Like most things, there's a smart way and a hard way to invest in property. Avoiding these common mistakes will help you achieve success, without having to rely on luck.
Don’t leave your property investing success to chance by making it up as you go. A well thought-through property investing plan begins by asking where you are now, and what you want to achieve for your future. This will vary hugely from person to person, so your plan needs to be as individual as you are.
Key end goals to keep in mind are how many properties you’d like to end up with, and how long you have to grow your assets before retirement (remembering as we approach age 60, financing property can become more challenging).
Coming up with the right plan can be tricky without the necessary experience and know-how, so make sure you have support from property investing and financial specialists. This will help you avoid missing key details - like by when you’ll have your own home paid off, and what tax strategies you can put in place.
You wouldn't try your hand at performing your own dental work, or diagnosing your loved one's medical condition. But you'd be surprised at how many inexperienced property investors are trying to muddle through growing a property portfolio on their own.
Perhaps we're lulled into a false sense of security - after all, you may have bought your own home - how hard can it be to get another? Problem is: sometimes we just don't know what we don't know.
Your investment property is completely different to your own home, and there are many factors which will determine how successful you will be. What to buy and where to buy it is very important, however so is your finance and ownership structure, maximising your tax savings and rent return, and ongoing property management.
The good news is that you don't need to do it on your own. Smart property investors take advantage of guidance from experienced experts in all of these areas, so they don’t have to learn the hard way.
Property markets move in cycles. And despite the media’s obsession with “the Australian property market” (as if it were one entity), you can rely on one certainty - property is always performing differently in different locations - so there are always good and bad investment opportunities on offer.
The question shouldn’t be “when” should I invest in property, but rather “where”. Time is your friend with property, so “when” is easy to answer - it’s as soon as you can comfortably afford to. “Where” is trickier, because the only way to separate the wheat from the chaff - the good investment opportunities from the bad - is research to understand what’s happening in different property markets.
The mistake of too many DIY property investors is not relying on research or data - but rather emotion and the familiar. That’s why people often invest in property around the corner from home or a few suburbs away. It feels familiar and therefore safe - which is ironic, because in reality, basing such a signification investment decision on little to no research is probably the riskiest decision you can make.
We get it - people make this mistake because good research isn’t easy. It takes time, resources and money to get your hands on the right information. But it’s worth it, and will pay for itself many times over. If your main source of research is listening to friends and family at a barbie on the weekend, or relying on sensationalised reporting in the mainstream media, then luck really is going to determine your fate.
It's a bit like standing in the supermarket aisle. How many varieties or bread do we really need? There's so much choice it can be overwhelming. So we go with what we know, what's familiar.
Sadly this is how many property investors end up financing their property purchase. There are literally hundreds of loan options out there, and with limited time and experience, and a low tolerance to reading fine print, many simply go to their own bank, lay their cards on the table, and hope for the best.
There's one big problem with this approach. As is increasingly being confirmed, in more and more disturbing ways, the banks are not on your side. They do what is in their interests ahead of anything else. They won't go out of their way to get you a better deal, let alone tipping you off to a better rate with their competitor.
You can turn the tables in your favour and avoid this mistake by getting independent advice from a qualified and experienced finance broker. They can help you compare a wide variety of loans from a whole bunch of different lenders.
Of course you should still ask questions, about why one option is better than another - and ensure you understand the options in front of you. However in the ever-changing world of property finance, having a specialist in your corner is essential to making sure you've got the very best finance structure - which will save you money, and protect your investment.
Property is one of the most effective ways for everyday Australians to legally pay less tax, while doing something positive for their financial future. The common mistake too many property investors make is simply not taking full advantage of depreciation.
Depreciation is a key property tax-saving opportunity, because you can claim a tax deduction for the reducing value of the physical items which make up the property over time - from carpets to light fittings, and the building structure itself.
The key to taking full advantage is simple - it requires having a comprehensive depreciation schedule prepared by a qualified quantity surveyor, and providing it to the right tax advisor to help you get more of your tax dollars back in your pocket. Sounds simple - but you’d be surprised how many property investors aren’t receiving the maximum benefit - and it could be costing them big time.
You can also miss out on huge tax savings because of what you buy. New properties offer substantially higher depreciation than older ones. According to BMT Quantity Surveyors, a new property could provide up to $10,000 more in deductions from depreciation in it’s first year than an older property. And don’t forget, newer properties are likely to have lower expenses for repairs and maintenance, and often attract a higher rent return.