10 Mistakes First Time Property Investors Make

If you’ve been considering buying an investment property, take a read of the ten most common mistakes investors make, and how you can avoid them.  

The property makes a great investment for many people and with over two million property investors across Australia, you’ll be in great company. But, investing in property comes with its own learning curve, and there are some mistakes that many first time property investors make.  

We’ve been in property management in Perth for some time now, so we’ve seen a few mistakes that first time investors have made. If you’ve been considering buying an investment property, take a read of the ten most common mistakes investors make, and how you can avoid them.  

Not Doing Enough Research  

It’s all well and good to fall in love with an area and dream of living there yourself one day, but sometimes those emotions can take hold, and investors don’t do enough research into the local market, the property and the potential rental income, and find themselves in trouble.  

Research is critical for many reasons when looking to buy an investment property, but one of the most critical factors is to help you identify market trends and opportunities. The information you find here will help you determine whether it’s the right time to invest in a rental property in this particular area, what style of properties are in high demand, and what a reasonable weekly rental rate is.  

The other area of research you need to do is into rates, water rates and insurance. Often we hear investors saying “but that’s more than I pay for water” without taking into account that different council areas across the country charge for water differently. Knowing this information will help you understand, and prepare for, utility bills.  

When it comes to an investment, research helps you to make an informed decision about whether to invest in a particular house or suburb  

Not Having a Clear Investment Strategy  

While you may only have the one property, it’s important to have a clear long-term investment strategy. Investors don’t tend to buy property for the short-term, so having goals for what you want to do with the property can help to stop impulsive decisions.  

Buying a property also isn’t cheap - there’s a lot of money on the line, so having a clear roadmap to help you achieve your financial goals, as well as a strategy to help maximise your financial goals can help not only take the emotion out of your purchase but give you structure and keep you focused on your long term goals.  

Not Having a Sufficient Budget 

Many first time investors underestimate the costs not only associated with buying an investment property but with maintaining that property. We can’t stress how important it is to have a backup fund to cover excess costs for repairs, maintenance, rates and insurance, particularly if you find yourself in the situation of having the property vacant or having a tenant who hasn’t paid their rent.  

All too easily can your hot water system blow, or the air conditioner stop working, and you may need to find additional funds to cover these repairs.  

A good budget can help you manage your cash flow effectively, know your expected expenses and income and help you plan accordingly for the known, and unknown, expenses.  

Not Considering the Location 

We all know the phrase “location, location, location”; it’s a key factor when it comes to investing in property but some investors don’t consider things such as amenities, public transport and local job markets when deciding to purchase a property or rent their current property.  

When you purchase a home to live in, you consider the location you would like - if it’s a bit further from work, but in a great lifestyle area you may be willing to compromise on the additional driving time. However many tenants are looking for properties that are close to everything they need - shops, schools, medical facilities, public transport and so on. As part of your research, take a look at what is around the area, or soon to be developed in the area, and consider whether that would be attractive to tenants.  

Not Accounting for Vacancy Rates 

Currently, the rental market is hot - there is a lack of supply and a lot of demand. But it isn’t always like this. Sometimes you may have a property vacant due to not being able to find a new tenant, and sometimes it may be vacant due to extensive repairs required. Factoring in a vacancy rate of at least four weeks a year is important when calculating income and expenses.  

It is ideal to have at least one to two months' worth of rental income set aside to cover periods of non-vacancy, and then if you do need to use this fund, top it back up as soon as you have a tenant in place.  

Not Understanding the Legal Requirements  

One thing many property managers deal with is investment owners who don’t have an understanding of the relevant legislation. Even if you have someone managing the property for you, having a basic understanding of tenancy laws is essential.  

Before purchasing an investment property, make sure you have an understanding of the basic tenancy laws - our property management team in Scarborough can help you understand your obligations under the Residential Tenancies Act.  

Not Having a Quality Property Management Team  

When it comes to choosing a property management team, you don’t want to miss out on a quality manager just to save a few dollars. While some property management fees can seem high, you need to look at the overall job and services the business can offer you.  

At our real estate agency in Perth, our experienced team looks after a wide range of investment properties, from units and townhouses through to detached houses. With an experienced and knowledgeable team behind you, you can be sure that your investment is safe, and if any issues do arise, they can be quickly attended to, saving you time and money.  

Investing for the Short Term 

Property investing is a long-term game. Before purchasing a property, you should work out your long term goals, and avoid making decisions based on short-term market valuations.  

When buying property, there are many investors who only consider investing for two to four years. This may work well if you are planning on moving in to the property at a later date, however, if you are planning on selling after a few short years, you may find that, unless the market is skyrocketing, you may not make as much money as you thought. Most investors hold onto properties for 7 - 10 years, however many will hold their properties for much longer.  

Getting Emotions Involved 

When you buy your own home, emotions tend to get involved - you are often looking for somewhere you can make memories with your family. But when buying an investment property, you should keep the emotions out of it, and see the property solely as a business purchase.  

There are a few ways to keep your emotions out of the purchase. The best thing you can do is to make a checklist of the must haves and the desirables in your property. This may be the location, the number of bedrooms, how old the property is, and what amenities are nearby. This checklist will help you keep your emotions level when comparing potential properties.  

You should also take your time when purchasing. There is no need to rush into a decision and there will always be another property available. If something doesn’t seem right or doesn’t suit your needs, don’t be afraid to walk away.  

If you don’t feel as though you can keep your emotions at bay, engaging the services of a buyers agent can be a good step. By giving them your wishlist, they can find, inspect and recommend properties to purchase based on your requirements as well as help negotiate the sales price.  

Buying What’s Popular 

Do you remember when investors were buying up big in rural and remote communities during the mining booms? Sure, many of them made money during that time but after those mines closed or minimised their production, investors found it hard to not only rent their properties, but it became hard to sell them as well.  

When researching suburbs to buy in, while a suburb may not seem “popular”, if it is a solid long term performer, it likely offers better long term opportunities than chasing high amounts of money.  

Buying an investment property can be a great choice. Using the services of a great property management team in Perth, combined with good quality research and preparation, can help you avoid many of the mistakes first time property investors make.  

If you’ve been considering buying an investment property near Scarborough, or you have one and you’re looking for a great property management team, contact our friendly team at Thought Leaders Real Estate, and let us help you make the most from your investment property.