One of the surest ways to succeed is by learning from others. Knowing what to avoid from their mistakes, and what to adopt from the lessons they learned, will help you succeed yourself. To this end, we quizzed Australia’s most notable and successful investors, who have shared the mistakes they made and lessons they learned from their investments.
CEO and buyer’s agent at PropertyBuyer
My biggest mistakes and lessons learned
• Buying an investment property with a pool was a mistake – the extra rent does not cover the maintenance.
• Procrastination has also cost me a lot of money – analysis paralysis in a rising market can mean you miss the boat.
• Investing with a developer in a mezzanine fund without sufficient security was one of the biggest mistakes I made early on in my investing career. I did not understand the risks at the time or have the proper strings attached with documentation. I lost the lot but it taught me to double check valuations, security docs, and the character of people you deal with.
Property investment coach at Positive Real Estate
– owns 12 properties worth $5.7m accross five states
Choosing high-yielding properties over capital growth properties. Highyielding properties are normally in undesirable areas or regional/mining towns where capital growth is minimal or even non-existent.
Target properties that people will want to live in when you sell. They have to be in desirable areas and need to have something special about them, like city views etc. This will always give you the most capital growth as people buy with emotion when it comes to their PPORs.
Director, WSC Group
Over the years, I have made and seen the following mistakes in relation to investment property purchases:
• Buying overpriced property.
• Investing in mining towns.
• Investing in development projects.
• Buying commercial properties, particularly in regional areas.
• Buying too many properties.
• Make sure you get a bank valuation on every property you purchase.
• Don’t buy in mining areas as they are too dependent on the mining industry’s success.
• Don’t go into projects with partners who have less money than you.
• Commercial properties, especially in regional areas, can be extremely risky and unreliable as a solid investment.
• Buy within your budget and allow yourself a $20,000 buffer per property, as cash flow is essential when developing multiple investments.
Author, investor – owns 12 properties worth $4.3m
• Trusting a spruiker/property marketing company and not undertaking enough of my own research.
• Not starting my investment journey at a younger age.
• Not getting a property inspection done on a couple of my newly built properties.
• Always do your own due diligence.
• Start as soon as you can.
• Never blindly trust the job the builder has done.
Investor – owns 5 properties worth $3.85m
• Getting too comfortable with the buying process and ending up buying property
• Buying properties outside of a 15km radius of the city.
• Buying two cheap properties in an ‘all right’ suburb rather than buying one property in a blue-chip suburb.
• Getting caught up in the hype and buying at boom time, paying a premium price due to the competition.
• Be fastidious with your research and avoid cutting corners.
• Buy closer to capital cities.
• Don’t get blinded by the price. Stick with the fundamentals.
• Avoid getting emotional and being influenced by the exuberance of others.
• My number one mistake has been selling property
. We recently did a depreciation schedule on a property that I used to own 10 years ago. The person I sold it to back then just re-sold it for more $500,000 over what I achieved
• Don’t believe the hype. Property prices don’t always go up. That’s one of the most often touted lies. Sure, if you’re not forced to sell in a downturn then you can always hang on and claw your way back, but that isn’t the case for everyone.
• The banks will lend you more for an off-the-plan property investment than they will for Woolworths or BHP Shares, for instance.
So, if you can gear into a property with a 5% deposit, remember, all it takes is for that property to go up 5% for you to double your money, but if it goes down by 5% you’ve already lost your equity. This excludes all exit and entry costs, which would make the situation worse. Sadly, this is where most investors don’t do the maths.
Small property developer
• Flying blind with your architectural drawings. I’m a big believer in having any building plans cross-checked by another professional, either a quantifier or estimator, particularly if you’re not skilled in reading detailed plans. I once used an architect based in the city to design a project for the outer suburbs. You guessed it: I got a design that was suited to the city and that cost more to build but didn’t fetch a greater end sale price.
• Setting unrealistic timeframes. It’s easy for an early-start investor to set ambitious deadlines, but the reality is the project is going to take longer than first anticipated. I had a project that blew out timewise while another one was starting, and it was simply because I set an unrealistic timeframe to complete.
• Pulling the trigger on a deal without a detailed financial feasibility study. Particularly when starting out, this can be a common mistake made simply because of the time and work involved in putting together all of the unknown numbers.
• Do your homework. Be specific from the start, and if you’ve already chosen a builder prior to having the project designed, make sure they are a big part of the planning and design process.
• Scheduling trades, unexpected issues, and running back and forth from Bunnings can all add to the time blowouts, especially if you’re managing this on your weekends and after hours. Surround yourself with people who have completed similar deals and can guide you through pragmatically.
• When faced with a hot sellers’ market, investors are pushed even more to make quicker decisions. You’re far better off leaning out of the market for a while and focusing on firming up your strategy, getting crystal clear on the numbers and then pouncing on the right project. Steady, aim and fire.
Owns 3 properties
worth $1.33 million
My biggest mistake was being ‘suckered in’ by a slick property spruiker. Both my first and third property purchases made purely from my own research have so far proven a major success. However, with my second purchase, I stupidly trusted the wrong person and their so-called ‘research’ instead of conducting my own due diligence.
Consequence: Bank valuation two years later shows a loss of over $65k – not to mention time and opportunity costs!
Investor – owns 6 properties across NSW, Qld, SA and NZ
Buying because it’s cheap. Price is not the reason to buy. I purchased my first rental property back in NZ when I was 21 simply because it was in a town that was cheap and I was a poor university student who wanted a rental property. Determined to get onto the property ladder, I ended up purchasing a 1950s three-bedroom weatherboard house on a quarter-acre section for $99,000 back in 2006 with a $15,000 deposit that was my life savings.
It rented for $155/week and I figured it would have scope for renovation and subdivision potential in the years to follow. The mortgage was locked in at a five-year interest rate of 7.55% (at the time the cheapest available), and the loan on a 15-year term with minimum P&I payments of $344/fortnight. The town itself was once a thriving community with abundant job opportunities through the local forestry and mill works, peaking in production in the 1970s.
Over time, though, through downscaling and restructures in operations, this major town employer cut jobs, which in turn forced workers to relocate to other towns to seek work. With the lack of job opportunities, the population has gradually dwindled to almost half of what it was in the late ’70s and continues to decline year-on-year.
There is no population growth to create demand for housing, therefore capital growth has been non-existent, if not negative, and there is currently an oversupply of rental properties on the market. Before purchasing this property I failed to research capital growth drivers, vacancy rates, population trends, and any local planning regarding infrastructure and future developments.
I have noticed that as the population decreases the council rates are really increasing to cover the cost of fewer ratepayers in the area. But to all negatives there is always a silver lining. Nine years on I am still the owner of this property and it is currently tenanted for $150/week.
Being a regional centre it does show a plausible rental yield, which covers the mortgage repayments and most of the property’s expenses. The local council is doing its best to regentrify the town and slowly there are looking to be improvements.
Without any growth in equity to redraw, I have had to save the next house deposit in its entirety, and it was some years after this first purchase that I was able to buy again.
But now, not quite 10 years since my first property purchase, I am up to property number six, with a portfolio spread across NSW, Queensland, SA and New Zealand, and I’m not looking at stopping there!
While I would never rule out investing in an industry dependent town, this first property purchase has taught me the importance of diversifying one’s portfolio and not having all one’s eggs in the same basket.
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