by Antony Bucello
In all of my 20 odd years as a Buyer’s Agent, I have seen investors make the same mistakes again and again along their property journey. And it doesn’t matter if they are first-time investors, have small or large budgets or even have a growing portfolio.
We love to educate our clients on navigating the complex property market and helping them get the best results possible. So, I have compiled the top 10 Dos and Don’ts of property investment to help all investors on their journey.
1. Don’t Buy First and Think Later
You need to decide what your goal or investment strategy is before you start searching for a property. We have a large and varying property market in Melbourne alone, let alone across Victoria and Australia.
Do you want capital growth, high rental yield, a growing portfolio where you can leapfrog off each purchase to the next, positive cashflow, negative gearing, a diversified portfolio? Consider what your end goal is, your appetite for risk and how much effort you are willing to put into your properties.
Property investing is a journey and successful property investors know where they want to go.
2. Use your brain, not your heart
Investing in property should be a business decision, not an emotional one. As you can see from the below chart even a small percentage difference in performance over the long term is significant.
Chart: 0 to 10 Years Capital Growth Per Annum
A common statement I hear is “I wouldn’t live there”. It really does tell me where an investor is at with their property investment education. It isn’t about whether you would live there. It is about how many other people want to live there, now and in the future.
Property investment is about making money. That needs to be the focus and emotions need to be kept out of the decision making.
3. Don’t just buy what you know
A lot of new investors are tempted to buy in the same suburb they live in. They are familiar with the area and they think a benefit is they can drive past and check up on the property.
We are creatures of habit; we understand the appeal of buying where you know. However, it doesn’t mean it is a good investment decision. There are likely to be other locations that will offer better returns and opportunities.
If you do buy in your own suburb, you will also have all your eggs in one basket, and diversification is key to mitigating risk and increasing opportunities.
4. Listening to the wrong ‘experts’
There is a surprisingly long list of ‘experts’ who are willing to tell you how to invest your money:
- Property Spruikers – I can’t stress enough that they are not on your side. They are there to sell properties by selling you the dream, not the reality.
- Friends and Family – Aussie’s love property. We get it. We do too. However, it doesn’t make them experts and I would warn against buying in a particular location simply because your mate did!
- Selling Agents – Selling agents have the responsibility to act in the best interest of their client (the vendor), not you. Do your own research, and do not rely on the agents’ advertising or price guides.
5. Have the right A-team
By far the most successful property investors have a great A-team around them and it is more than just a good accountant to tally up the books. Below is what we consider the essentials:
- Mortgage Brokers will help you get the best loan available to you, set up your banking structure and if it comes time to grow your portfolio assist you in accessing your equity.
- Solicitors (or conveyancers) will review the contract of sale and make sure no conditions are too onerous or you are exposing yourself to unnecessary risks or ownership issues.
- Buyer Agents (of course!) will help you buy the right property to achieve your goals for the best possible price. We act in your interest only
- Property Managers will watch over your property and manage any issues and any maintenance required. So, no need for regular drive-bys!
- Accountant – To meet your tax obligations and maximise your tax benefits.
6. Buy off-the-plan
Yes, this one deserves a mention all on its own because if a deal sounds too good to be true, it probably is.
You will be targeted with glossy brochures, promises of guaranteed rental returns, capital growth and large depreciation schedules. And maybe even bonus white goods to seal the deal.
Sounds great but the reality is that you will be paying for all those extras either in the buying or selling price. Often the property doesn’t perform from a capital growth perspective, so all the other benefits become irrelevant. Capital growth is king when it comes to making some serious money and historically most of the OTP properties have not performed well over the years. It is simply too risky.
You can read more here 7 Reasons why Buying “Off that Plan” is a Bad Investment.
7. Run your property into the ground
If you want to attract the best tenants and high rent show your investment property some love and care. Over the last few years, rental legislation has tightened up the acceptable condition of rental accommodation. And for good reason.
It is tempting not to spend money on maintaining, repairing, or modernising your rental property however you can’t then complain that your rent is low, or tenants are selecting other properties.
There is a lot you can do to improve your property and add value without spending a fortune and many repairs and maintenance are tax-deductible. Talk to your property manager about what tenants want and what your property could benefit from or read this blog for more information ‘5 easy improvements that increase rent and get you money back at tax time’.
And the extra bonus. If you decide to sell one day your property will already be in great condition!
8. Keep your eye on the prize
Regularly analysing the performance of your property portfolio (or property) is crucial to ensure that it is achieving the desired outcomes. Property markets change over time, and this can significantly affect the overall return on your investments.
Reviewing your portfolio can help you to decide whether to hold or sell if there are value add opportunities to increase your property value or rental return, whether it could be time to grow your portfolio, and whether any of your lifestyle changes require you to reflect on your original goal.
9. Knowing when to cut your losses
It can be hard to admit when you have made a mistake. You might have bought a property and it is underperforming. So how do you decide whether to pull the pin and cut your losses or hang on and hope for a rosier future? It involves asking and answering a few tough questions, and deciding will this property help you achieve your goals?
This blog gives some great advice “When Should You Pull the Pin on an Under-Performing Property?”
10. You make your money when you buy not when you sell
Seems a bit back to front. But it is a common saying in the real estate wealth game. The point it is trying to make is that property selection is crucial.
Don’t buy a property because it is a bargain. Buy a property that will contribute to achieving your property or financial goals. The right property in the right location at the best possible price!
People Queuing to inspect a property
Because this way when it comes to selling you should have an in-demand property with a broad appeal that has enjoyed significant capital growth over the years which will maximise your profits.
PS You can read more about property selection and recommended criteria on our Investor Page under Selection Criteria towards the bottom.