6 property investing pitfalls
The question overshadowing many Australians right now is: can I afford to buy a property, and will that property be a good investment? Many Australians have accepted they will never own the quarter-acre block, like previous generations had. The thinking is shifting to buying a property as an investment choice over a lifestyle one.
Property has proven to be a great investment vehicle to grow wealth. When decisions are based on unbiased, data driven, and professional independent advice, property can ultimately improve one’s financial position, allowing them to eventually buy that dream home that seems hard to reach. But, as many will attest, it is very easy to make a poor buying decision to set one back financially by many years.
Here’s a list of six pitfalls to avoid: it could mean the difference between investment success and disaster.
1. Failing to be choosey
There are many variables that affect a property’s liveability including location, size, layout, and local amenities.
Unfortunately, most buyers consider too few of these factors when buying property for investment, which impacts their marketability to tenants and future buyers, and subsequently, capital growth potential.
2. Neglecting to review historical performance
When buying shares we analyse past performance. When buying a car, we consider mileage and performance. But, when investing in property, many people fail to investigate historical capital growth performance. A property’s track record of capital growth is a good indicator of its future performance and will indicate whether it is a suitable investment. Using unbiased data to make smart choices will ensure a buyer does not risk a guess.
3. Chasing hot spots
Many buyers make the mistake of chasing the next big hot spot, which is a suburb or area predicted to benefit from rapid short-term gains in value. However, despite an initial spike, a hot spot is usually characterised by slow or limited growth in the long-term that often undermines any short-term gain.
4. Forgetting all aspects of location
Location is integral to the performance of a property. Many investors assume that buying in a blue-chip suburb is sufficient to selecting a blue-chip asset. But location is far more than just the right suburb or even the right street – it is as specific as the lot number or position in a block of units.
5. Confusing investment and taxation strategies
Many investors confuse investment with income tax minimisation, or are distracted by tax depreciation benefits. However, an investment property needs to be viewed independently of other financial benefits and assessed on its own performance and ability to grow in value and produce income.
6. Leave your emotions at the door
While it’s perfectly normal to feel excited about a property, avoid mixing emotion with logic when you’re negotiating. By negotiating too hard the seller might walk away, while going easy may lead to overpaying. This uncertainty, fuelled by emotion, can impact decision-making in strange ways resulting in negotiation breakdowns. If you cannot leave your emotions at the door, engage an independent property adviser to make data-based decisions on your behalf.