Investing in property can be a powerful way to build wealth and secure a steady income – but only if you avoid the common pitfalls that trip up some first-time investors. Understanding these mistakes from the outset can help you set yourself up for long-term success
1. Not having a clear investment strategy
One of the biggest mistakes new investors make is buying property without a well-defined strategy. Unlike other investment assets, property can provide long-term capital growth, rental income, or a mix of both. The type of property you buy and its location will depend on your chosen strategy.
For instance, CoreLogic’s latest home value index showed that a unit in Sydney would offer owners a gross rental yield of 4.0% compared to 2.7% for houses. This implies that an investor looking for rental income might do better with a unit, as the rental income relative to the property’s value is higher.
On the other hand, over the 12 months to February, houses appreciated by 1.3%, compared to 0.7% for units. If you are after capital growth, this would impact your decision.
Of course, no city’s market is homogenous and the location of your first investment property will also play a role in choosing a property that suits your investment strategy.
2. Ignoring market research
As the CoreLogic data shows, market research is key to a successful investment property purchase. Some metrics to consider include capital growth, rental yield, rental vacancy rates, and rental rate growth.
Other factors that may impact your investment include:
- Infrastructure development: Both current and planned projects may affect demand.
- Population growth: Areas with rising populations will likely see increased demand.
- Economic activity: Locations with strong economies often mean more jobs and, therefore, higher demand.
Beyond the numbers, it’s also important to consider how property markets move in cycles, influencing capital growth over time. Developing clear long-term goals and understanding your risk tolerance will help ensure your success.
3. Under budgeting
It’s easy to get caught up in the excitement of becoming a property investor, but stretching your budget too far can put you under financial strain. It’s important to plan for unexpected expenses both during the purchase and after.
For instance, your budget should include stamp duty and any council rates and taxes that may apply to the transfer of ownership. After buying the property, factor in maintenance costs, property management fees (if you choose to use a manager) and potential interest rate changes.
4. Trying to time the market
Many first-time investors hold off, waiting for the “perfect” time to buy, hoping prices will drop or interest rates will improve. In reality, the property market moves in cycles, and predicting the right moment is nearly impossible.
While market conditions matter, the best time to invest is when you’re financially ready.
5. Choosing the wrong loan structure
Financing your purchase is an important part of your property investment journey. Selecting the wrong loan structure for you can cost you in the long run. With the help of an experienced mortgage broker, consider key factors such as loan type, loan term, and additional features like an offset account or redraw facility.
Becoming a first-time property investor
By understanding and avoiding these common mistakes, you can increase your chances of building a successful and profitable portfolio. And with the help of a skilled mortgage broker, you can secure a loan that suits your financial situation and long-term investment goals.
Are you ready to buy your first investment property? Whether you have a property in mid or are just getting started, Clever Finance Solutions can help you with the process. Book a call with us to discuss your home loan needs.
