Posted on 26/08/2016 by Todd Pearce
Here are the five mistakes you should try to avoid when investing in property:
1. Not doing your research
When purchasing an investment property, it’s important to do your research about the location, local amenities, rental yields, vacancy rates and the property itself. While it may not always be possible, you should aim to know as much as you can about the neighbourhood you intend to invest in. Be wary of ‘booming markets’ such as mining towns and tourism centres. These may produce excellent returns over the short term, but how will the investment stack up long term if there is an industry downturn? Remember, a good investment is not one based on speculation.
2. Not having a professional property management team in place
Many people assume property management is simple and think they can do it all when it comes to taking care of every aspect when managing their property. This can quickly become a stressful and tedious task, not to mention the ever increasing legislative requirements that fall upon landlords – it might even start to feel like another job! A professional property management team can take care of everything, from advertising the property, screening potential tenants, filling the vacancy quickly, conducting regular inspections and answering tenant requests for maintenance and repairs, amongst other services. A good property management team will give you peace of mind and keep everything running smoothly – if that isn’t the case, find yourself a new property manager. Too many investors make the mistake of keeping a poor property management team on for far longer than they should have.
3. Forgetting about tax benefits
Noel Whittaker says “the golden rule is that you always invest of the strength of the investment alone – any tax benefits that go with it should be regarded as icing on the cake”. However, you should be very aware of what you can claim come tax time. By not taking advantage of tax deductions, you could miss out on hundreds or even thousands of dollars in potential returns. Ensure you have tax depreciation done - even with existing properties there are claims to be made. Another benefit of having a property management team in place is that they record all expenses and outgoings for your tax purposes.
4. Know your numbers
As with any property purchase, the figures can quickly start to add up. While you need to factor in normal costs associated with buying such as stamp duty, conveyancing, council rates and building and pest inspections, it’s vital to also account for all the extras that come with property investment. This includes but is not limited to maintenance and refurbishment costs, landlord protection insurance, home insurance and body corporate fees if applicable. Older properties will generally require some immediate maintenance, as things always seem to go wrong in the first few months, so allow for the cost of a few repairs when considering your budget. Ensure you allow for two weeks of vacancy per year. If you price your property to the market, it won’t stay vacant for an extended period of time. Have a financial contingency plan in place in case rental returns drop or you need to sell. It’s always smart to underestimate your incoming funds and overestimate your outgoing expenses to avoid an unpleasant surprise when the accounts are finalised each year.
5. Focus on the long-term
Some people treat property investment as a ‘get rich quick scheme’, however this is rarely the case. Generally speaking, the longer you hold onto a property, the better your chance at reaping a greater profit. If you’re planning on values rising in a few short years so that you can sell your property at a large profit, you are speculating rather than investing and may be sorely disappointed come sale time.