Conversations with a Pug – 6 property investment mistakes to avoid |

Conversations with a Pug – 6 property investment mistakes to avoid

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6 property investment mistakes to avoid

When it comes to buying an investment property, it is important to do your research.

So, if you are thinking about buying your first investment property you’ve come to the right place. While buying an investment can be as stressful as buying a residential property, proper research and preparation you may find the journey less daunting.

Before you try your hand at investing, watch out for these common mistakes:

Mistake #1 Skipping the planning stage

With a plan you can analyse how much of a risk owning the property may be. It allows you to see how long you can afford to have the property if finances dry up, or if you are tenantless for a while. How long can you survive without that spare income?

Having a plan can take the stress out of such challenges. For example, a budget that includes saving money in an emergency fund is a good idea.

Here’s an example of budget considerations:

  • Weekly income
  • Weekly expenses
  • Insurance
  • Existing debts
  • Utilities
  • Maintenance costs
  • Weekly deposit into emergency fund

Your emergency fund is the key piece of planning here. Any emergency fund should cover the basics – rent or mortgage repayments, utility costs, groceries and daily travel costs. Having this fund will save you stress if you find yourself struggling to get new tenants in your property.

Mistake #2 Buying in the wrong location

The location of the property may impact the chances of securing a good tenant, which may affect the value of your property.

If you buy a property near a university, then it is very likely that your future tenants will be university students on tight budgets. You might also have a high tenant turnover rate with students. If you don’t want to be dealing with this type of tenant, an investment property in a student-centric location isn’t ideal.

Typically renters search for property near handy amenities or infrastructure like transport, shops and parks. The more amenities a property has, the more attractive it might be for potential renters.

So, rather than thinking like an investor, think like a tenant. What sort of property did you look for when you were in your rental years? What kind of facilities did you require nearby? Based on that checklist, look for potential investment properties.

Mistake #3 Getting the wrong financing

Much like getting a home loan for your residential property, getting a loan for your investment property follows a few basic rules. Getting a loan that suits your budget and buying at the right time among them.

While interest rates are at record lows, it is also good to prepare for potential market shifts. Keep in mind that investment properties are a different ball game because of the aforementioned risk that you may go without tenants for a few weeks or months, especially at a time of a shifting marketplace. If that happens and you don’t have enough funds to cover the mortgage, you may run the risk of falling into default.

The property market isn’t going anywhere, so consider investing when it is well within your budget, but also when the market is favourable with plenty of prospective tenants.

Mistake #4 Buying with your emotions

Investment properties are not supposed to be dream homes. When looking for property, remember that you’re not going to be living in it, so don’t get too worked up if you don’t love the carpet, layout or the lack of balcony. What you’re after is a serviceable place for tenants.

Just like you shouldn’t be making big financial decisions based on emotions, picking your new property should be based on balancing pros and cons. The best course of action is treating your property investment like a business. So if the numbers don’t stack up in your favour, walk away.

Mistake #5 Lack of research and due diligence

Conducting thorough research of the market may help you from making silly mistakes.

What to keep in mind when researching:

  • Costs of property maintenance: If you purchase an older property, there’s a chance the tenant will experience issues that you’ll have to look after. This could include pest control, plumbing, electrical issues or unexpected property damage. 
  • Initial condition of the property: When inspecting property, keep an eye out for any issues before advertising it as a rental. Unless you want to renovate, having a property in good condition from the start may help you get tenants faster.
  • Having good amenities and features: If your property lacks a washing machine and other rental properties in the area seem to be offering one, your property may appear less attractive for potential renters. It is important to remember what you wanted when you were a renter.

Mistake #6 Not considering a property manager

Managing property may become a full-time job, especially if you have multiple investments. Sometimes it is best to pay professionals to do all the nitty gritty work for you. It may bring peace of mind, but also might help with the overall success of your property investments.

Source: Maria Gil

 

 

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