Property Investment Mistakes To Avoid
Property investment can be an effective and worthwhile option to assist you in your wealth creation, but property investing like a pro can be difficult. Here are some common mistakes to avoid when beginning to build your own property portfolio.
Poor cash-flow management
As a first-time investor, it’s important to have a complete understanding of the costs of property investment. Including the initial cost of purchasing, as well as the ongoing costs of maintaining a rental property.
Some ongoing costs an investor will incur are council rates, water bills, land taxes, body corporate fees, property management fees, and insurance. You should also factor in contingency fees, such as repairs and maintenance on the rental property.
Before going ahead with an investment property purchase, assessing your budget after the purchase is complete, including all the above fees can go a long way in determining if the expenses are suitable for you.
Falling for an inflated rental guarantee
A rental guarantee is when a vendor guarantees a certain rental income amount for a set period. The problem with rental guarantees is that they are often built into the purchase price. So, you could be paying for the guaranteed rent yourself through an inflated purchase price.
The guaranteed rental amount could also be estimated at an above market rate, this means that when the contract is concluded, you could be left with a much lower rental return, or even no rent at all.
Another issue is that lenders will often use the market rent, rather than the guaranteed amount, which could bring down your serviceability when they assess your eligibility for a loan.
Thorough research is the best way to avoid falling for an inflated rental guarantee. Don’t take the vendors word for it, complete your own research on the area to ensure the rental price is realistic.
Buying risky off-the-plan purchases
Buying off-the-plan can be beneficial for some investors, but there can be added risk. There is a possibility that the developer may deliver a sub-standard property and it may not be on time or even at all.
Securing finance can also be difficult as some lenders will only offer a conditional approval for the purchase before construction has commenced, and they won’t lend you the money until the property has been constructed and a final valuation is completed.
There is a chance that the valuation will come in below the price you have agreed to pay. This can make securing your finance very difficult. This may cause you to lose your deposit or sell the property quickly and take a loss.
Your financial position and your serviceability could also change in the time it takes your property to be construction. There may be market falls or interest rate rises which could also affect your serviceability.
Thinking you can do it alone
As a first-time investor, having a full awareness of the ins and outs of buying a property can be very difficult. From understanding your investment strategy and finding a property to suit your investment goals to securing a home loan that meets your specific needs, the process can seem overwhelming.
That’s why we’re here to help. A mortgage broker will be with you every step along the way. Assisting in anything from understanding your borrowing power, creating a personalised budget, to providing expert advice on what the right loan product is for you, and how to structure your specific investment strategy.