12 Apr 6 Mistakes of Property Investors
Getting into property investment can be exciting, especially for new investors. However, there is a lot more that goes into the buying process than just selecting the most beautiful house in the area. Many first time and even experienced investors make mistakes that can be very costly, time consuming or frustrating to deal with.
To help you out, I am going to share with you 6 of the most common mistakes property investors make and some tips on how you can overcome these to achieve bigger gains.
1 – Emotional purchase
Whilst many of us may be aware of the emotional purchase trap for ones buying their potential home; getting attached to a certain layout of the house or quickly impressed by the home staging and your mind starts to wonder how your 4-year-old and your schnauzer would love the back porch…
You would be surprised that many investors also make irrational purchasing decisions driven by emotions. This can come in many forms including getting into a bidding war at auction or perhaps putting in a higher than market offer under fear of losing out after told by the agent there is a multi-offer situation.
When things ‘appear’ out of control, it is easy for people to lose focus. As an investor, if the numbers don’t stack up then you know it is not the best buy to contribute to your goal of growing your portfolio and you should simply walk away no matter the situation. You do have control to take ownership of your decisions so be firm on that mindset.
2 – Doing it all yourself
It is somewhat part of our Kiwi culture to love DIY. However, experienced investors know that property investment itself is a team game and have a group of professionals around them to take care of each component of the investment process to generate you more income and save you time – be it finance specialists, construction teams or even direct mentoring from ones who have walked the journey.
We often hear of people who took too long to get the project done, or it was done incompetently and end up having to redo the work to get it right a second time. Getting the appropriate professionals involved and knowing when to delegate is what will put you ahead of the game.
3 – Being a landlord not investor
Landlording is a skill you don’t need to have to be a successful property investor. Don’t take on the stress and responsibility of being a landlord. While you may save a couple thousand dollars a year by not hiring a property manager, the time and effort you spend really isn’t worth it in the end.
A quality property manager is experienced in all the challenges of being a landlord and owning a property like paying rates and water bills, looking for quality tenants, credit and reference checks, maintaining the relationship and handling the calls at all hours. They’re up to date on tenancy law and have a network of professionals to help look after your property, so you don’t have to deal with the call at 11pm that there’s a plumbing issue.
For these services, property managers charge a small percentage of the rental income to look after your investment for you. Save your energy on what really matters – growing your portfolio. You don’t want to miss out on opportunities by chasing the ‘small money’.
4 – The no. 1 regret – selling out of fear
Once you’ve jumped on the property ladder, the investing game really doesn’t stop there. You still have to weather the storm that is the property market.
Always keep in mind that properties have shown to double in value every 7 – 10 years. The catch is that during this period, there will bound to be downturns and the fact is when times get tough, people get the urge to offload their properties. By selling too early, you will be missing out on the following cycle and growth period.
Don’t give into fear and keep holding onto your property. To date I have yet to come across any clients who haven’t regretted selling.
5 – Trying to pick the ‘best’ time to buy
Too much procrastination over the exact timing and short-term windfalls can put you on the back foot – some investors will try and seek short-term gains through speculation whilst others may not end up taking action at all. Trying to pick the top and the bottom of the market invariably doesn’t work, although it is key to keep an eye on market movements, the best investors purchase for the long term and acknowledge that even if they buy in on the ‘downward wing’, by holding the properties long term and riding out the property cycles will see it through.
6 – Focusing on quantity over quality
Focusing purely on maximizing the numbers of properties in your portfolio is not necessarily the best idea. This may be driven by the mindset of ‘beating’ the crowd or chasing after an expeditious portfolio growth rate.
When quantity overweighs quality in your portfolio, you will inevitably fall into the trap of buying the wrong properties. This may be cheaper properties not in the best location, substandard properties that come with higher maintenance and repair costs or some look to buy into the regions not aware of the higher vacancy and property rates.
Cheap properties do not necessarily make a good investment and it is prudent that you undertake the necessary research to ensure that each purchase you make will provide you with the best returns over the long haul. When you get stuck and are unable to make quality additions to your portfolio, rather than focusing on increasing the quantity, the right thing to do is to take the time to review what can be done to get back into the right direction.