How first time investors fail

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A large portion of investors never make it past one or two property purchases – and it’s not because of their personal income, it’s because they made the following mistakes

 

1. Overbuying: Real estate experts cite this as the most common mistake for first-timers – buying more than they should or can afford. Make sure you have an excellent understanding of all the costs of homeownership involved, as well as a handle on your other expenses, from credit cards to personal expenses to car payments or any other commitments.

2. Emotion over reason: Buying your first home is an emotional moment and one you should be excited about, but you must keep your head. Don't let your “love” for a prospective home cause you to become overexcited and lose your common sense. You may end up buying the wrong house or paying too much for it.

3. Settling: Sort of the opposite of overbuying, don't “settle” for a house when there are likely better options available. Make sure you do your research on your finances, the neighbourhood, location and specifics of the home, so you know you're making an informed choice.

4. Not getting pre-approval for a mortgage: Getting pre-approved provides peace of mind in that you know what you can afford, which gives you confidence when it comes time to making an offer and negotiating.

5. Not knowing your mortgage options: While you may feel most comfortable going straight to your friendly neighbourhood bank for a mortgage, this may not be where you get your best deal. Finding the right mortgage can save – or cost – you thousands of dollars, so be sure to take the time to examine all options – from banks to brokers, and all the various products available.

6. Choosing the wrong location: Most first-time investors tend to stay close to their homes. In making your selection you need to think at least a little about the factors that affect resale – either positively or negatively. Research the neighbourhood and pay attention to marketable details of the house, such as proximity to transportation, shopping, schools, parks, planned developments and even local crime statistics.

7. Scrimping on the inspection process: The cost of a professional inspection is a small price to pay for the peace of mind of knowing your prospective property is free of major defects.

8. Not reviewing the purchase contract closely: Property purchase contracts are long and detailed, but it's necessary to review them carefully, both on your own and with your lawyer. Pay attention to all clauses, covering everything from inclusions in the sale to closing dates.

9. Using the wrong realtor: For first-time buyers especially, the services of a qualified and experienced real estate agent are invaluable. But not all realtors are created equal. In the hot markets over the last several years, more people entered the profession, trying to cash in on booming sales and commissions. But now, in a more challenging market, some of these newcomers are becoming part-timers or leaving the business entirely. In theory, at least, the best and most experienced realtors will be left standing. Be it through referrals or your own research, take the time to find a good agent – one who wants and truly deserves your business.

10. Making an offer prematurely: This often results from buyers getting too attached to a home too early, without looking at other options, letting their emotions get the best of them and wanting to snap it up before someone else does. Be sure you take the time to review the information on market value for similar homes in the neighbourhood to ensure you don't overpay.

Top Suburbs : newtown , newcastle , balga , belmont , reservoir

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9 Responses to "How first time investors fail"

  • Greg says on 13/11/2012

    4. Not getting pre-approval for a mortgage: ???
    YUP. I got a pre-approval card from Aussie Home Loans at Hurstville in 2000. Thought it was a great idea until they didn't honour it. Turned out the Aussie loan guy didn't bother doing an evaluation on our property. Just went off an evaluation we had from another lender. Aussie's evaluation came in at a lower value, so they cancelled the ‘pre-approval card ” and the loan didn't proceed. Aussie stuffed us around for 3 weeks before telling us it was cancelled. To add insult, they took my money, a $600 application fee. As far as complaining, they had a great system of sending you straight back to the same loan guy who didn't give a toss. LOVE YA WORK AUSSIE JOHN! Really enjoyed the stress you put us through. Luckily the property didn’t sell to someone else, and we ended up getting the loan through RAMS, their evaluator agreed with the Eval we had.
    So beware. Pre-approvals can disappear quick smart. A loan is never guaranteed until it's settled.

  • Property Mavens says on 13/11/2012

    Using the wrong realtor:

    I think you meant to say that the buyer needs to be aware that the Selling agent DOES NOT represent their interests and legally represents the sellers interests. Therefore they should seek their own INDEPENDENT representation via the use of a Buyer Agent/Advocate whose role it is to ensure they don't overpay, insert clauses in the contract to benefit the buyer ( NOT the seller), they have the property inspected before purchase and that they are buying the right property for the right reasons.

    Anyone that doesn't understand that the selling agents job is to get as much money for the vendor as possible, while using all the clauses in favour of the seller, is likely to get themselves in trouble!

    If you were in court and being charged with a crime, would you get independent legal representation or would you hope the prosecutor was a nice guy who looked after you ?? If you would get legal representation, then you should also get a Buyer Agent to protect you when spending $100,000's dollars !

  • Greg says on 13/11/2012

    8. Not reviewing the purchase contract closely:
    Make sure you add everything into the contract that is nailed or not nailed down. Ceiling fans, exhaust fans, air con, skylights, garden features, pool pumps, rainwater tanks, letter box, solar panels, everything! My solicitor said he's seen so many things nicked over the years after settlement like tall TV masts and boosters. If it's not listed in the contract, it's fair game for the seller to take it.
    Always visit the property on the day of settlement with the agent, and before settlement time. Again it's to make sure nothings been removed that shouldn't have been, and the properties still standing.

  • Pascoe says on 13/11/2012

    Westpac did the same to me in regards to a pre-approval. Said it was all good and ready to go to only stall for 3 weeks and finally say, no its not approved. The only reason I am still with Westpac is because I havn't had a chance to refinance yet. Most expensive and inflexible of all the banks.

  • Andrew Sansome says on 13/11/2012

    Useing all or most of your equity as you go along improveing your properties to purchase more. This would be the number 1 error in moving forward combined with too much haste..............I know first hand as Ive done it myself. Keep your LVR at or under 60% and you wont go too far wrong, over that and you will have a short existence in property investing, particularly for the future economic climate to come, reduce your debt..Maybe not what anyone wants to hear but you asked for a comment.................

  • Francis says on 14/11/2012

    Very interesting seeing we have all these investment property guru's telling everybody how easy it is and will only cost you $25 a week. Wish it was that easy. As a long time property investor with 10 properties in the family I would say the biggest problem especially for first time investors is under estimating the actual costs per month. What if their is no tenant for a while, extra repairs etc. Never ending. But saying all that property investing is still the best way of the average person getting seriously rich. So go for it but make sure you have plenty of spare money in the budget because you will certainly need it

  • Greg says on 11/01/2013

    Another high impact issue is Taxation. Do you purchase your investment property as Joint Tenancy or Tenancy in Common?

    Joint Tenancy means ownership is evenly divided and if one person on the property deed dies, the property automatcally becomes wholly owned by the survivor. Where Tenancy in Common allows you to specify the percentage of ownership by each person on the deed. It's that percentage the Tax Office uses to determine how much income or loss, and Capital Gain or Loss a person pays.
    Whatever you choose impacts two types of Tax you will pay. Capital Gains Tax when you sell the property and Income Tax via negative or positive gearing in your yearly tax return.

    If one person on the deed is a House Mum/Dad with no income, it makes for an interesting decision with percentage of ownership. Choose wrong, and you could get strung/stuck with paying too much tax when you sell or while your renting it.

    My advice is to ask MORE than one Accountant what you should do in your instance. I say MORE than one, because Accountants are human and I have been given the wrong advice in the past. Ask successful business people which Accountant they use, rather than using the yellow pages.
    A brilliant Accountant will save you a fortune in Taxation, that can be saved up and used for your next property purchase.

  • Eos Property says on 13/01/2013

    Bigger reason is a lack of an end point. In other words 'how is property going to work for you as a financial vehicle'

    Know the answer to this question and you will know which property suits your strategy.

  • kabeer says on 29/01/2013

    Been renting for the last two years my personal experience is that australia is one of the worst place where one can be renting... So bascally it is a place where it can be benefetial for the property investors... But that is only the current status... dont stretch your budget only based on the rental return... you should plan in such a way that that the mortage would be able to survive even if you hit a 10%(some people would say it is big %) lower rental.

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