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10 Mistakes of Property Market Investment

property investment mistakes

Making mistakes at property market investment happens a lot more often than what you might think. You’ll hear about first-time homebuyers regretting their investment choices for various reasons.

But if you really think about it, many of these problems come from the same thing. Would-be investors simply lack the knowledge and preparation to make the right choices.

I’ve come up with 10 of the most common mistakes people make in property market investment. Try to see if you’ve experienced any of these investment faux pas.

1. Not doing enough research

Buying property is one of the biggest decisions you can make in your life. Australians spend thousands or even millions of dollars in investment property. And for many of us, that’s equivalent to all of our life savings. 

You’d think that with all that money property buyers would at least do some research first. Unfortunately, not everyone is interested in doing their due diligence. These people often end up losing a lot of money.

What’s their number 1 regret? Not understanding the hidden costs associated with buying and owning property. They tend to close out deals without thinking about insurance, property taxes and closing costs. These things usually make up 2 to 5 percent of the home price.

Many would-be property investors, especially first-time homebuyers, also don’t understand the responsibilities of maintaining a house. They usually overlook the costs of upkeep and repairs.

To avoid such a shock, it’s always best to do your research. Do a full check of all your finances. If you’re renting, don’t just compare your current rent payment with your potential mortgage payment. Find out if you can really afford to both buy and own property.

As for maintenance costs, I recommend allotting 1 to 3 percent of the home’s purchase price to upkeep and repairs. If your target Sydney Eastern suburbs home costs $2.5 million, you should have $25,000 to $75,000. This should give you enough budget to take care of yearly maintenance costs.

The key here is always doing your homework, so you won’t get surprised by hidden costs.

2. Buying without having a plan

Another common mistake is investing in property without having a plan. What’s your reason for buying a home? Do you plan on living there with your family? Is it going to be your retirement home? Or do you want to make some extra earnings by renting it out?

You don’t have to make your property investment plan overly complicated. It’s better to have it simple so that it’s easier to follow. Here are a few things you need to think about:

  • Where are you now in terms of your investment?
  • Where do you want to get to?
  • What do you need to do bridge these two points?

If you’ve done your research, then you already have a good starting point for your plan. It will help give you an idea on how much your dream property costs. You’ll also find out how much of your savings will be needed to grow your investment in the coming years.

You need more than just money to make your property investment successful. You also have to put in the time and effort to help it grow. Set aside some time each week or month to focus on your property business. Try to learn some useful skills and knowledge on property investment as well.

The next part is about setting the right goals for your plan. Financially speaking, do you want to secure your family’s future? Or do you want to get rich through your property investment? You need to attach a dollar value to your goals so you’ll know whether you’re achieving them or not.

3. Investing without understanding the risks

Property investment can be very rewarding, especially once you hit your stride. But of course it also carries a lot of risks. In this sense, risk is about how much you’re willing to expose yourself to loss to make a return.

You can manage risks by finding sustainable investments. You need to research and analyse these opportunities carefully before making a decision. The goal is to find solid evidence to prove that the investment is the best one for you.

It’s also important for you to understand your personal risk profile. What levels of risks are you prepared and able to accept? Knowing your risk profile well will help you make better decisions when buying property.

4. Buying the wrong property

Having a buying plan can help you know which types of properties to invest in and which ones you should avoid. If you don’t have one, you’re more likely to purchase the wrong property. You might also end up paying more for a house, or buy in an area that’s not slated for any development. This could severely tank your ability to grow your investment.

5. Setting very high expectations

Keeping disproportionately high expectations can be a curse. In such cases, an investor keeps waiting. He plays a tiring waiting game in order to catch just that ‘right moment’. Such moments, truth be told, never really come. Whichever stage he may finally buy in, he is left feeling that he could have done better.

This mindset crime does not pay, after all. Sometimes, it could make an investor miss the best time for buying a property, thus reducing his profit margin.

6. Trying to ‘time’ the market

You can see this type of mistake mostly among new property investors. Some prospective buyers tend to wait before they make a purchase because they’re timing the market. They try predict how market prices would move first before buying.

But the problem with this strategy is that sometimes they tend to let an excellent investment opportunity pass by. Many wait too long for the perfect chance when in fact there’s already a good one right in front of them. They’re so caught up in avoiding property market investment mistakes that they end up making one.

If you are a long-term buy-and-hold investor, you’re almost guaranteed to make money in the long run. You won’t be affected much even if housing prices go down. You’ll only lose money if you choose to sell your property.

7. Not reviewing your portfolio

Once you’ve made your property investment, you need to keep track of how they’re doing. This will let you know if they’re growing or not. But not everyone knows how to properly monitor their investments. Some people might not just have the time to keep an eye on each one.

Just like in any business, it’s important that you monitor your property investment’s performance. Are they still making you money? Or have they stagnated? Do you need to rethink your investment strategy? Reviewing your portfolio will tell you if your properties are still meeting your expectations.

My advice: make sure that you review your portfolio annually. You should also pay close attention to both market and local conditions. This will help you keep your investment plan on the right track.

8. Managing their properties poorly

I think this mistake is pretty much self-explanatory, but let me try to explain. A lot of investors think that they can manage their properties themselves. Or they would hire an inexperienced property manager to do it for them. But what they don’t realise is just how difficult property management can really be.

Savvy property investors always focus on the bigger picture for their investment. They know how to set a good direction for their business. They hire experienced managers to take care of the daily management of their properties.

9. Engaging real estate agents without knowing the rules

Real estate agents need to follow industry guidelines before they can operate their business. However, there are some who still try to take advantage of inexperienced homebuyers. If you’re not careful, you might end up paying far above your dream property’s actual price.

Before you engage with a property agent, make sure you understand industry rules. Find out what these professionals are allowed to do and what are prohibited. This will help you identify whether the agent is giving you a fair deal or not.

You can always ask the help of a Buyers Agent to deal with real estate agents. These are professionals who train to spot the best investment opportunities for clients. They will know if what the real estate agent is offering you is the right one for you.

10. Mistaking free advice as good advice

Let’s face it: we all appreciate a good advice from a trusted family member or friend. In some cases, we’re even willing to take the word of a complete stranger as long as they look professional.

But that’s the thing, we can’t really say for certain whether these people really know what they’re talking about. These days almost anybody can claim that they’re an expert on something.

The same also goes for property investment. Some people might claim that they’re giving you free advice, but they’re really trying to sell you property.

A real property investment advisor only provides professional advice on a fee for service basis. This lets clients know that their advisor is looking out for their best interests.

Only engage with legitimate professionals such as accredited property investment advisors and licensed Buyers Agents. Look for those who have extensive knowledge and experience in your target market.

How to avoid making mistakes in property market investment

Property market investment is serious business. When done right, you can significantly improve your finances. But when done wrong, you can say goodbye to your life savings.

I’ve provided you with 10 of the most common mistakes in property market investment. But you’ll encounter a lot more when you get deeper in your business. It’s best to have a professional Buyers Agent by your side to help you navigate through all of these pitfalls.