If you're considering entering the world of property investing, it's crucial to steer clear of these common first-time investor mistakes. While many aspire to become property investors, the reality is that you need to be informed, crunch the numbers, and stay calm before taking the leap.
Here are some key pitfalls to avoid when investing in property for the first time:
1. Rushing in without conducting thorough research
It's essential to conduct extensive research before diving into any investment. Take the time to gather information about the property's location, assess the local real estate market, familiarise yourself with the city's development plans for the surrounding area, understand the demographic profile of the location, investigate any history of termite infestation or flooding, consider potential renovation or repair requirements, and evaluate the proximity to amenities such as schools, grocery stores, hospitals, beaches, parks, shopping centres/meccas, cafes, and restaurants. Engaging in thorough research will help you avoid the mistake of choosing a property that limits rental returns and capital growth potential.
2. Underestimating expenses and relying solely on rental income
If you plan to immediately secure tenants or make property improvements, it's crucial to allocate a budget for unforeseen expenses related to your investment. Avoid borrowing to the maximum limit when purchasing the property, refrain from relying entirely on rental income, and ensure you have a financial buffer in case unexpected repairs or replacements are necessary.
3. Making improvements before the tenancy begins
To maximise your renovation-related tax deductions, it's advantageous to carry out property improvements after the tenancy agreement is in place. For example, installing an air-conditioner or dryer. By conducting a condition report once the tenant has signed the tenancy agreement, any improvements made to your investment property can be claimed as deductions. It's essential to plan for these expenses, inform the tenant about the planned improvements, and complete the renovations within a specific timeframe.
4. Assembling a team of professionals
Property investing can be a stressful endeavor that requires expertise in finance, real estate, and various documentation processes. Having a team of professionals by your side will ensure optimal returns and effective management of your investment property.
Mortgage brokers: These professionals will assess your financial situation, compare home loans, find options that align with your needs, and manage mortgage applications until settlement.
Solicitors: Solicitors and conveyancers handle all the legal aspects and necessary documentation when purchasing an investment property.
Accountants: An accountant will evaluate your budget, provide guidance on tax matters, help expedite loan repayments, and assist in planning for potential interest rate changes.
Property managers: Entrusting your property to an experienced and capable property manager is crucial. They will oversee the leasing process, handle rent collection from tenants, coordinate repairs and maintenance, ensure compliance with landlord-tenant legislation, screen potential tenants, and facilitate communication between tenants and the landlord.