With rising property prices throughout the country and especially in our towns and cities, investing in property can seem like a sure fire way to make money. Successful property investment, however, requires careful planning and preparation so let’s look at some common mistakes that novice landlords often make.
- Not making sure the numbers add up
Making sure the numbers add up goes beyond the initial purchase price. You will also need to factor in the costs of repairs and maintenance as well as covering yourself should your tenants stop paying the rent or the property is empty for any length of time. When making all your calculations use the net yield as the starting point. Net yield is the sum you would earn once all the costs have been taken into account. And you’d be amazed how many people end up with a negative net yield because they haven’t done their sums properly.
- Not doing due diligence
From buying in the wrong location, purchasing a leaky building to buying a leasehold property without fully understanding the terms of the lease, many people have made some very expensive mistakes by not doing their homework. It’s worth taking the time and researching the property and its location thoroughly to make sure it’s the right investment for you.
- Doing it yourself
Most successful property investors understand that it’s very hard to do it all by yourself. They will have accountants, lawyers, property managers as well as mortgage brokers working alongside them, offering expert advice and support. Often it’s a false economy to think that you can go it alone. Using the expertise of the professionals safeguards you from making some costly errors.
- Making emotional purchases
There’s a big difference between purchasing a home and an investment property. The investment should be driven by whether the numbers add up, the ongoing maintenance that would be involved as well as the buoyancy of the local rental market. It should not be influenced by how nice the kitchen is or how attractive the garden is. A different mindset is required when you’re considering buying a home that you want to live in yourself.
- Failing to manage the property well
Many investors come a cropper by not managing the property well enough, especially if the rental property is many kilometres away. Organising repairs and maintenance and dealing with problem tenants or rent arrears can be time consuming, emotionally draining and will affect your bottom dollar. Don’t make the mistake of underestimating just how much of your time will be taken up in management issues.
Successful property owners understand the risks involved and mitigate against those risks with careful planning and preparation. And so avoid making these common mistakes and you’ll be giving yourself a good head start.