Biggest mistakes first-time property investors make

First-timers are making a series of blunders when it comes to investing in property, with experts issuing a stark warning to landlords.

Investors are being urged to buy properties that appeal to renters in the suburb. Picture: Jonathan Ng

Investor lending is on the rise. The latest lending indicators from the ABS show the value of new loan commitments for investor housing was up 29.5 per cent year on year in September to $11.6 billion.

But just because investor activity is climbing, it doesn’t mean success is guaranteed. Experts say it’s common for first-time investors to come unstuck by making the following rookie mistakes.

Buying in your own neighbourhood or city may not be the best investment. Picture: NewsWire / Max Mason-Hubers

BUYING WITH EMOTION

It’s common to fall in love with the home that you want to buy – it’s what causes people to make that extra bid at auction. But when it comes to an investment property, buying with your heart instead of your head is a major no-no, says Propell Property managing director Michael Pell.

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“They set themselves back potentially in terms of time and money,” he says. “If you buy in the wrong area based on emotion it might take a lot longer for the property to increase in value, you might not get the returns you thought you were going to get.”

Getting carried away at auction is common but it’s not good practice for investors. Picture: Sam Ruttyn

PIPA chair Nicola McDougall says it’s important to remove emotion from the equation.

“As a property investor it really has to be about the numbers,” she says. “You have to be as objective as possible.

LOCATION ERRORS

Emotion often leads people to limit themselves in terms of the location in which they invest, Pell says, with many people choosing to buy in their own area or neighbourhood. However, there are more than 15,000 suburbs in Australia, which means there is plenty of choice when it comes to finding investment opportunities.

But on the other side of the coin are those first-time investors who buy in far flung locations they don’t understand because they are trying to follow the trends, McDougall says.

PIPA chair Nicola McDougall.

“They perhaps don’t understand the intricacies of those locations as well as they should,” she says. “Which are the best streets in a particular suburb to buy in? Which side of the street is the best side – really down to that granular level.”

She says investors should thoroughly research a market before buying into it – and/or engage a property expert with local knowledge.

NOT MEETING THE MARKET

Asset selection is another thing that first-time investors commonly slip up on, says McDougall. Rather than choosing a property that you would like to live in yourself, it’s more important to buy something that meets the demographic of the area.

Michael Pell from Propell Property. Picture: supplied

“You really need to be choosing the assets that are suitable for the locations in which you are buying,” she says. “It’s not about you, it’s about whether that property is in the highest demand from tenants and future homebuyers for that location.”

NOT HAVING FINANCE

Another common mistake rookie investors make is to shop around or even commit to purchases without having a pre-approval in place, Pell says. This can sometimes mean deals falling through or negotiations turning sour.

“Finance is the first thing you need to have in order before you go looking at properties,” he says.

Another thing new investors commonly get wrong is not keeping aside a cash buffer for repairs and maintenance, McDougall says.

You should always line up finance first before looking for a property.

“Sometimes these repairs can be emergency repairs and so they need to be actioned very quickly depending on the legislation in that location,” she says. “Oftentimes it’s when investors don’t have access to cash buffers that they can really find themselves tripped up.”

A QUICK TIP FOR YOUNGER INVESTORS

Everyone’s property journey is different, which is why it’s important to have a solid understanding of your financial situation as well as what you would like to achieve as an investor.

But there’s a few things to keep in mind along the way, says Michael Pell of Propell Property.

Land appreciates in value over time.

“The old saying goes – cashflow holds a property but capital growth gets you to retirement,” he says. “Capital growth is the most important thing.”

In order to maximise the potential for capital growth, Pell says buyers could consider buying property with good land content.

“It’s the land that appreciates in value, not the building – the building depreciates,” he says. “I’m not saying you can’t get good apartments and townhouses, but as a general rule buying land content in the right area with a house on there that you can rent out will give you higher capital growth than townhouses or apartments.”

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Originally published as Biggest mistakes first-time property investors make