Four Common Mistakes to Avoid with Your First Investment Property

27th May, 2022 | Investor

In this article:
In this article, we will explore some of the most common pitfalls Australian property investors face.

Australian Property investors looking to purchase a first investment property often make the same key mistakes. These are common errors that can be easily avoided, and if you do not take these into account when purchasing your next property, then it is possible you will find yourself in a tricky situation.

In this article, we will explore some of the most common pitfalls Australian property investors face. We’ll also discuss how to avoid them so you can secure yourself a home in which you can start building wealth for an even more prosperous future.

1. Not doing your research and having a clear plan

This is the number one mistake people make when buying their first rental yield and capital growth potential. It is also important to have a realistic idea of what you can afford, as well as what your loan repayments will be. Doing your research will help you avoid any nasty surprises down the track and ensure that you buy a property that meets your needs and investment goals.

You need to analyse your proposed investment property by looking at the local community factors that will help you turn your investment into a profit. Analyse growth figures in the area, employment opportunities, vacancy rates and investment yields in the particular postcode. These are critical numbers in assessing the potential of your investment property. You must also consider the amenities of your investment property and the suburb it is in. Assuming you’re looking to lease your property, put yourself in a renter’s shoes and ask yourself the questions, they would ask: are there schools nearby? Shops? Cafes? Parks?

Particular postcodes and/or properties suit particular types of tenants. Single people or university students will likely be more interested in an active nightlife in the area, and access to public transport, whilst families will likely be looking for safe neighbourhoods with parks and schools nearby. You can’t afford to ignore the needs of potential tenants when you set out to find a suitable investment property.

Another common mistake is not having a clear plan for what you want to achieve with your investment. Are you looking to generate a rental income? Maximise capital growth? Both? Without a clear plan, it’s easy to make poor decisions that can cost you dearly in the long run.

2. Not considering all the costs involved

Another common mistake people make is not taking into account all the costs associated with investment property. There are many things to consider, such as loan repayments, insurance, repairs and maintenance, and of course, the potential for vacancy periods. All of these costs need to be considered before making an offer on a property.

It pays to sit down and prepare for the monthly costs that go hand-in-hand with renting out your second home. Aside from your mortgage repayments, investment properties naturally incur costs to maintain the property for renters. Insurance, property taxes, upkeep and appliances like dryers, fridges or ovens are all various expenses that often go unconsidered.

3. Going it Alone

Investing in property can be a complex process, and it is important to get professional help from experienced industry professionals. A buyer’s agent can save you time, money and stress by helping you find the right property, negotiating the best price and carrying out due diligence on your behalf. A good mortgage broker will also be able to help you find the right loan for your needs and circumstances. With so many home loan products on the market right now, it can be easy to feel overwhelmed and anxious about trying to find a suitable option for you. A mortgage broker alleviates the stress of securing a loan at the right price for you!

Finding experts you can rely on is crucial for the savvy investor. It’s becoming commonplace for investors to assume the responsibility of managing a property, but at the end of the day, hiring a property manager to handle the day to day management of things like tenant complaints can free you up to focus on your investment strategy in the long run. Another beneficial expert to have up your sleeve is a handyman to deal with the inevitable repairs or general house maintenance that comes with owning a second home.

A few experts you need to consider that will help you on your investment journey are:

  • A solicitor – to help with conveyancing and legal issues that may arise during your property ownership.
  • A property manager – to manage the relationship with tenants and deal with the nitty-gritty of making sure your investment home remains in good shape.
  • An accountant – to help manage your cash flow, taxes or financial strategy.
  • A mortgage broker – to find a home loan that works for you, not against you

4. Over-leveraging

Another mistake that far too many investors make is over-leveraging themselves. This means taking on too much debt in relation to the value of the property, which can put you in a very precarious financial position if the market turns against you. Consider a conservative approach to your borrowing and make sure you have a solid buffer in place in case things go wrong.

Closely related to this mistake is investing with emotion. Naturally, emotions can play an enormous role in financial commitments, but at the end of the day, investing is about using your head, not your heart. A handy tip is to look at your property investments as a business that you’re launching. You need to avoid becoming emotionally attached to certain properties that seem ‘perfect’. In doing so, you can avoid getting into a bidding war on a property you’re going to lease.

You may have done the due diligence on your property and figured out your maximum borrowing capacity, but far too often, borrowers overspend on their investment properties which minimises your potential gains or can mean failing to have enough cash to prioritise the needs of renters (such as a fresh paint job or some new appliances for the property).

The Takeaways

There are significant considerations for investors that often go overlooked when buying an investment property. In short, some crucial tips to consider are:

  • Research: This cannot be overstated! Researching your property and formulating a plan that clearly outlines all the costs associated with your second property purchase will place you in good stead to execute your investment plan.
  • Think with your head: ask yourself difficult questions like is the property old or new? Does it need renovations or a ‘clean-up’ before you lease it out?
  • Think like a tenant: What would you want in a property that you are renting out? What is the type of tenant that would want to live in the property or postcode that you’re looking to invest in?
  • Engage experts: have the property valued and inspected before you purchase. Work with financial experts like mortgage brokers and accountants to ensure you don’t over-leverage yourself and that you have a clear investment strategy.

Investing in property for the first time can be a stressful experience. By talking to an experienced YBR Home Loans mortgage broker, you can alleviate some of the stress associated with purchasing a property. Our home loan experts work with you to provide you with transparent information about your home loan options and can connect you with the experts you need to formulate an investment strategy.

Reach out to us today to discuss the best way forward for you and your circumstances.

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