mistakes to avoid as new investor

10 Mistakes to Avoid When Building a Property Portfolio

Information verified correct on July 29th, 2016

Learn from the mistakes of others when building your empire

With share markets proving far more volatile under worldwide economic pressure, property has enjoyed a return to favour as the best alternative investment.

Before you go flying out to start your property portfolio you should understand there are a number of mistakes you could make as a new investor. There are also plenty of money-hungry crooks waiting eagerly to capitalise on your inexperience.

Here we'll go through the ten most common mistakes made by new property investors.

1. Buying the wrong property

wrongpropertyThis is probably the mistake made most often by those new to investing in bricks and mortar. When you look at investment properties you need to view them as a landlord, not an owner. You need to consider whether it's attractive for people looking to rent rather than buy. Your personal tastes and desires shouldn't come into it.

A good rental property will be in a good location with useful travel links. It will have spacious rooms and should be relevant to the target market of the local area. Are you targeting families or single professionals?

Property investment strategies you should know about

2. Not doing your homework

Did you know?

A walk score can give a good indication of location and walkability for an investment property.

Buying a property without doing your homework is potential financial suicide. You need to look at the local rental market and find out who's renting property, how much they're paying for it and whether there's a big enough demand. What is the demographic of people in the area? Is it an area full of students and young professionals who might prefer a large apartment, or is it the perfect place for families to settle down?

Without looking into the facts and figures you could buy a property which is of no interest to the local pool of would-be tenants.

3. Underestimating your costs

It is very easy (and tempting) to underestimate the amount of time and money it will take to get your property fit for rental. This mistake leads to new investors running into serious cash flow problems. Get quotes for the work you need to do and multiply that figure by at least two. That way you have a buffer in case the work proves more expensive.

4. Having no spare funds

no-money2It's vital to have an "emergency fund" set aside for each of your investment properties. If an expensive repair is needed and you don't have the cash, you could end up getting the job done cheaply. This just leads to problems down the line and more worryingly angry tenants.

One of the best ways to build your emergency fund is to take some of your rental profit each month and get it paid into a completely separate account. Keep these funds away from your normal bank accounts and you won't be tempted to dip into it.

5. Trying to do the work yourself

Running investment properties requires more work than you may think and some new investors try to save money by doing everything themselves. Big mistake! It's almost impossible to be your own repairman, property manager and accountant and stretching yourself too thin leads to costly errors.

Build yourself a team of reliable experts to outsource the work to, so you can spend your time more productively. In many cases professionals know how to save you money, so try to think of them as an investment.

6. Rushing into decisions

Don't be a bull in a china shop. Entering the property investment market is very exciting and can be very lucrative but jumping into things without thinking about them can cost you a fortune. Take the time to research potential properties, know the local market and be sure to interview a number of partner professionals before choosing who you want to work with.

Remember the old saying "more haste less speed?" Well in property investment the saying is "more haste less profit!"

7. Investing from a distance

Don't be tempted to buy property a long distance from another state or even country unless you're prepared to travel to the site yourself. Setting up an investment property without seeing it with your own eyes is a recipe for disaster. If you do decide to buy out of the way make sure you've got a reliable estate agent to manage the property for you. Meeting them in person is also a must, regardless of where they're based.

8. Paying over the odds

oddsDon't be fooled into thinking you can't make a low offer on an investment property. Remember your portfolio is a business and the idea is to make a profit. You don't know the position of the seller and they may be after a quick sale whatever the price. The worst that can happen is they say no and you try to negotiate.

Something you should always do when purchasing a property is ask for a "subject to finance clause." Your lender will want to value the property before they agree to give you finance, so this clause protects you in the event they don't agree with the purchase price.

9. Ignoring what your competition's doing

Don't overlook what other landlords in your area are doing. Find out how much they're charging for rent, how long it took them to find tenants and how are their properties presented. Also make a point to look at the adverts for properties in your area. What do they say and which papers are they in? You can get some very useful tips from studying the competition.

10. Not getting insurance

Going without a complete landlord insurance is a huge mistake. It covers you should something major go wrong with the property. A good policy will also cover you for lost rental income and will pay to rehome your tenants if your property is damaged and needs repairs.

As with any insurance cover make sure you read the fine print so you understand what's protected and what's not. The less you pay for cover the less protection you normally have.

Make sure you avoid making these property investment errors and you could be close to achieving a very satisfactory and profitable portfolio!

The five steps to a successful investment property portfolio

Source: Mrs Mortgage

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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