We all know that property is a good investment. It offers lucrative returns (in most cases), medium risk level and gives a stable passive income. However, like all good investment, they come with their own sets of risks; In fact, experts agree that when it comes to buying an investment property, the key is to be informed. Many investors make the fatal mistake of making ill-formed decisions which causes them a huge sum of money. It’s wise to double, if not triple-check whatever information that is told to you. It’s never right to believe everything that is told to you by property gurus or investment groups without proper due diligence.
Therefore, here are five common investment mistakes that you should avoid.
1. Poor financial management
In life, having a solid planning and management skills are paramount. Same goes to investing. As an investor, you will have income (from rent) and expenses mortgage, maintenance, repairs, and more) to receive and pay. But, if you screw your property investment finances, you could find yourself needing to subsidise the mortgage from your resources. Therefore, it’s crucial to remember to project your cash flow and set aside an emergency or reserve fund. By doing this you will be prepared if your investment does suffer a short-term shortfall in rental income.
2. Lack of proper research
Have you met a first-time investor who attended property auctions and bought a property at a ‘bargain price’? But months later the same property has come back to auction. It has failed to give the investor returns and he/she is now desperate to sell and cut their losses. This happened because he/she didn’t do a proper research and due diligence. When you don’t do your due diligence properly, you are likely to pay the wrong price or, worse still, buy the wrong property. Before investing, you must know where to invest and what type of property to buy. Only then you can minimise your risk and get good returns.
3. Making decision emotionally
When it comes to business, making a decision emotionally is a recipe for a disaster. When you’re buying a house for personal stay, let your emotion speak to you as it will pick the right property for you to live in. But investing in property is a different ballgame. If you let your emotions overrule property investment logic, you are almost certain to lose money. The rule is to never consider a property with an emotional bias. Always remember your investment objectives, and ask if this property will help or hinder achievement of your investment goals.
4. Over-borrowing and safety buffers
It’s common for investors to get over-confident when they had acquire multiple properties. With this strong sense of certainty and superficial confidence, there’s a tendency to go out and buy all these properties. But the problem is when you’re borrowing 95%, then they’ve got no room to move when interest rates go up and rents don’t. Therefore it is important to have a long-term mindset and never over-borrow if you don’t want to be stuck in your own trap.
5. Thinking you’ll save money by self-managing your property
The first step in invest is purchasing the property, but the real work starts only after that. You’ve got to find and vet tenants, make sure they their rent comes on time and keep up with maintenance issues. You’ll also have to make regular property inspections and update the inventory list. This is why managing an investment property is hard work. In fact, it is a full-time job. If you only have one property to manage then things are not so bad for you. But what happens when your property portfolio grows and is geographically dispersed? It’s smart to hire a capable investment property manager from day one. Let them have the day-to-day hassle, while you concentrate on enjoying the benefits of investing in property.
Written by Rubaa Shunmuganathan | Edited by Mira Soyza