Becoming successful in property investment doesn’t just happen overnight, it takes a great deal of research, and one of the best ways to avoid those early pitfalls is to learn from the mistakes others have made before. This a great way to kick-start your property investing journey and get a jump on the competition. Here are some simple mistakes to avoid.
‘Too busy’, ‘too risky’ or ‘not the right time in the property cycle’ are common excuses for not taking action, but in reality there may never be a perfect time. Live by the slogan ‘never put off tomorrow what you can do today’.
Lazy property investment research
Look at multiple properties and do financial analysis on many properties before committing to buy. Remember the real estate agent is there to sell the property so although they can be a good source of information, don’t rely on their word alone.
Leave emotion at the front door
Don’t picture yourself living in the property; instead keep your thoughts focused on the big picture: ‘can I sell this property at a higher price?’; ‘will this property be popular with tenants?’
Pushing your finances to the limit
You are investing to improve your life, not to end up with a mortgage that is too high. Circumstances change and your finances need to be ready to deal with an unexpected blow like losing your job, a period of rental vacancy or a rate increase.
Landlord’s insurance can cover you for not only damage to buildings and contents, but also for rental default and damage by tenants. Make sure you read the fine print because cover and service can vary significantly between policies. This also applies to income protection insurance should you be unable to work due to illness, how would you pay the mortgage on your own home, let alone your investment property, being under-insured or having no insurance at all is one of the greatest causes financial distress.
Using savings not equity
Using the equity in your home to for property investment reduces your reliance on savings. Equity is the difference between your home’s market value and the balance of your home loan. Typically lenders will allow you to access up to 80 per cent of this equity and use it as a source of credit on your mortgage.
Wrong loan structure
Purchasing the property with a principal and interest loan similar to purchasing an owner occupier home. The interest component of the loan is the only part of a home loan that is deductible for tax purposes and the amount of money you spend on paying off the principal limits your cash flow to purchase additional properties.
This is why investors prefer interest only loans, discussing your current finance arrangements and your future plans with your mortgage broker, who will advise you of the correct investment property loan structures, is essential to getting your property investment portfolio off to a flying start.