Property investment mistakes to avoid
Many people aspire to not only be property owners but to own investment properties. When property investment is carefully and properly undertaken it can set you up for a comfortable retirement, help fund school fees, holidays and much more. As with every other investment out there substantial risks are involved. To help you stay on track we have incorporated some of the major Property investment mistakes to avoid.
1. Not doing enough research and due diligence
Needless to say property investments are very big decisions in scope and in terms of the resources involved. That being the case investors should spend enough time doing their due diligence and researching the market. Here are some key data points to look out for:
- The median price: The median price refers to the average property price in an area. It’s important to evaluate the current figure and how it has fared in the past.
- Recent sales: Keep well informed and up-to-date with the most recent information on property prices in the area.
- Vacancy rates: Extremely high vacancy rates are a bad indication of an area and show it is an undesirable area. This shows that it will be hard to find tenants and to sell property in this area in the future.
- Future changes: It is critical to have a firm understanding of any scheduled or proposed developments in the area and how they will impact your investment.
Tip: The use of property investment companies to help advise on what and where to invest can reap dividend.
2. Not thinking about tenants when buying investment properties
The first thing to bear in mind is that buying an investment property is quite different to buying a home for yourself. Consideration of every aspect of a potential property from a tenant’s point of view is crucial. The location, proximity to transport, retail centres, schools, parks, universities, and other amenities will increase your rental value. The overall perception of a neighbourhood with regards to safety is another key consideration. In addition the following items are features that can make your property more appealing to prospective tenants;
- Good quality spacious kitchens with modern fittings and appliances.
- Air-conditioning / heating.
- Good quality fixtures and furnishings.
- Pre-installed digital television and internet.
- Pet Friendly.
- Outdoor area.
3. Borrowing too much money and not planning ahead
Financial discipline is one of the most critical issues when it comes to property investment. It is of paramount importance for an investor to avoid borrowing to their limit. Bear in mind that if you borrow up to 95% of your borrowing capacity you have very little wriggle room when interest rates go up and rents don’t. Additionally, an investor must make appropriate changes should there be any changes to their income stream.
4. Not having a long term strategic plan
It is important for any first time property investor or a seasoned campaigner to have a solid strategic plan in place. Strategic planning is important to give a sense of direction. It is also great for outlining measurable goals, evaluating progress and changing approaches when moving forward. Not having a clear strategic plan on what you want to achieve with your property investment is not a good way to start. Some of the items to keep things in perspective as you are working out your strategic plan include;
- Immediate cash flow
- Long term capital growth
- Ongoing income in retirement
- Fund additional investments
5. Not having the right insurance
Things do tend to go wrong from time-to-time and it is important that when such a day comes you’re prepared. Property damage is inevitable and that’s why insurance should be at the top of your priorities list. An absence of the right kind of insurance to help cover damage and rental shortfalls can have a devastating impact on an investor.
If a property investor can avoid the investment pitfalls mentioned above, they could well be on the path to successful investment.