Avoid These Traps Of the Property Market

In an article for the Property Update, Michael Yardney, one of the top property strategists in Australia today, talks about the major financial traps for property market investors. Along with James Hooper (Accountant), Greville Pabst (Valuer), and Carolyn Majda (Insurer), Yardney chalks out a list of such traps at the behest of friend Karina Barrymore (financial journalist and the author of “The Power of Property”).

Yardney, the Strategist’s list of 5 mistakes:

1. Visiting the bank on one’s own rather than taking the aid of a competent financial broker.
2. Not saving enough to budget for rental vacancies, repairs, and hike in interest rates.
3. Overemphasising on interest rates and neglecting features that provide flexibility to a loan.
4. Not availing the Lender’s Mortgage Insurance even if accumulating the upfront fees is taking a lifetime.
5. Not scrutinising the latent costs; stamp duty, council rates and conveyancing costs, among other things.

Hooper, the Accountant’s list of 5 mistakes:

1. Using negative gearing for cash flow but neglecting capital growth.
2. Not asking a Quantity Surveyor for a depreciation report, and subsequently, failing to claim depreciation and allowances.
3. Using the same parameter of repayment for investment property and personal residence despite knowing that their tax treatments are quite different.
4. Not getting enough landlord insurance cover (after all, the premiums are tax-deductible)
5. Not paying due stress to “maintenance levies” and “sinking fund” in the event of owning a strata complex unit.

Pabst, the Valuer’s list of 5 mistakes:

1. Not choosing the right property
2. Not seeking enough advice
3. Lack of Due Diligence (for instance, neglecting pre-purchase inspection)
4. Buying a place which is spread in deficit of 45 square metres; banks are not too tempted to lend to such small projects.
5. Not looking at the comparable sales report and ending up paying more than necessary.

Majda, the Insurer’s list of 5 mistakes:

1. Not using a property management firm
2. Not testing the area for rental yield and charging too high a rent, forcing a case of rental vacancy.
3. Delaying maintenance measures, inviting personal liability in the event of Third Party injury.
4. Poor landlord insurance
5. Not doing enough to ensure timely payment of rents.

You can read the original article here.

Nice article, in my opinion, for any investor not completely aware of the nitty-gritty of the property market. I will add just one point to the kitty and that’s from the perspective of a buyer’s agent. Time and again, I have seen people from different financial hierarchies making the same mistake; not hiring a buyer’s agent (though people are warming up to the idea more than ever before now).

I know that the person who wants to invest his money is ready to sweat it out but he may not be the most learned person in the property field. Is he expected to know about the potential of a neighbourhood, its capacity for rental growth, its comparable sales figure and council approval rates (among other things) just as well as an informed buyer’s agent? My answer is No, is it any different from yours?

What do you see as the biggest trap for a property market investor?