Expert Advice with Brett Warren 12/06/2018
Property investing doesn’t seem like it’d be all that difficult, right?
You buy a place, jazz it up, rent it out and enjoy the returns.
How could anyone make too much of a mistake? Right?
If only it were that easy.
In reality, there are actually plenty of different mistakes, missteps and errors that can derail your investment – and if you’re not prepared, they could cost you a bomb to rectify.
Here are nine of the most common mistakes investors make time and time again:
1. Failure to be financially fluent
You don’t need to have a degree in finance or accounting in order to invest in property, but you do need to have at least a little knowledge of money and how it makes the world go around.
Investing will usually require money being borrowed, and without the basic knowledge of how funding and finance works, you might accidentally limit the amount the bank is willing to lend you, thereby starting off on the wrong foot.
You also need to know how to budget and save money, because your property investment will require a certain amount of financial upkeep over the years.
If you don’t prepare properly, you could wind up consumed by debt.
2. Being too scared to invest
It’s fine to admit that investing can be an intimidating idea.
Parting with such a large amount of money and making such a big decision can seem daunting, but if you’re well-prepared, it doesn’t need to be so scary that it stops you from taking action.
Unlike the share market, real estate is much less volatile and can provide better stability than other investing choices.
It’s also much more predictable, so you can rest assured that once you’ve done your research, you’re likely to see a great result.
You also have the option of surrounding yourself with advisors who can assist you in making the best decisions and minimise any room for error.
3. Trying to diversify too much, too soon
When you diversify your investments, it essentially means you’re including several different types of investments in your portfolio, such as stocks, bonds, shares and property.
This sounds like a good idea – in theory.
In practice, diversification can lead to averageness; average performance, average results and as a consequence, average wealth.
This is because property can be too lumpy and expensive to effectively diversify.
In fact, it’s the one area where it can actually pay to put all your eggs into one basket and look after it – just make sure it’s the right basket you’ve got all of your hopes and dreams pinned to.
4. Attempting to outsmart the market
We would all love to outsmart the market by trying to time our entry to the exact perfect spot, right at the bottom of the cycle, poised for massive gains.
Sure, property might be relatively predictable – but if your plan is to attempt to time the best moment to break into the property market, you might find that the pay-off of waiting just won’t be worth it.
Many property investors go by the advice that “the best time to invest is yesterday”, which is a philosophy I adhere to myself.
Yes, it’s ideal to buy at the bottom of the market if you can.
But if you invest in a good quality property in a blue-chip location with high rental appeal, then your long-term outlook should be positive regardless of how much you paid.
You also should avoid trying to fight the trends seen in the market.
They’re trends because they’re working, so don’t make the mistake of thinking you know better.
Aim to stick to the big capital cities where there are plenty of jobs and infrastructure and people earn higher wages.
5. Not having a system
Property investing isn’t something you can do on a whim.
You need to have a decent plan in place in order to maximise your potential returns, and there are plenty of different ways you can go about this.
One of the most popular strategies is known as buy and hold, where you buy a property with the aim to generate long-term capital growth by adding value through renovating or redeveloping.
Personally, my strategy is to buy high growth properties, before adding value through renovations or redevelopment, then refinancing and holding for the long term.
No matter which strategy you choose, pick one that works best for you by taking into consideration the time and money you have available, along with your long-term property goals.
6. Failing to review the performance of your portfolio
Property investing isn’t something you can "set and forget".
It’s something that takes time and dedication, and frequent reviewing.
At least once a year, you should sit down with an independent property strategist and take the time to review your investments.
A qualified outside opinion is beneficial because over time, you can become emotionally attached to your portfolio, so an objective viewpoint can help to clear your judgment.
7. Focusing on your own backyard
This is a common mistake many people make, because they feel like they can get better results if they focus on their own comfort zone.
But even though you might’ve lived in the area for years or even your whole life, that doesn’t mean it makes good financial sense to invest there.
If you’re not in one of the three big capital cities – Sydney, Brisbane and Melbourne -¬ consider becoming a borderless investor and invest in a different state.
8. Failing to take into account property cycles and market history
Property is cyclic in nature.
To make the best and most profitable investments, you should aim to make the most of these cycles by understanding what they are, when they occur and how they can impact your investments.
History doesn’t necessarily repeat itself, but it can teach us a lot of lessons that can help us make better decisions, and ultimately, better investments.
This doesn’t mean you necessarily have to wait or time your purchase in line with cyclical conditions.
What it does mean is that you should be aware of how the market is moving, so you can best strategise how to take action.
9. Chasing the next hot spot
If you’re chasing the next hot spot in property, then you aren’t investing, you’re speculating.
This is akin to gambling, and it’s a hell of a risky way to try and build wealth.
The trends in property fluctuate just like the trends in everything else, and this year’s hot spot will often be next year’s not spot.
Don’t make the mistake of thinking investing in property is a quick turnaround.
It’s a long-term game, and if you want to get the best results, you have to be dedicated to the idea of investing in property for at least a 10-year timeline.
Brett Warren is the Senior Property Strategist at Metropole Properties in Brisbane and uses his 12 plus years property investment experience and economics education to advice clients how to build their portfolios.
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.