There are always tips and traps to remember when property investing but here are some traps investors should avoid:
1) Lack of Property Maintenance
Like any investment, your property and your tenants need to be treated with respect. If your property falls into a state of disrepair this can result in a multitude of problems. You will have tenants who don’t want to rent your property, you are more likely to receive complaints from your tenants, you will incur significant costs dealing with changing tenants and searching for new tenants, you are more likely to have costly vacancies and you will not be maximising your rental income. Also, whilst you might think you are saving money in the short-term by not addressing these maintenance problems, these are more likely to turn into much more expensive maintenance projects in the future.
2) Self-Managing Your Property
This is a common error for new investors who believe there is big money to be saved by not using a property manager. The thought behind this is “all they do is collect rent – can’t be that hard!”
A skilled and experienced property manager, will be worth every cent you pay them. They will know the rights of tenants and obligations of landlords, find the best tenants, maximise your rental income, ensure rent is paid on time, conduct inspections, ensure maintenance is up to date and field all enquiries from your tenant. In summary, they take all of the hassles out of your hands.
If your property manager does nothing more than collect rent, then find a property manager who does all of the extras!
3) Misreading the Markets/Not Doing Your Research
This is one of the most common errors, where an investor will want to buy into an area immediately because it is “hot”. Examples include buying into Bitcoin at the peak of the market or buying properties in regional areas at the height of the mining boom. Just because something is “hot” now, still does not mean it is a great long-term investment.
Don’t follow what everyone else is doing just because it is popular. Buying a property is a significant transaction, so it is worth investing the time to do your research on population growth, future infrastructure in the area you are looking to buy in, demographic and economic trends, rental vacancy data, etc, etc. It is also dangerous to make sweeping, general statements such as “don’t buy in Perth” or “Brisbane is where you should be buying”. You need to investigate each area in more detail. There still might be an opportunity to buy in Perth because you can get a great property at a price that is under market value. In Brisbane, there is still the danger you may buy in the wrong area, or buy in the right area but at the wrong price!
I joked at a colleague at work yesterday that some people will spend weeks investigating the purchase of a $300 pair of jogging shoes, yet purchase an investment property on the spur of the moment whilst on holidays!
4) Ignoring the Power of Compounding
We have written about the 8th Wonder of the World many times previously. The power of compound investment returns!
Investing in property generally requires an investment time frame of at least 15-20 years. If you have made the right purchase in the right area, for all of the right reasons, don’t get spooked by market fluctuations or bad economic news or predictions of bursting property bubbles. Novice investors will sometimes decide due to the fear of losing everything. Successful investors will have the ability to ride the ups and downs because they know that over 20+ years compounding will eventually.
Property investment is all about doing your research and minimising your risks. If you need any guidance with your property investing contact the team at Green Taylor Partners.