{"id":3163,"date":"2022-08-01T05:09:23","date_gmt":"2022-08-01T05:09:23","guid":{"rendered":"https:\/\/royabhishek.in\/urbanbuyer\/19-real-estate-investing-mistakes-to-avoid\/"},"modified":"2022-08-01T05:09:23","modified_gmt":"2022-08-01T05:09:23","slug":"19-real-estate-investing-mistakes-to-avoid","status":"publish","type":"post","link":"https:\/\/royabhishek.in\/urbanbuyer\/19-real-estate-investing-mistakes-to-avoid\/","title":{"rendered":"19 Real Estate Investing Mistakes to Avoid"},"content":{"rendered":"

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Mistakes are part and parcel of life and I see them as opportunities to learn valuable lessons.<\/p>\n

However, when it comes to property investing, mistakes can prove to be very costly.<\/p>\n

\"Mistake\"<\/p>\n

So much so that they can often prevent investors from getting past owning one single property.<\/p>\n

I must admit it…in my early days of investing, I certainly made more than my fair share of mistakes.<\/p>\n

These days, of course, I know better, which is why I wanted to share these common mistakes to help you avoid unnecessary blunders and paying hefty “learning fees” to the market.<\/p>\n

1. Buying a dud<\/span><\/h2>\n

This mistake is common amongst novice investors who don\u2019t understand the type of dwelling or the locations that have a history of outperforming the averages.<\/p>\n

Instead, they buy an inferior property in a second-rate location that will always struggle to grow in value.<\/p>\n

The fact is: that less than 5% of the properties currently on the market are what I’d call “investment grade.”<\/p>\n

Of course, any property can become an investment – just kick out the old owner and put in a tenant, but that doesn’t make it the type of property that will outperform the averages.<\/p>\n

2. Following \u201cfree\u201d advice<\/span><\/h2>\n

While advice from our family and friends is always well-meaning, unless they are property investment experts, their opinion should never be adopted as an investment strategy.<\/p>\n

\"Advice\"<\/p>\n

Remember, there are around 25 million property experts in Australia and on the whole, their free advice can become very costly indeed.<\/p>\n

3. Not knowing your borrowing capacity<\/span><\/h2>\n

Mortgage brokers have information about a huge number of loans \u2013 far more than any investor could research themselves.<\/p>\n

And in the current tighter\u00a0lending environment, working with a specialised property investment broker, you can save yourself a lot of stress and secure a better deal as well.<\/p>\n

4. Near-sighted investing <\/p>\n

<\/span><\/h2>\n

A frustratingly common mistake for newbie investors is to buy where they know, which is usually the suburb they are living in or where they grew up.<\/p>\n

Of course, these locations are not necessarily the best for future capital growth.<\/p>\n

You see…knowing the local area is very, very different from understanding the fundamentals of the local property market and what makes a good investment.<\/p>\n

5. Ownership oversight<\/span><\/h2>\n

When buying property, it\u2019s important that its ownership structure is working hard for you as well.<\/p>\n

Yet many investors don’t go to the trouble of getting strategic ownership structuring advice.<\/p>\n

There are many possible ownership structures- in a single name, in joint names, tenants in common, joint tenancy, in company ownership or in a\u00a0 trust or SMSF.<\/p>\n

And there’s no one “best” structure – it depends on your own circumstances and the stage of your investment journey.<\/p>\n

6. DIY approach<\/span><\/h2>\n

Unfortunately, because everyone has lived in a property, some people think that investing is easy.<\/p>\n

Instead of working with experts, they try to do it themselves and often end up with a below-par property that costs them money to hold and takes years to increase in value \u2013 if at all.<\/p>\n

In my mind professional advice is not an expense – it’s an investment.<\/p>\n

If you’re the smartest person in your team you’re in trouble!<\/p>\n

7. Not sure what type of debt is best<\/span><\/h2>\n

Some of the well-meaning advice that young people continue to get from their parents or grandparents is about the \u201cimportance\u201d of paying off their home loan because it’s not tax-deductible debt.<\/p>\n

\"Debt\"<\/p>\n

However, that’s not usually the most efficient use of your cash, nor is paying principal and interest back to the bank on your investment property loan.<\/p>\n

This will just create a cash flow hole in your finances, plus the principal part of the repayment is not tax-deductible.<\/p>\n

8. Overspending<\/span><\/h2>\n

A simple mistake for novice investors is paying too much for their property, especially when buying at an auction.<\/p>\n

\"Spend\"<\/p>\n

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By overspending, they will likely create cash flow issues for themselves (paying more stamp duty and extra interest for years) as well as having to wait longer for any decent capital growth.<\/p>\n

9. Using a line of credit instead of an offset account<\/span><\/h2>\n

Savvy investors understand that it\u2019s vital to always have emergency funds available if needed, such as for repairs or if a property is vacant for an extended period.<\/p>\n

\"Credit<\/p>\n

However, rather than using a line of credit and paying additional fees, they store the extra funds in an offset account which they can access when needed.<\/p>\n

10. Buying with your heart and not your head<\/span><\/h2>\n

Emotions are what make us humans, but when it comes to investing, they can make us fools!<\/p>\n

Investors who get caught up in the heat of a transaction tend to overpay, while experienced investors simply walk away when the numbers no longer add up.<\/p>\n

11. Selling too early<\/span><\/h2>\n

Property investment is a long-term strategy \u2013 and when I say long-term, I mean decades.<\/p>\n

Sure sometimes selling a dud property is the right thing to do.<\/p>\n

But unfortunately, many investors have to upsell early, particularly when they don’t set up their finances correctly and generally walk away worse off financially than when they started.<\/p>\n

12. Misunderstanding all the costs<\/span><\/h2>\n

Everyone knows that property investment is expensive, but newbie investors often don\u2019t factor in the additional buying costs such as stamp duty, vacancy periods, owners’ corporation fees, insurance, council rates and maintenance.<\/p>\n

13. Not bothering with insurance<\/span><\/h2>\n

While investors insure their properties, many try and skimp on Landlord Insurance, but this is a false economy.<\/p>\n

Good tenants can become bad tenants due to personal problems and you don’t want to be left out of pocket for lost rent or building damage.<\/p>\n

14. Analysis paralysis<\/span><\/h2>\n

There are about two million property investors in Australia but there are probably about two million others who wanted to get into property but did nothing because of analysis paralysis.<\/p>\n

\"Think\"<\/p>\n

They research the market until they\u2019re blue in the face, then never buy anything because it\u2019s never the “right time\u201d or they can’t find the “perfect” property.<\/p>\n

Savvy investors know there will never be a perfect time or a perfect property and realise they won’t ever know\u00a0 “everything”, but take action anyway and keep learning along the way.<\/p>\n

15. Letting fear rule<\/span><\/h2>\n

One of the reasons why investors do nothing is because they let fear rule their actions.\u00a0 Some are scared of debt, others of making a mistake.<\/p>\n

In my mind, the fear of doing nothing and not building an asset base to see them through their golden years should be enough to prompt them into action.<\/p>\n

16. Trying to outsmart the market<\/span><\/h2>\n

My strategic approach to investing is too simple for some intelligent people.<\/p>\n

I buy high-growth properties in investment-grade locations, add value and hold them for the long term.<\/p>\n

\"Property<\/p>\n

Unfortunately, many novice investors chase the quick buck and look for ways to outsmart the market, often being encouraged by property spruikers who promise a fast way to wealth.<\/p>\n

It just doesn’t work that way.<\/p>\n

Wealth is the transfer of money from the impatient to the patient.<\/p>\n

17. Buying in one-industry towns<\/span><\/h2>\n

One of the ways that they try to outsmart the market is buying in boom and bust locations \u2013 that are generally one-horse towns reliant on a single industry \u2013 hoping to ride a mythical capital growth bonanza.<\/p>\n

The truth of the matter is they generally end up with a property that is worth less than they paid, and they struggle to even secure a tenant if they try to hold on to it.<\/p>\n

18. Failing to review your portfolio<\/span><\/h2>\n

Far too many investors adopt a \u201cset and forget\u201d attitude when they should have a \u201cset and review\u201d mindset.<\/p>\n

It\u2019s vital to review your portfolio\u2019s performance\u00a0at least annually to ascertain its performance as well as identify any properties that would be better off sold so you can invest elsewhere.<\/p>\n

19. Not following a proven system<\/span><\/h2>\n

Some investors follow a scatter-gun approach because they\u2019re attracted by media headlines and second-rate data showing locations on the \u201crise\u201d.<\/p>\n

The most successful investors work with experts to adopt a proven system that they stick with like property glue throughout their investment journeys.<\/p>\n