5 common mistakes to avoid when buying an investment property
There are many factors to consider when buying an investment property. The decision to invest in property alone can be complex and daunting. Below we share some of the common mistakes we’ve seen people make so that you can learn from their experiences and get it right the first time around.
Spending too much, or too little
It’s pretty obvious that you shouldn’t overspend on buying an investment property, yet people do it all the time. If the price is too high, move on and find a property better suited to your financial needs. Remember an investment property is supposed to make you money, not make you feel better. On the other hand, others can be overly cautious relative to their financial situation and buy in a sub-optimal location. So don’t be scared of buying the right property, just don’t spend too much!
Not understanding the true cost
When searching property options we’re normally focussed on two things – what it looks like and how much it costs. But that’s only the start. How much are the council fees? Are there strata fees? Did you know that it’s a good idea to get landlords insurance? If it’s an older property, do you have a good understanding of what future repairs will cost? Get informed so there are no nasty surprises putting pressure on your financial situation.
Skimping on professionals
Occasionally we have clients that want to do building inspections or review contracts themselves. Despite purchasing property being one of the largest financial decisions of their lives, they don’t want to spend a fraction of the value of the purchase to ensure that they’re well protected and that the transaction is going to go through as intended. We cannot emphasise enough to hire the right people to do the job. Even if you’re an expert in the area, getting an external professional will allow an objective second opinion.
Failing to get mortgage approval
It’s astounding how many people will bid at an auction without an approved mortgage. It’s an important step that no one should ever skip if they need to borrow money to buy a property.
Even if you’re buying off the plan, make sure you’ve seen a mortgage broker for at least a pre-approval assessment. If you’re unable to settle you could lose your entire deposit plus costs, which could set you back years in your long-term investment plan.
Buying based on emotion
“Oh my god, I love this place!” said no serious investor. You’re buying an investment, not a home. You should feel satisfied that the property you’re buying meets your investment needs. You might even feel excited that you’re taking a positive step to building a better financial future. It’s also possible that you’ll feel nervous about the risks that you’re taking. These are all normal emotions and to be expected. But what you like personally may not suit others’ tastes or the demographic of where you’re looking to invest. The property you’re buying has to deliver a return, and that is its sole purpose.