According to Simon Pressley, a 3-time Australian (REIA) Buyer’s Agent of the Year; poor decision-making skills are a serious problem among both potential and realised investors. Here, he points out some common mistakes that both potential and current property investors can make.
Common investment mistakes:
- Choosing tax advantages over capital growth potential – One of the sometimes-touted benefits of property investment are the tax advantages; the fact that losses against the property can be offset against other income (negative gearing) and that the investment loan, maintenance costs and more are a tax deduction. But while tax advantages may be an attractive initial incentive, an investment property should really be chosen on the basis of its potential for income and capital growth. Try a mortgage calculator to help you determine whether an investment is going to be both affordable and worthwhile.
- Letting pests be a deal-breaker – if you’ve found a property in a great location with good potential for capital growth, pests shouldn’t be a reason to walk away. Take a look at how serious the situation is, how much it’ll cost to fix, and whether a deal with the owner is possible or likely. You could turn an initial downside into an opportunity to knock down the price of the property. Do make sure that you get a professional opinion on the extent of any pest-related damage though.
- Ruling out apartments from the get-go – you might’ve heard the saying that ‘land appreciates, while buildings depreciate’, however, this is not always true. While buildings may be depreciable, this doesn’t of itself make them a bad investment choice. Investing in an apartment in a built-up city area is worth considering because apartments are desirable in such an area. So do the sums carefully, but don’t rule apartments out of your initial considerations.
- Being inflexible on rent – the market dictates what’s reasonable to charge for rent, and if you don’t take that into consideration, it’s unlikely you’ll find a tenant. Every month you spend demanding a higher rate is another month of vacancy and no rent paid. You might not want to compromise, but 80% of something will always be more than 100% of nothing.
- Choosing insurance based on price – A good-quality landlord insurance policy is a must-have protection for property investors. So whatever you do, make sure that you find a policy that suits your needs, based on the type and location of the property that you have. Check our Landlord Insurance Star Ratings report for more information on what to look for.
So if you plan on investing, making the right decisions will ensure that you have both the best property and the best potential for capital growth possible. You can also find a shortcut to do your homework on investment loans and interest only loans here. How much can I borrow? Go to CANSTAR’s mortgage repayment calculator to do some sums.