The 5 key mistakes of property investment

Having the freedom to choose your future is a marvelous thing, however it’s also important to have the wisdom to make the right choices along the way.

Investing in residential real estate is definitely not a new concept, and the beauty of that is many have already tried and succeeded, or tried and failed before you.

Therefore it makes sense to learn from their mistakes, avoid any ill-informed decisions and various setbacks along the way, and stay on the path to financial freedom with the right information.

We’ve compiled the top five mistakes where others have gone wrong and advice on how to avoid them if you’re looking to start or grow your investment portfolio.

Acquiring investment properties based on sentiment rather than logic

One common mistake is to buy based on the location which has a sentimental attachment to the buyer.

To avoid this mistake always carry out due diligence before committing to any property purchase.

This means examining recent comparable sales, working out the potential for profit in the deal, working out your maximum purchase price, and considering the risks.

Not doing your research

Too often people jump the gun and invest in a suburb that is going nowhere or even declining in value.

To avoid making the same mistake, you need to find out about local population trends, housing supply and vacancy rates.

A falling population will undermine property values as people leave the area, and vacancy rates increase.

Prices tend to rise slower in areas where the supply of new housing outstrips the rate at which the population is increasing.

Look at key factors such as infrastructure like schools, shopping centres, medical facilities and public transport – if they’re all there then it’s usually a good sign.

Failing to prepare financially

A very common mistake – which means many have still not learnt from those before them – is failing to prepare financially.

If your contract to purchase a piece of real estate is ‘unconditional’ and you can’t complete settlement because you’re unable to get a loan, then you’ll probably lose your deposit, if not more.

Bypass this blunder by making sure you do not enter into an unconditional contract before first obtaining finance approval.

Purchasing the property in the wrong entity

Many investors sign a contract first and then seek advice about their ownership structure options afterwards, but by then it is often too late.

Avoid the confusion and work out whether you want to buy the property in your name, family trust or a Self-Managed Super Fund (SMSF) before you sign on the dotted line.

Setting up a SMSF or family trust takes time and would need to be established before signing any contracts.

There are pros and cons to different ownership structures and many investors buy property in the wrong ownership structure for their specific situation.

Get it right the first time by simply discussing the benefits and downsides of the different structures with someone like our financial planner before rushing to make a purchase.

Focusing on tax benefits or high yields and not on capital growth

Another common oversight is buying property that gives good rental yields or good tax deductions or depreciation, but very limited prospects for creating wealth and equity.

Capital growth should be the most important consideration as this equity can be used to build your portfolio further and accelerate your wealth creation strategies.

In other words, avoid properties that have a single industry or kicker such as mining towns that are not self-sustainable.

Treat your property investment portfolio like running a business

Regardless of the tips and traps, if we could give just one piece of advice it would be to always treat property investment just like running a business.

Let us help you along your road to investing in property, we will be your mentor and ensure that you are equipped and empowered to make wise decisions.

The end result is a program that helps you build long-term wealth for your family’s future.

Call us on (08) 8932 8858 and we can provide you with more information.