Invest
9 common mistakes property investors make
It’s important to learn from the main issues property investors have and how you can make sure you don’t fall into the same trap.
9 common mistakes property investors make
It’s important to learn from the main issues property investors have and how you can make sure you don’t fall into the same trap.
1. Poor property selection
In general, they owned the wrong properties and didn’t get sufficient capital growth. While some bought “off the plan” and overpaid for their property, others bought in regional Australia where generally long-term jobs growth is slower there, unemployment is higher, wages growth is generally lower and there is no shortage of land.
2. Poor cash flow management
Investors hadn’t organised their finances correctly and didn’t have a cash flow buffer in place to cover their negative gearing shortfall.
Investors could look to have a line of credit or offset account and then use this facility to fund your property portfolio cash flow shortfall, such as the interest on the property investment loan, or for property expenses, and importantly keep it as a “rainy day financial buffer” to buy you time if the markets turn sour.
3. Wrong ownership structure
With so many options and so many positives and negatives for each, it’s important to make sure you choose the correct option, whether it be the property be held in a trust, company ownership, in your personal name or another ownership type.
4. They try time the market
Rather than taking action, they don’t even make any purchase as they try to “time the market”. If you are a long-term buy-and-hold investor, then in the long run you will almost always generate wealth in your property. If prices go down, it’s only a loss if you sell. I rarely hear of investors who purchased in the main cities and regretted it 20 years later.
5. Buying off the plan
While some investors have made money buying off the plan, the landscape is littered with many, many more who’ve regretted their purchase.
Frequently they’ve found the value of their property on completion is considerably less than the contract price and some will have to wait for over a decade before they see any capital or rental growth.
6. Buying in ‘hotspots’
Many unfortunate investors bought the wrong property because they looked for the next “hotspot”.
Many investors have been burned investing in one-industry locations, such as mining towns.
7. Tax advantages and depreciation confusion
There are those investors who didn’t maximise their tax position because they hadn’t obtained a depreciation report or known of other tax advantages. Depreciation deductions can make a real difference for investors helping them reduce their taxable income.
8. Property management problems
Investors trying to manage their own properties or using inexperienced property managers.
Professional landlords know to think of the big picture and use property managers to attend to the day-to-day issues.
9. Not having a good team
This network includes a good finance broker, a smart solicitor and a property-savvy accountant. Having a great team will make and save you a lot of money and potential headaches.
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