An investment property can be an excellent source of income when managed correctly.
The first step in becoming a successful property investor is to make the right decision about which apartment or home to buy. Unfortunately, despite the many property investment tips out there, some investors will make the same mistakes and struggle turn a healthy profit on their investment.
Here are five of the most common mistakes to avoid when purchasing your investment property.
1. Getting emotionally attached
While it’s understandable to become emotionally attached to a potential new home when you’re going to live in it, it can be dangerous to do so if you are purchasing an investment property.
You should not be making the purchase, or paying more for it, simply because it holds some irrational value to you. Instead, remember that an investment property is there to earn you money, and a financial return will always triumph over a sentimental one when making this buying decision.
2. Not looking at enough potential investment properties
Property investment for beginners can be tough as it is an entirely different purchasing decision than buying a family home. That’s why some investors will fall into the trap of settling on one of the first properties they view, without doing sufficient property research first.
Instead, view at least a dozen properties before making your decision. The more the better, as this allows you to get a better feel for the market, of what to look for, and of what is a good deal (and what isn’t).
3. Not doing sufficient property research
As soon as you start seriously considering making a purchase, property research is absolutely essential.
This includes exploring the local area to understand what will attract tenants or future buyers, such as shops, transport, and schools. It also includes researching current planned developments in the area.
Additionally, this step should always include acquiring a professional property inspection to check for existing and potential issues.
4. Not saving enough for a deposit
When purchasing a property to live in, it can be somewhat easier to determine exactly how much is needed for a deposit, as you know in advance how many rooms you need, the areas you’re considering, and other major features. This will give you a general idea of what to expect for a sale price.
However, when purchasing an investment property, the potential sale price can vary much more greatly. A property with excellent investment value could be two bedroom or four, in a central city or an up-and-coming suburb. With more possibility, it’s harder to know how much to save.
Therefore, by saving a larger deposit before deciding to invest, you will have more flexibility on the kind of property you purchase.
5. Forgetting additional costs
A piece of property investment advice that often falls by the wayside is to plan for the additional costs of owning an investment property.
- Legal and paperwork fees involved in the sale
- Inspection costs
- Marketing to tenants
- Maintenance and ongoing repairs
- Council rates
- Mortgage payments and interest
Be sure to understand how much you may need to spend in these areas so you can estimate how much you would have to earn in rental payments in order to turn a profit. Forgetting about additional costs and not factoring them into your initial purchase decision can result in a lower income than expected, or even a loss.