When you are starting out as an investor, it pays to be aware of the mistakes people commonly make when establishing their portfolio. Avoid these five to make sure you make the best start on what can be (when done well) a very lucrative journey.
Fed up purchase
You’ve been in the market a long time, you’re sick of missing out and you want your Saturdays back. It is at this time that you are very vulnerable to an over-market purchase that you will regret. It is better to be the under bidder than the over bidder.
Buying for a tax deduction
This is a common mistake for those buyers who are trying to reduce their taxable income. It is easy to end up buying a dud in the chase for a depreciation schedule. Be careful of property where the biggest selling point is the depreciation schedule or the grant because the negatives will far outweigh the positives in most cases. Look for a point of scarcity – if you have a property that is the same as hundreds of others, then chances are it is not investment-grade.
Thinking too short term
Often in the red mist of a property boom you start hearing crazy stories like the person who made mountains of money and held the property for six months! This is exactly the wrong time to buy and you may be purchasing right at the top of the market. Ask yourself: would I like to own this property in 20 years’ time? If the answer is no, walk away.
Trying to sell and lease at the same time
While it is common practice in the commercial space, trying to lease and sell at the same time is the worst strategy for residential property. Tenants won’t want to move into a property that is for sale and buyers won’t believe you are a genuine seller so will not engage.
Buying sight unseen
When I speak with investors who regret their purchase, the one thing they usually have in common is not having seen the property prior to purchase. You need to thoroughly understand the area, the amenities, the demographic, the traffic and more, to fully assess the value of a property.