1. Emotional investment
When you are choosing an investment property, there is no such thing as “love at first sight.” If you make an emotional investment before you have done your research into the location and the rental potential, you are at risk of making an extremely expensive mistake. Investors who let emotion rule their decision-making are far more likely to over-capitalise from the beginning, making it even more challenging to ensure your long term investment will be profitable. Your investment purchase decision should be based on thorough research into the long term profitability of the location and the specific property.
2. Lack of planning
Any long term investment strategy requires specific goals and a realistic strategy in order to be successful. Without a clear plan, you will not have any sense of direction, and this could leave you struggling to maintain your financial commitments and missing profitable opportunities.
3. Get rich quick attitude
If you are looking for a quick turn-around or a fast profit, the real estate is not the investment strategy for you. Shares and other asset classes can have an unpredictable value, property is a long term investment. Real estate is a long term investment because it takes time for a property to increase in value and there are numerous additional costs involved in buying and selling a property. The value of property lies in its long term security and lack of volatility.
4. Poor cashflow management
Your property may not generate enough income to cover the cost of maintenance, rates, taxes and management fees, particularly in the beginning so you will need a comprehensive budgeting plan and a long term strategy to ensure you always have the cash flow to maintain the property. When you are planning to purchase an investment property, a good rule of thumb is to budget an additional 10% of the property’s value to cover costs until the property becomes more self-sufficient.
5. Misinterpreting the market
Many inexperienced property investors fail to ask the most essential question of all – is this property an appealing rental prospect? Do some research into the local area and find out what types of properties are in demand for tenants, and what types of tenants you will attract. Check out the property at different times of the day to see if there are any glaring issues that may drive tenants to leave as soon as their lease expires – noisy neighbours, heavy traffic, or just an inconvenient commute to the local shops could make it difficult to rent out the property in the long term. You should also calculate the average rent in the area to see how it will cover your costs.
6. Lack of delegation
You might think a DIY approach to property management will save you money, but remember your time is valuable as well. Consider all the jobs a property manager handles – finding new tenants, conducting regular inspections, collecting rent, and managing any emergency maintenance issues. A property manager also deals with any legal issues relating to the rental property and will represent you at a tribunal if necessary. This person is an invaluable asset, and gives you the opportunity to expand your property investment portfolio with more properties, knowing you can delegate all property management issues to a full time expert.