Investors of all experience levels are now, more than ever, coming out of the woodwork and buying up property to financially secure their retirement. Melbourne and Sydney are among the most popular cities for investment purposes where capital growth has the potential to quadruple the rate of inflation.
However, despite this exceptional growth, Perth, Adelaide and Brisbane are also on the pathway to becoming pioneer investment hubs.
Property can be one of the most secure investments for long-term growth, however this is only true if you can manage to avoid the seven common mistakes made by the rookies jumping in to the property world.
Let’s take a further look:
1. Buying before properly assessing trends in growth rates and rental returns
Research, homework, and more research. The backbone of successful property investment. There’s endless online information, even courses to educate you about the dos and don’ts and tips. Most of it is also free and is a recommended as a great place to start.
2. Buying a property close to where they live
Just because you live there, the sentimental value of your home town or suburb has no correlation whatsoever with capital growth or what you can ask for in terms of rent. This comes back to our research point. Always consider the whole of Australia when conducting market research and evaluating trends – you don’t have to live there to own it!
3. Not asking experienced people for first-hand advice
You should always find an experienced property investor to have a chat with who can guide you (at least briefly), with some advice or let them answer the many questions you should have. Ask them about getting started but also how to build upon a portfolio successfully for future reference, however avoiding the pitfalls is probably the most valuable information at this stage to get your hands on.
4. Attempting to manage the property yourself
It is strongly recommended that as a first-time investor you should always seek the management help of a reputable real estate agent. Never try to take this on yourself as it seriously complicates your situation more than it needs to.
In addition to the complexity of property management, you may also make bad decisions regarding tenant selections as you’re unable to conduct background checks etc. This can lead to a world of snowballing problems for rookie investors.
5. Underestimating the actual costs of being a landlord
Sometimes there are additional and many unexpected costs to owning an investment property. If you are renting out an apartment, there are different expenses that are associated with it, as opposed to owning a standalone house. These can include strata management fees, and in a lot of cases, depending on the property’s age could require on-going expensive maintenance and repairs.
6. Lack of home loan research
Most rookie investors will make the mistake of selecting the wrong home loan, or one that isn’t best suited to their investment situation. Some will lock in a loan where the repayments are based upon principal and interest, generally designed for owner/occupiers. By selecting an interest-only loan for the first five years or so, you can significantly improve your cash flow.
7. Buying in an unattractive or inconvenient location
You’d be surprised how many tenants don’t have their own car and rely on public transport and amenities on a daily basis. Buying a property in a location that’s not within close walking distance to major shopping centres, train stations, bus stops or education facilities will substantially hinder your chances of attracting tenants, and actually keep them there.
Also, never buy where the supply unanimously outweighs the demand. The rental return will be too low, and capital growth will come to a screeching halt in the near future.