Property investment can be a rewarding and lucrative source of income, especially for investors beginning to diversify their portfolios. 

The key is to avoid making costly mistakes that can hinder you from building your wealth and expanding your portfolio.

Getting started within the property market comes with its own lexicon of practices and terms, so it’s crucial to be familiar with what you’re likely to encounter as you begin the process. 

Ahead of your first investment, it’s helpful to keep the following aspects in mind among others:

• Differences between residential and commercial real estate
• Personalities of each location
• Factors that affect property value

Beginner property investors must be aware of the pitfalls involved. In this blog, we go over some of the most common mistakes in investing and how you can avoid them.

5 mistakes that new property investors must avoid

A potential property investor can make several blunders that can easily be avoided with preparation and the right information. 

We’ve shortlisted the most common mistakes that you could make, some of which can be addressed with a few simple tweaks to your investment process.

1. Not setting goals

Like any investing venture, resources are better used in an intentional way that contributes to a larger goal. Beyond aiming for passive income, investors may end up putting themselves in a difficult position if they don’t set goals–like racking up too much property debt and additional costs related to repairs that need to be done.

Goal-setting for real estate investors have many similarities to general investment strategies, but the asset class tends to affect how resources are allocated. Starting the process in the absence of a set of objectives that take into account your plans for the future, current financial capacity or other prospects could prove to be a costly challenge in the long run.

Answering the following questions can guide you in setting goals for your property investment journey:

• What am I trying to accomplish with this real estate investment?
• Why exactly is this goal important?
• How will achieving–or falling short of–this goal affect my bottom line?
• What resources will I need to accomplish this goal?
• Who will I need to involve in accomplishing this goal?

When you’re able to answer these questions, you can develop a clear vision of your goals and how you can achieve them, so that you can establish actionable and measurable plans that make the most of the resources you channel towards investment.

2. Skipping research

Property investment research tends to differ from other asset classes because there are factors like location and market value to consider specific to the space.

There are a handful of key aspects that you’re going to need to tackle:

• Sort out your finances: decide how you’re going to invest, whether through a mortgage or providing a cash deposit, and review your financial situation for how you’re going to support yourself and your family for the next six months at least,
• Select a location: the rule of thumb is to seek out areas with high rental demand, but in a market where demand is high no matter where you go, you can seek out neighbourhoods with universities, employment industries and vacation locations,
• Assemble your list of property investment criteria: Be specific about the features you expect will net you better returns, such as the size of the property, the number of rooms and bathrooms and the amenities within the area 
• Keep a shortlist of options: given the features you want the property to have, select three of your favourite properties to see how they stack up against each other, and
• Find out how other properties are performing: understand the value of homes in the area, which involves comparing a property to similar ones (e.g. have the same number of rooms, proximity to amenities, etc.) located in the neighbourhood.

Beginner investors must put in the work and get to know your prospective investment before starting the purchase. This allows you to make the most of your resources and keeps you from feeling overwhelmed by the options on the market at any given time.

3. Relying too heavily on virtual visits

The pandemic sped up technology adoption in the property industry, which now allows prospective investors from around the world to view a possible investment. However, even the most high-definition lenses may be unable to capture all aspects of a property’s condition.

Getting the feel of the area and seeing the prospective investment in person helps minimise the risk of any surprises in the construction or the state of the property itself. 

Be on the lookout for these important things when you’re taking your final walk-through:

• Inspection repairs: check to confirm if any agreed-upon repairs have been carried out, with your inspection summary in hand along with your accepted offer letter, and see if no new and obvious repairs need to be made,
• Personal items: ensure that a seller has completely moved out all their belongings, and contact them before completing the sale if they’ve left something behind or if they’ve taken anything they agreed to leave behind in the property,
• Secure the space: inspect locks and windows for functioning lock and unlock mechanisms, sticky hinges on windows or doors (which could be a hazard during an emergency), plus alarm system sensors if applicable,
• Mould: moist areas like bathrooms and kitchen can fester this costly problem, so inspecting surfaces and difficult-to-reach crevices are essential, and
• Power and outlets: one malfunctioning outlet could well mean the rest of the electric current is on its way to ruin, so check each outlet with a phone charger to confirm that it registers the outlet as soon as it’s plugged in.

While these are only some of the crucial aspects to check for ahead of the completed sale, it goes to show that virtual visits can’t capture all of the fundamental factors that go into making a property not just profitable but habitable and safe for any resident.

4. Underestimating scope and cost of improvement work

Aside from seeing the state of the property for investment and assessing the degree of possible updates to the space, first-time investors must set aside an adequate amount of time and funding to carry out these improvements.

The costs related to updating the property are only one dimension of the scope to take note of. Depending on how many properties you decide to invest in and renovate, the Taxation Office determines how this affects your obligations and entitlements.

Personal property investors generate capital gain or loss from the proceeds of the sale, while investors engaged in property flipping, depending on the scale of renovations, may be required to register for GST.

5. Doing everything yourself

Despite the wealth of information a beginner investor can glean from the various personal finance and investment resources available online, there are still some things only real estate agents know, thanks to their years of experience and training.

A real estate agent advises you on initial investment and provides valuable insight into the regional market, prospects for future development and other related aspects of the property investment journey. Real estate agents have the following key characteristics:

• Years of experience and expertise informing their advice,
• Strong ties and influence within a greater community and industry network, and
• Specialised training that allows them to practise with effective technique.

Investing in property comes with its own set of challenges. But you can take the hassle out of dealing with problems by defining your goals, conducting your research, seeing the prospective property in person and getting advice and guidance from a credible real estate agent.

Enthusiastic first-time investors can look forward to getting on the property ladder, but anyone starting this journey needs guidance from the right people. Contact one of our seasoned professionals, we’ll keep you from making these investor mistakes.