Investing in property is a great long-term investment but it does need some careful planning, and it’s always best to surround yourself by a good team of experienced professionals. There is no shortage of information available online of what you should do when you’re thinking about property investment – but what about the things you should avoid doing?
To help you with your property investment plan, here are some common mistakes many first time investors make:
Not fully researching the area
As with all investment ventures, it is imperative you do your homework on the area you intend to buy in. There are no short cuts to be had in this area. For instance, is the area attractive to tenants, is it a growth suburb, what are property prices like in the area? Doing your homework at the beginning will pay dividends later down the track.
Not considering all additional costs
An investment property isn’t just about purchasing costs and the tenant paying the mortgage; there are running costs too. For instance, how much is the council tax and are there other costs such as strata fees? If you’re buying an older property, you’ll need to consider potential maintenance costs too. Plus you’ll need to factor in the possibility of the property being vacant for a period of time.
Buying with the heart
When we look at buying a property for ourselves, we look at what we like about the house, its quirks and its location. But when buying for an investment, step back from your heart and buy with your head. For instance, while you may not chose to live in an apartment, many people do. This is a business venture and you need to think of it as such.
Not knowing the benefits
Did you know you need a tax depreciation report at the time of settlement? Property investors can be eligible for some generous tax depreciation benefits, but you can’t claim for these if you haven’t had a tax depreciation report completed at the time of settlement. Talking to a tax specialist before you buy a property ensures you have all the paperwork when it comes to tax time.
Getting the wrong finance
A common mistake many first time investors make is with getting the wrong type of finance. It’s important to remember interest is a tax deductible benefit; this is why many investors favour an interest only loan. You should always seek professional financial advice when looking at financing an investment property.
A property investor needs to be flexible; while you may have thought a property was worth a certain rental rate, the market may dictate otherwise. Prepare your finances at the lowest income; it’s better to have the property rented out than to be sitting empty. And although you can increase the rent in line with inflation, it may not be within your interests – increased rent means increased income and this will be subject to tax.
As an aside, if you’ve got good tenants who are looking after the property and paying the rent on time, you want to keep them; upping the rent may cause them to leave, meaning you now have to find new tenants who might not be so accommodating.
Self-managing the property
You’d expect us to include this on this list! Don’t underestimate the value of using professionals. We’ve had many former self-managed landlords come to us with horrendous tales of unruly tenants, rent not been paid on time and 2am phone calls. Managing the property yourself is time consuming and can be stressful. Plus a property management service is a tax deductible benefit so you stand to gain in both time and money.
If you’d like to know more about property investment and how to avoid some of the pitfalls, our team would love to help. Give us a call on(02) 4954 8833 or pop into the office.