With the Australian property market going from strength to strength, it’s no wonder so many people see it as a way to build their nest egg.
But not all property investors are made equal, and there are some dangerous pitfalls that can hamstring your investments if you aren’t careful. Here are the top reasons why property investors fail.
1. Poor financial planning
Just because you have the deposit for a second property, that doesn’t mean it’s the right time to buy. Before you start building your portfolio, you need to ask yourself a number of financial questions:
- How long do I plan to hold this investment property for?
- What type of loan fits my current budget and my long-term investment strategy?
- Does my margin allow for unexpected expenses, or could that potentially put me behind on repayments?
- Do I need to put up my current property as collateral?
- Can I afford to pay for a property manager to maximise the return on my investment?
- What happens if the property becomes vacant for an extended period – do I have enough of a buffer to afford a double mortgage?
For some, answering these questions may turn them off the idea of investing in a second property – because maybe it simply isn’t the right time. The worst thing you can do is go into property investing without a thorough financial plan. Make sure you always speak to an accountant, financial planner and your lender before signing on the dotted line.
2. Unrealistic expectations
Investing in property is not a get-rich-quick scheme. It’s a long game where the majority of investors spend several decades building their portfolios to a point where they can live off the returns in retirement.
Having unrealistic expectations about the property market can not only be disappointing, but it can leave you in a massive hole if you expect to make all your money back – and then some – within a short amount of time.
3. Missing the point of ‘location, location, location’
Yes, people saying “It’s all about the location” has essentially become a real estate trope – but that doesn’t make it untrue. On the contrary, it’s one of the most important factors in any property investor’s decision-making.
Many experts say that the physical elements of a home (the façade, number of bedrooms, street appeal, etc.) only accounts for 20% of its capital growth potential. The remaining 80%? That’s right: its location. Remember that supply is the enemy of capital growth, so while satellite cities and new growth corridors might open up investment opportunities, those properties won’t necessarily give you the return you want.
Instead, strong demand in popular suburbs and a scarcity of accommodation options is usually a recipe for investment success. So is new infrastructure. You just need to be prepared to pay the high price for such a property.
4. Self-managing the property without experience
Property might seem like the safest bet for growing your wealth. However, there’s more to factor in besides making the purchase. You won’t be living in the property, but you’ll still have to take care of everything, and if you don’t have the time or the experience then it can become a very stressful situation.
That’s where a professional property management agency comes in. They are experts in the industry – and will be very familiar with the inner workings of your local property market – so they can help you make the right decisions about how to manage your investment property to maximise its potential. It’s usually a small price to pay for peace of mind.
5. Not having a long-term investment strategy
Just ‘owning’ an investment property by itself isn’t a plan. You actually need a long-term strategy to see your investments succeed. Think about the person who renovates their family home in order to rent it out as their first investment property. It might be the nicest home on the block, but that doesn’t mean it’s a good investment. For example, if the suburb is populated by far more buyers than renters, or family homes aren’t in great demand, that could be a problem for your income and rental yield.
As the old adage goes, “Failing to plan is planning to fail.” So always take the time to research suburbs, do your due diligence on the market, have a strategy, and train yourself to make logical investment decisions, not emotional ones.
Ready to find your next investment property?
Knowledge is power in the investment world, and so is time in the market. If you’re looking for a property professional who is highly experienced in the Perth market, contact Rentwest today and let us manage all your investment property needs.