What are the most common mistakes new property investors make?
We feature 6 of the most rookie errors people make when entering the real estate investment market for the first time. Our research is based on the collective experience of our top agents.
1. Do your research
2. Don’t let emotions influence you
3. Stay calm and take your time
4. Factor in ALL expenses
5. Surround yourself with the right people
6. Consider the depreciation of your property
1. Do Your Research
Create your property plan complete with a checklist and stick to it. Research the suburb trends you are thinking of purchasing property in. There is a multitude of news articles and market trend websites you can lean on for solid data. Your Investment Property News will give you quarterly, annual and all-time capital growth including the median price, the number of sales and gross rental yields. All this information is invaluable when making your decision.
Also when doing your research look at the layout of the suburb. Does it include a shopping centre, schools and public transport? All these factors we have mentioned should be in your checklist. Make sure you check the condition of the properties when you narrow down your list of potential purchases. This includes who the neighbours are.
2. Don’t Let Emotions Influence You
A common mistake new investors make is purchasing a property they love. This does not necessarily give you the best return. Remember you are buying a property that will open up the broadest range of potential tenants. Tenant appeal should be a major goal in realising the maximum return on your investment. The ideal properties are those that have all the required suburb infrastructure and amenities in place
3. Stay Calm and Take Your Time
There are literally thousands of properties on the market so take your time before making a purchase. When you visit open homes that are on the market take your checklist. Don’t just walk through the home and leave. Speak to the agent and ask as many questions as you can such as “why is the owner selling?”. Walk the street and see if you can talk to the neighbours. Check the online websites to recently sold homes in the area and also how many homes are available to rent. Once you have narrowed down your list get a second or even third opinion on your choices. Remember buying an investment property is a big decision that can have good returns or can fail if you don’t do your research.
4. Factor in ALL expenses
You must create yourself a list of every expense that comes with purchasing an investment property. Lenders mortgage insurance, stamp duty, conveyancing, solicitors legal fees and building inspection fees. Once you have purchased your investment property you will need to consider and tally up the annual expenses.
It is neglectful to think that if you have a mortgage on the property of $900 per month and a tenant who pays $1400 per month that you are $500 per month ahead. There is a multitude of expenses that come with renting a property. They are landlord insurance, rental fee if you are using an agent (strongly recommended), rates and body corporate fees if you purchase an apartment. Finally, remember that every week your investment property is vacant costs you 2% of your annual return.
5. Surround Yourself With The Right People
It may sound strange to think you need a team when you purchase an investment property. But it is critical that you have the right people to lean on when you have questions. You should surround yourself with professional contacts and managers. In order of importance, we list the professionals you should have on board.
The Mortgage Broker – The mortgage broker has the ability to negotiate the best investor loan on your behalf with the lender.
The Conveyancer Solicitor – They will be able to tell you if there are any legal issues with the property and ensure a smooth transfer of ownership to you.
The Accountant – Depending on your financial structure an accountant can save you a lot of money. Open up your entire financial situation to the accountant so they can find the best solution for you.
The Property Manager – Unless you have a degree in the Tenancies Act we strongly suggest you put your investment in the hands of a property manager. A property manager will take a small per cent of the weekly rental fee but will administer every issue that comes with the tenants and the property. And, if they are doing their job properly will furnish you with a complete tax file on all income and outgoings which you can give to your accountant.
6.Consider The Depreciation Of Your Property
Depreciation is the natural wear and tear of a property and its assets over time. As a new investor, you can start claiming depreciation on your rental as soon as it’s available for lease.
The best part of depreciation is you don’t have to open your wallet to claim it. It is what accountants call a non-cash deduction. The depreciation deduction can be in its thousands of dollars and give you a positive cash flow. But ask your accountant first on how depreciation can help.