4 financial traps investors must avoid

Expert Advice with Ahmad Imam 13/05/2018

 

There are probably just as many traps as there are tips when it comes to property investment.

The thing is property investment tips or opinions are just like belly buttons... everyone has one but they're not really useful once you've been born!

I've developed our property investment strategy over many years, but not everyone has to agree with me.

And that's fine because everyone has the right to their own opinion.

Property investment traps, on the other hand, are usually the same for most investors.

And this is especially true for novice investors who seem to fall into the same traps time and time again, unless they're working with a team of property professionals from the start.

Here are four property investment traps that investors must avoid:-

1. Lack of maintenance
I'm not overly fond of the term "set and forget" investing because it implies that you can buy a property and then never think about it ever again.
Many investors mistakenly adopt this non-strategy because they're not treating their investment with the respect it deserves.
Ditto for their tenants.
So they generally don't have a regular maintenance schedule, which means their property falls into a state of disrepair that will end up costing them plenty of tradesmen's fees.
Plus they'll also be out of pocket because of unnecessary vacancies because tenants don't want to live in a property that looks shabby or could even be unsafe.

2. Self managing their property
This one is a common boo-boo for new investors because they think they'll save money by trying to manage the property themselves.
Can you work out what really happens?

Well, they wind up struggling to understand the relevant legislation, plus they just don't have the necessary skills to manage the property because they're too emotionally invested in it.
Property managers, on the other hand, earn their fees time and time again because they're professionals.
They do a lot more than just collect rents.
They find the best tenants for you, regularly inspect your property, manage maintenance issues, make sure you're getting an appropriate advice on market conditions if it's time for a rent review or the property is about to become vacant. 

3. FOMO
Following the crowd is just human behaviour, but when it comes to your finances it's generally not a sound idea.
Just because something is "hot" right now, does not make it a good investment option.
In fact, it probably means it's a bad idea.

Today we call it Fear Of Missing Out, which is what we saw at the height of the mining boom of regional properties and more recently when Bitcoin hit an eye-watering USD$18,000 in 2017.

That's not to say you shouldn't follow some people but they should be experts in the fields.
Warren Buffett, is one of the most successful investors of the modern era and he also follows a strategy of investing when "the herd" is not.

He famously said, "Be fearful when others are greedy and be greedy when others are fearful."

4. Knee-jerk reactions
As I've said many times before, successful property investment involves buying the right type of properties in the best locations.
However, it also requires time for the power of compounding to do its magic.
And when I say time, I don't just mean a year or two or even five.

I mean a decade or two because capital growth really only starts its zenith from the 15-year mark or so of ownership.

Too many novice investors, though, jump at shadows such as market fluctuations and decide to sell before they "lose everything".
Successful investors, on the other hand, have the fortitude to ride the ups and downs because they know the true prize can be a long way down the road.

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Ahmad Imam is the Senior Property Strategist at Metropole Properties in Sydney, is a highly skilled wealth strategist and a passionate property investor. He has a degree in Commerce, is a licensed estate agent in both NSW and QLD and has personally coached and educated hundreds of clients to create wealth through property. He is a regular commentator for Michael Yardney's Property Update.


Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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