Costly mistakes made by first time property investors

Property investing is not a simple process, it requires comprehensive due diligence and the use of appropriately qualified finance and property professionals to ensure the purchase is of stellar quality, ticking all of the macro and micro fundamentals for capital growth.

In this article, we ask the question, “why do so many first-time property investors sell their investment at a loss”. 

It’s because their first investment is in the wrong property. If first-time investors make the wrong purchase, it can be a very expensive mistake and often hinder their ability to further develop their residential property portfolio.
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 and a detailed understanding of all the costs associated with using conservative assumptions. Not being able to hold property during periods of vacancy or when interest rates rise is the most common reason investors are forced to 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

Taking this knowledge to the 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 see the yield 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 go it 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.We suggest having the correct professionals in your corner to assist and guide you through the process.

These professionals include:

• Mortgage Broker
• Property Investment Consultant
• Financial Planner
• Solicitor
• Accountant
• Property Manager

Read more about the professionals you need when investing in property.

Key takeaways.

These are costly mistakes worth every investor being aware of 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!

To stay up-to-date with more great articles like this, be sure to subscribe to Meridian Australia’s Property Market Pulse Newsletter here.
Ready to get started on your property investment path, or looking to develop your property portfolio? Ask your Nectar broker to put you in touch with an expert Property Investment Consultant. We’d love to hear from you.

Article supplied courtesy of Meridian Australia. See the original article here.
Written by Warren Jacobs – National Business Development Manager at Meridian Australia
P: (02) 9939 3249
E: warren@meridianaustralia.com.au
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*Disclaimer: When considering purchasing property, it is always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your circumstance.