Buying a home or investment property is a huge financial decision to make and an important step for families to make. This means the stakes are high and many property purchasers make expensive mistakes.
So what can go wrong? In this blog we outline five potential investor traps to avoid falling into when purchasing property.
1. Hoping for an overnight profit
Buying and selling a property in the short term and hoping to make a profit requires precise market timing. And unfortunately, timing is a factor which is very difficult to control. On this basis, property speculators invest knowing that they may be able to time the market correctly and with the reasonable expectation that they may lose some or all of their money.
This is why having a medium to long term investing approach is crucial. Securing a property which will consistently grow in the long term is the only way to ensure you make a reasonable profit.
2. Renovating for profit
Many investors attempt to improve their equity position by buying property to renovate. The end goal in this scenario is to either sell for a gain or leverage against that gain into more projects.
While there can be money made this way, usually it is less a result of the actually renovation and more the result of natural market movements.
This strategy requires skill and time, and is one which is disappointing to many who attempt it.
3. Not understanding the risks
As with all investments, return will always relate to risk. There is no such thing as high-return, low-risk investment in any class.
Different property types have different levels of risk and potential return. As a property investor, it is vital you understand this before choosing a property type in which to invest.
Knowing your own property risk profile and understanding the difference between speculating and investing are fundamental to avoiding the pitfalls of property investing.
4. Not asking for help from trained professionals
Trying to understand and do everything yourself can be a hard road to navigate. By engaging the services of suitably trained professionals to carry out a number of tasks on your behalf can greatly help you mitigate risks.
These professionals can include accountants, conveyancers, solicitors, building and pest inspectors, quantity surveyors, property managers and qualified property advisors.
5. Not doing your research
When purchasing property, research is the most important strategy in avoiding traps.
It is imperative that you know as much as possible about the neighbourhood you’re looking to invest in. Sources such as the Australian Bureau of Statistics and SQM Research should be your first ports of call when getting to know your chosen location.