as a guide throughout the investment journey, it also acts as a yardstick on which to measure results.
2. Too Much Speculation
Most first-timers are looking for a way to get rich quick. They listen to ‘successful’ property evangelists who just want to sell their latest scheme or they read it in the papers, and suddenly they’re true believers.
Those investing in property for short-term gains are speculating and not strategically investing. Real estate should always be considered a long-term prospect. It lacks the liquidity and the volatility that other asset classes have. This makes it hard to profit consistently from flipping houses. However, if property investing is approached with guile and patience, there is an increased chance of success. Searching for and buying intrinsically-worthy properties that will grow over a significant period is the best way to make it to the top rung.
3. Inadequate Research
Reading a few blogs, attending a few seminars and perusing some magazines does not make someone a property expert.
It’s important to always do thorough research before determining what to buy and where to buy it. Every investment opportunity should become completely familiar. Talk to locals and real estate agents, find out about the economic drivers and property attributes that could influence returns. Assess and understand the upside and downside of each. There is no such thing as having too much information when it comes to investing.
4. Doing It On Your Own
Many new investors believe they can do it on their own. But the sad truth is they can’t. They need help from qualified and licenced professionals such as accountants, real estate brokers, and mortgage brokers.
Each one of these players is important to success. Their advice in areas such as cashflow management, taxes, risk assessment and investment advisory services is invaluable in most situations. Not using their expertise can cost in the long run.
There are numerous considerations to make in property investing. Leaving some of them to the experts means there is more time for those that require more attention.
5. Poor Assessment of Risk
The most common mistake new property investors make is poor assessment of risk. They buy the first property on offer without batting an eye and when it blows up in their face, they lose heart and give up.
Before buying a property, it’s essential to understand the amount of risk involved to avoid over-exposure. Taking on too much, can lead to bankruptcy. Taking on too little, returns are lowered.
Risk can be managed by doing adequate research and analysis, and by finding concrete evidence to align with investment decisions.