What Property Investors Don’t know When They First start Investing
Here’s something most property investors won’t know when they first start out investing in property….. Close to half of them will sell up in the first 5 years!
That’s right. Whilst many first time investors originally buy an investment property to secure and develop financial freedom, they fail!
So what went wrong for them and how do you avoid following in their footsteps?
1. The first and absolute most important reason is they didn’t start off with a plan, research or get professional help
When buying an investment property you will need to do your homework and the best place to get advice is from professionals. So talk to your financial planner, your accountant and another really good way to learn is the web, so get online and do some reading. From the web you’ll be able to access lots of opinions, ideas, concerns and possibilities from which you should take notes and use as reference once you are ready to start investing. Talking to family and friends who own or have owned investment properties can also provide another way to research property investment, as many of them will tell it to you ‘exactly the way it is’ from their own experiences. You may hear things like “we had the worse tenant and they never paid rent” or “I would never buy a property because all we did was spend money fixing it all the time” or even “I couldn’t believe how much the property really cost us out of our own pockets”. All of these points need to be taken into consideration and plans need to be set up so you don’t have the same issues they did.
In fact, it’s this time you need to spend looking into the process of buying and owning a property that’s critical. Most people spend more time planning an annual holiday than planning out the purchase of an investment property and their financial future.
It’s a great idea to talk to experienced property buyers who’s role is to help first time investors buy property and make the right decisions. A property buyer, or buyers agent will help you in planning your strategy, avoiding pitfalls and achieving property investment success.
2. They bought the wrong property
If you ask some investors why they purchased their property you’ll often hear them say things like, “it was close to where I lived”, “I read in the paper that it was the place to buy” or even things like “it was where my son wanted to rent so i bought it for him to live in”. Another very common one is that it’s the area they want to live in one day or retire.
These are all emotional reasons for buying property and need a lot more thought put into them. Remember, ultimately the property will be an investment and needs to be treated that way so it will need to tick a lot of other boxes and not the ones used here as examples.
Some good investment reasons for buying a property are more like a high demand in the area for rental properties, high employment, excellent schooling and good transport in and out of the suburb, and finally the demographics must suit.
There is no use buying a house on a big block of land in an area where singles live and work. Another example is that it’s not preferable to buy a 2 storey home in a suburb that has older age group living there.
3. They didn’t review the property for growth and suitability to the market.
We all know that property is a long-term investment and buying real estate can cost considerable amounts of money initially, however as your property grows in value, the next property you buy may need no money upfront at all. Holding on to and reviewing your investment property value means that the increase in the equity of your first property can now be used to buy your second home and so on.
You also need to review the property you have for other reasons, like whether the rent is still at market rate or even ensuring you are updating the property so that it is receiving the maximum rent. Property upgrades could include access to Foxtel, remote controlled garage doors, alarm systems, automated watering system, internet access etc.
4. They didn’t manage their risk
The last thing you would ever want is to be forced to sell your home due to unforeseen circumstances. When starting off, the best option is to allow for additional funds to be available just in case. Events such as a major repair, employment change, extended sickness or one of the most common reasons is sudden interest rate rises. All of these events could put you in an uncomfortable situation which may mean that you could be forced to sell your property due to the lack of cash flow to cover the event.
Make sure you are ready for the ups and downs of investing in property to ensure that your journey as a property investor is a long and profitable one.
Happy Property Investing
Fred Rasheed is the CEO of Total Investment Property Solutions which specialises in helping everyday mums, dad, couples and singles enter the property market and build wealth through investing in property.
With over 20 years experience in the home loan and property investment market, Fred offers a wealth of knowledge and experience that he now shares with others.