Successful property investors try to avoid making mistakes, but not everyone has an easy path to success. Mistakes are sometimes made.
Property investment offers some great rewards, but if you make a mistake, it can really hurt you financially. Thankfully, most of them can be avoided.
Increasing your knowledge by learning from others, will increase your chances of making a profitable investment.
Here are 6 property investment mistakes to avoid.
1. Not Having a Budget
Failing to budget will get you into all kinds of financial trouble. If you don’t watch your spending, how will you pay bills when they are due?
Financial stress is one of the major causes of unhappiness in life, so why not decrease that stress wherever possible.
The best way to manage finances is with a budget planner. A planner will itemise your income and expenses, so you can closely watch where your money goes. This will give you more control over your spending and help you save towards future investing.
2. Waiting for the Market to Change
The property market moves in cycles and it guides a lot of investors decisions, however buying in a down market does not guarantee the best chance of buying at the lowest price.
A good investment grade property can be purchased at any time in the market cycle. Waiting for the market to change, will mean lost opportunities and loss of momentum.
The best time to invest is now!
3. Not doing your research
Research is one of the most important tasks you will ever have to do before buying a property.
Many things will be discovered in the process, such as whether the property has growth potential or, whether or not the property is right for your portfolio.
Failure to do research, will result in costly mistakes that will greatly affect your chances of success as a property investor.
4. Not understanding demographics
Demographics is basically statistics about people. Every successful investor will learn how to study demographic data, in particular, population growth.
A growth in population will increase demand for housing. This means, housing prices will also rise, which then generates capital growth.
Studying demographics will also teach you what kind of property people want to live in, which helps the investor decide what kind of property to buy. A successful property investor cannot succeed without this knowledge.
5. Letting emotion guide you
Property investment is a business. It is based on numbers.
Emotional attachment to a property will make investors hold onto a bad performing property, when it should be sold. It also makes investors purchase property, which will not make any money.
The best way to keep emotion out of investing is to have a buyer’s agent find a property for you. The second-best way, is to remember your figures. Always do a cash flow analysis before you inspect the property, so that you can remain objective.
6. Ignoring depreciation
Knowing about depreciation before you purchase a property, will determine what kind of property you buy. If you ignore depreciation, you are missing out on a major benefit of property investing.
Depreciation is closely tied to tax law and is subject to change. Currently, only a brand-new property can claim depreciation for fixtures and fittings, which means a bigger deduction at tax time.
Always get a depreciation schedule from a quantity surveyor once you purchase a property. This will ensure you get the maximum tax benefit.