By Ian Ugarte 13/08/2018
Hindsight is a wonderful thing! If I only I knew now what I knew before I started investing in property. To help others out I have been educating investors to ensure that they do not make the same mistakes that I have made. Property investing is simple if you know what not to do. Once you know that, the doing becomes much simpler and more successful.
I use a simple acronym M.I.S.T.A.K.E that shows 7 of the biggest mistakes that property investors make.
Marketers
Investors buy properties from real estate agents that specialise in selling 4 bedroom – 2 bathroom crappers. Properties that are artificially inflated in price with rental guarantees that are sometimes subsidised. Investors are convinced by the sales person that it is positive cash flow after tax. If it is not positive cash flow before tax it is not positive! These properties are not good for your portfolio.
In effective Strategy
Going out and buying a property for the sake of owning it because other people became wealthy is not a very good strategy. Added to this, investors are purposely going out and losing money on property using a term called Negative Gearing.
The Australian Government has convinced investors that losing money in the hope of capital growth is the best thing that an investor will do. Giving up $1 to get 30 cents back is not a good deal.
In some areas of Australia there has been zero capital growth over the last 10 years. So investors have lost cash flow for 10 years and have no capital growth. Certainly not a good strategy.
Securitisation
Lenders are forever trying to tie up their customers. What they do is give you a small percentage discount on your loans to keep all your mortgages with the one lender. That means they control you!
How they do this, is by controlling the release of any other equity available in your properties, secondly, and more importantly, they can call in all your loans in a single decision and you could lose everything that you have worked for!
Do not put multiple loans with one bank because this means they are all linked together. Cross securitisation can do massive damage!
Trading
If you buy and sell properties you are giving away any future wealth for a short term gain. You may say that you need to sell to buy another property. If that is the case, you chose the wrong deal to start with.
I know of a property in Glebe that sold for $11,000 in 1970 and was then sold a year later for $12,000. Not a bad gain for a year. Problem is that the same property today has had multiple exchanges and is worth over $2,000,000. I would be really comfortable with the cash flow from a $2 million property with an $11,000 mortgage!
Don’t trade, and remember, that at the end of the current property deal you need to be in a position to buy another one. If you aren’t, then wrong deal for you.
Asset Protection
Buying a property in your own name (other than PPR) or in a company is very dangerous and puts you at risk. You will be personally liable for any issues that arise from a property. You may think insurance will cover you and it may. Insurance companies are very good at making sure that they don’t pay out. If they don’t pay out then you are personally liable for any damage to other property, injuries and, worst case, death.
All investment properties should be bought in a structure that protects you and isolates each property.
Kickbacks
Everyone wants to get their tax back. You should love paying tax and negative gearing is certainly not a good kickback to get money back.
What most investors fail to do is to get the correct claims that they can be getting back as a property investor. There are many outcomes that can reduce and return costs to an investor such as scrapping schedules, interest on loans, depreciation and many other claimable expenses.
Education
The biggest mistake that investors make is they do not educate themselves and make very bad decisions through ignorance more than anything else. Education is important in everything we do. I would hate to have a brain surgeon operate on me without experience or EDUCATION!
Making mistakes in everything we do can be costly. Ensuring that you learn from other people mistakes is the smartest thing you can do.
Do you want to save time, money and angst by avoiding these mistakes?
If so, I have put together a comprehensive guide for you:
The 7 Biggest Mistakes Property Investors Make: How to Avoid Them and Double Your Returns.
You can download your comprehensive guide here.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
