Finding the right property isn’t always as easy as checking the for sale board at your local Real Estate. Here are some costly property investor mistakes to avoid.
Property Investing can be a bit of a mindfield, especially when you are starting out. Our instinctive impulses towards sourcing the right property are often counter intuitive. This unfortunately leads to avoidable property investor mistakes. A lot of the errors you’ll come across stem from three places. Misguided advice, Uneducated Assumptions or blindly chasing results that were not the norm. Successful investors often learn the hard way that there are few overnight wins. Yet by following the tried and true fundamentals you can cut a large part of the risk.
There is plenty of advice out there about what you should do. But what about 3 of the biggest mistakes made by property investors to avoid. Read on and you might save yourself some future migraines and thousands of dollars.
1: Buying Property Locally
This one is very common with investors early on in their journey. By only looking for properties in a small area you miss many potential opportunities.
An interesting statistic is that over 73% of investors buy within 10 kms of their own home. The reason why is simple. They know and like the area. They go to their local agent to source a property but end up ignoring 99% of opportunities in the country. The reality is you are purchasing the property as an INVESTMENT.
Succesful investors always take an analytical approach when making a decision. If you aren’t investigating ALL possibilities then you are doing yourself a disservice. It is easy go for the safe option but it will likely cost you long term. An interesting article from earlier in the year highlighted one potential opportunity that could be overlooked by many investors from other cities, read about the property forecast here.
2: Buying Older Properties
A temptation when buying an investment property is to buy an older lower cost property. As investors gain more experience they discover why this is often not the best idea. Although you may be able to enter the market at a lower entry point the long term costs are rarely worth it.
Let’s have a look at the top 3 benefits of going new.
- Tenant Appeal. – .When faced with the option everybody wants to live in a brand new home. Buying new creates more demand for your property beating out the 10 year old property next door. Increased demand allows you to achieve a greater rental return. You will also likely attract tenants looking to stay for the long haul.
- Minimal Upkeep – Very straightforward this one. A new property requires far less maintenance. This means less work for you and a more attractive prospect to tenants. The money you save on an older property sneaks back out your wallet through upgrades and repairs.
- Tax Benefits – Over 50% of investors don’t claim depreciation on their property as a tax benefit. Depreciation refers to the general wear and tear of a building. Depreciation includes everything from taps to carpets and even curtains. When buying new this is especially beneficial. It is common to see investors being eligible to claim upwards of $10,000 in the first year alone. By buying an older property you are reducing your potential returns. Again more often than not making any savings on the buy price irrelevant.
3: Choosing Regional over Metropolitan
The long term financial growth differences between regional and metropolitan areas are staggering. On average regional properties double every 15 years with city properties every 8-10. Benefits of a city property almost always outweigh that of a regional property. Another interesting statistic from ABS (2017-2018 – Australian Bureau of Statistics) is that “Capital city growth accounted for 79% of Australia’s total population growth”
Some key reasons are:
- Planned infrastructure and constant development
- Constant population growth
- Demand often outweighs supply
- Essential Services
Cities breed opportunity especially for investors. The reality is cities will always offer more demand. Increased employment and education opportunities promote constant growth. Metropolitan areas also offer greater amenities and lifestyle options than regional areas.
Another risk is that regional economies are often dependant on a limited industries. This creates a higher risk as seen in the mining booms of years gone. This isn’t as much of an issue in city areas as the economy is supported by a range of sources making for less volatile investments.
As with any purchase we insist on doing your research before acting. An educated decision will see to it that you avoid costly property investor mistakes. Investing is never a one size fits all solution and as many factors as possible should be considered when making a decision.