Thinking about getting your foot into the property investing door? With over 20 years of experience, we have seen investors make every mistake in the book.
To save you some pain, here are six of the key mistakes we see and how you can avoid them.
1. Lack of research
Not doing the research before buying a property can be detrimental and could result in low returns, high levels of mortgage stress and maybe even a failed investment venture.
It’s important not to jump the gun and make a big purchase without ticking the research-related boxes. Doing the leg-work early will streamline the purchasing decisions and increase the likelihood of a successful investment.
You need to look at things like the location’s property value trends, average rental yields, vacancy rates, employment rates, local infrastructure, the time a property spends on the market and overall demographics. From a financial standpoint, you need to determine how a property purchase will affect your cash flow.
2. Going heart over head
The investment property you choose isn’t necessarily the one you fall in love with. It’s the one that is going to make you the best return, while fitting into your overarching strategy. All too often we see investors purchase properties that they can see themselves living in. You should instead be looking at properties with tenant appeal. Things like proximity to local amenities, the property’s maintenance requirements and size are just some factors to consider.
3. Rushing the purchase
It’s easy to get excited as you move along the process of buying any property. From the first open home to the offer, inspections, discussions with solicitors and everything in between – it’s easy to get swept up in it all and feel like it’s a race.
It’s important to take a step back to avoid rushing the purchase. For investment properties, this includes looking at different aspects such as the property’s likely rental return and capital growth potential. It’s important to consider factors like these to avoid making a mistake and purchasing a lemon of an investment.
4. Not planning for all expenses
If the investment is going to be the first property you have ever purchased, it’s easy to forget the additional upfront expenses.
The deposit isn’t the only thing you need to save for. You must have a buffer to cover all of the other expenses that comes along with a property purchase.
Just some of these upfront expenses include insurances, building and pest inspection fees, lenders mortgage insurance (if required), stamp duty, conveyancing and legal fees.
5. Not having the complete team on board
When buying an investment property it’s important to have a team of professionals around you. What your team looks like depends on your individual circumstances, but some of the most common include:
- Mortgage broker: They will ensure you get the most-suited investor loan on the market and negotiate with the lenders for you.
- Conveyancer/solicitor: They specialise in property transfers and will ensure you have all the documentary requirements involved with buying a property.
- Accountant: They will be able to tell you what you can and can’t claim as tax deductions once you own the property. The rental income you receive is included in your taxable income so it’s essential to claim everything you’re entitled to compliantly.
- Property manager: Leasing the property is what will determine the return on your investment. Having an experienced property manager to look after the end-to-end process of leasing the property will ensure you get on the front foot early.
6. Not considering depreciation
Depreciation is the natural wear and tear of a property and its assets over time. As a new investor, you can start claiming depreciation on your rental as soon as it’s available for lease.
This deduction is easily missed as you don’t need to spend any money in order to claim it – so essentially, it’s a ‘non-cash deduction’. On average, we find investors a first full financial year depreciation deduction of almost $9,000.
It’s important to consider depreciation when determining how the property is going to affect your cash flow. Depreciation has the potential to turn a negative cash flow into a positive one, all while boosting cash flow by tens of thousands of dollars for up to forty years.
To learn more about depreciation and how it can provide a boost throughout your investment journey, Request a Quote or call BMT on 1300 728 726.