4 common property investment mistakes
From poor cash flow management to buying risky off-the-plan properties, here are some of the traps to avoid if you’re new to property investment.
Diving into the world of property investment can be both exhilarating and daunting. With the potential for considerable returns, it’s tempting to jump right in. Before you do so though, it’s essential to be aware of the more common pitfalls new investors can stumble into and arm yourself with strategies to navigate them.
Here’s how to avoid the four common mistakes when buying your first investment property.
Four common investment errors
Poor cash flow management
Falling for rental guarantees
Risky off-the-plan purchases
Trying to do it alone
1. Poor Cash flow management
“Cash is king” may be a business mantra you’ve heard before. When it comes to property investing, that’s exactly what you’re doing: running a small business. Cash flow is going to be just as important for your investment business as it is for any other.
Understand The Initial Costs:
Before even looking at properties, familiarise yourself with the initial costs associated with buying. These include stamp duty, legal fees and inspection costs.
Anticipate Ongoing Expenses:
Owning a property isn’t just a one-time purchase. There are ongoing costs like council rates, water bills, insurance and potential repair costs. Setting aside a contingency fund could save you from financial stress down the line.
Budgeting is Key:
A detailed budget will be your roadmap. It helps you identify potential financial challenges and address them proactively. If budgeting isn’t your strong suit, consider seeking financial advice or using budgeting tools and apps.
2. Falling for rental guarantees
On the surface, rental guarantees — where a vendor promises a specific rental income — seem attractive.. When your goal is return on your investment, who wouldn’t be attracted by the idea of rental income from day one? Before you jump with both feet though, it pays to do your homework.
Dig deeper on the property’s valuation: The cost of these guarantees is often embedded in the property’s purchase price. This means you may be paying a premium without realising it.
Rental Market Rate Comparison: Always compare the guaranteed rate to current market yield rates. If the guaranteed rate is significantly higher, be cautious. When the guarantee period ends, you may struggle to attract tenants at a similar rate.
3. Risky off-the-plan purchases
The slick brochure; the fancy website; the smart sales suite; property developers sure know how to sell off plan. All things being equal, the final build is pretty much what sold you in the first place. However, we’ve all heard new build horror stories, so never take it as 100% guaranteed that it’ll all work out just fine. Buying off-the-plan may be more affordable than buying an existing property, yet it’s essential to consider the associated risks.
Potential Savings vs. Risks: Delays in construction can affect your financial plans, especially if you’re paying rent or another mortgage while waiting. Another potential problem with buying off the plan is that you can run into issues with securing finance. Some lenders may offer conditional approval (finance in principle) for off-the-plan purchases before construction starts, but they won’t actually loan you the money until the property has been constructed and they have performed a valuation on the finished product.
Valuation Changes: The property market can be volatile. By the time your new property is ready, its valuation may differ from your purchase price, affecting your loan-to-value ratio and potentially increasing your loan costs.
We dive deeper into buying off-plan on this dedicated blog post.
4. Trying to do it alone
Understanding all the ins and outs of buying a property can be tricky. From finding the right property to suit your investment goals to securing a home loan that meets your specific needs, the process can be a bit of a minefield.
Fortunately, HoLo is here to help. As Brisbane’s leading independent mortgage broker, we can do the hard yards for you. From explaining your borrowing capacity and creating a purchasing budget to providing professional advice about the right loan product and structure for your specific financial situation and goals, HoLo will guide you through the whole process.
Want to chat?
If you’re keen to start your property investment journey with confidence, reach out to us. We’re here to guide and support you every step of the way.
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