Having helped hundreds of property investors with their property acquisitions, I have been able to gain a great perspective as an “outsider” on how property investors go about making their investments.
And sadly, there are 3 huge and very simple mistakes that I see crop up time and time again.
Doing these things might not initially cost you a lot of money, take a lot of time, or maybe even change the way you invest.
But they will certainly affect the outcome of your investment and its potential for capital growth.
After all, as we know, strong capital growth is key to investment success.
Because the more capital growth you achieve (even at the cost of lower rental income) the more wealth you will accumulate in the long term.
Remember, capital growth isn’t taxed while rental returns are, and as your property increases in value, the rent increase will also generate more cash flow in turn, so capital growth is a much more important driver of wealth creation than cash flow.
Capital growth is key - and that’s why it’s vital to avoid these property investing mistakes I see so many investors make…
Mistake 1. They focus on ‘cheap’ properties
The cheapest property in Australia today will almost always be cheap in the future too.
Remember that location does around 80% of the heavy lifting of your property price growth.
This means that if you’re looking at ‘cheap’ properties in ‘cheap’ locations, they’re almost always unlikely to experience anywhere near the capital growth of good investment-grade properties in A-grade locations.
While it may be worth noting where cheap property in Australia is located as part of your preliminary research, that’s where it should end… at the research stage.
How to avoid it:
When you’re starting out it can be difficult to spot what a good investment looks like, so it's easy to fall down the route of just searching for what's available for the lowest price or on short-term cash flow, like rental yield.
Building wealth through real estate is best achieved by buying quality investment-grade properties and holding them for the long term, allowing the market to do most of the hard work for you.
I’ve met so many investors who are fixated on cheap property or rental yields – but for me, capital growth is always the number one thing to look out for when buying an investment property.
Mistake 2: Only buying where they’d want to live
Another mistake I see so many investors make is only buying investment property where they’d want to live, or in their own backyard where they already do.
While many property investors only buy properties they would feel comfortable living in themselves, it's easy to be blindsided by your own personal preferences and risk sacrificing a property with excellent capital growth potential because you don’t like the size of the bedrooms, the distance from the beach or the floorplan.
This can lead any investor down the path of paying too much for the wrong property purely because they’re led by their own preferences… or worse… by their own emotions.
How to avoid it:
Remember, as the investor, you won’t be living in the property, and chances are you probably won’t be the target market for it either.
If you find that you are emotionally drawn to a property to the point that you are compromising your investment strategy, step back.
By the way, you do have a documented Strategic Property Plan, don’t you?
If not that’s really where you should start (or continue) your investment journey.
Seek independent advice from a property strategist who has no properties for sale.
Not a buyers’ agent as they will only advise you to buy in the areas of their expertise, which may or may not be right for you.
This type of planning is not really an expense.
It’s an investment in your future.
Mistake 3: Not doing their research or due diligence
So many investors are excited by the idea of property, but skip the boring but vital step of doing research and due diligence (or don’t do enough of it) to make a sound investment decision.
It might cause them to overstretch financially, misunderstand projected growth or rental returns, or even miss a significant development proposal for the area which will affect the property or even the suburb value as a whole.
Sometimes, poor research sees investors fall down the rabbit hole of shiny off-the-plan investments that falsely promise guaranteed rent and failsafe price growth, without realising these ‘opportunities’ are often overpriced at best.
How to avoid it:
Research, research, research.
Research and due your due diligence on the location, the property itself, the environment around it, your finances and any legalities.
Remember, investing is really a game of finance so, you want a sound financial strategy and a good investment strategy.
All our clients at Metropole understand how important a strategy is, and, with our help, all have one in place to help keep their investment decisions on track.
This means the investments they buy are well-researched and in line with their strategy, they don’t get distracted by the latest fad or idea and they are able to avoid distractions.
A final note for investors…
If there is one final word to say on these mistakes, it's this: build an investment strategy focused on only buying investment-grade properties.
Never expect investment-grade returns from secondary locations and properties.
It’s these two things that will keep you on track with your investment search and stop you from making any basic but costly mistakes.
It’s also valuable to seek professional advice - why take the risk of potentially getting it wrong?
Build your investment strategy
Most investors start with "the property" and that's actually the wrong way around.
It's important to start with the end game in mind and understand what you need and what you want to achieve and then you have to build a plan to get there.
The property you eventually buy will be the physical manifestation of a whole lot of decisions that you will make, and they must be made in the right order because property investment is a process, not an event.
The problem is that most people become property investors without putting much thought into it.
You’ve heard it before – failing to plan is really planning to fail.
On the other hand, strategic investors devise a strategy – they bring their future into the present and devise a plan to achieve the results they want.
