- An uneducated decision
Property investment is a complex proposition. There are many things that as an investor you need to have a solid understanding of to avoid bad decisions. Education is the key and you should always aim to be as informed as possible at each stage of the purchasing. Knowledge is power!
- Buying on emotion
Perhaps the most common mistake and often the least recognised is buying on emotion. It’s difficult to avoid this mistake as we can all get swept up in the emotion of buying a property. It’s easy to allow personal bias and taste creep in to our decision-making process. Buying an investment property should be about, research, statistics, demographics and cashflow analysis. Emotion should play no part.
- Influenced by others
Ensure your decision is based entirely on your circumstances and your comfort. Don’t allow yourself to be swayed by people who do not have expertise in investment. It’s your money and all the risk is yours, not your neighbour or your work colleague. Everyone’s situation is different, what works for someone else is no guarantee it will work for you.
- Investing in hotspots
A hotspot is an industry marketing term designed to invoke two emotions, greed and the fear of missing out. As already stated investing with emotion is fraught with risk so be very wary of suburbs or regions deemed hotspots. The principle of sound investment is to buy low and sell high. If you are about to buy a property in a hotspot, chances are you’re buying at a high point and the person selling the property to you is the one who stands to make the most gain.
- Investing in your suburb
The warning for investors here is that before you buy an investment property in the suburb you live in, make sure you understand the characteristics of the suburb. Be clear on the demographic make-up, the level of demand for rental properties, the vacancy rate and most importantly the level of supply now and into the future. The biggest risk here is that you are over capitalising in one suburb and therefore putting all your eggs in one basket.
- Short term approach
Like any growth asset, property should only be purchased if you have at least a 10-year investment timeframe in mind. The longer you hold a property the better the performance and the lower the risk of losing capital. Property is a cost intensive asset and as such, selling it after a short period can deliver a poor result.
Don’t keep putting off your decision. The market won’t wait for you. There is never a perfect time to invest. There is no such thing as the perfect investment property. If you have done your research, stress tested the cashflow so that you can comfortably afford the repayments on the loan if interest rates go up by 2-3% pa, and have adhered to the fundamentals of property investment, then all that is left is that final step. Many people get to the final step yet never actually take it. Fortune favours the brave.
Article provided by Aviate Group