Investing in property is an ideal way to create wealth over the long-term, but many property investors are forced to learn from common mistakes that can, with the right advice, be easily avoided. So why learn from your own mistakes when learning from other people’s failures can be so much easier? Many potential problems can be avoided through common sense and a commitment to a game plan.
Mistake 1: Buying The Wrong Property.
To achieve financial freedom you will need to accumulate a large asset base. This means owning the right property – essentially one that outperforms the average. Many investors buy for the wrong reasons such as buying because they like the idea of purchasing close to where they live, or because they were on holidays and liked the area.
A much smarter way to buy is by undertaking proper research which entails looking carefully at capital growth patterns, rental returns and vacancy rates.
Mistake 2: Not Having A Plan
Most of us spend more time planning our holidays than we do planning our financial future!
Australians tend to fall into one of four categories:
- Those Who Don’t Invest At All
- Those Who Don’t Invest Enough
- Those Who Invest Too Much
- Those Who Invest The Right Amount
Thinking about and documenting your wealth creation plan is vital. This avoids the distractions of so called opportunities that pop up from time to time and allows you to stay focused.
Mistake 3: Not Reviewing Your Property Portfolio
While property is a long-term investment, that doesn’t mean that you should fall into the trap of not reviewing your portfolio every 6 – 12 months. Inspect your properties and assess any repairs or improvements that can benefit your position. Revisit their values annually.
Mistake 4: Not Managing Your Risk
Growing your portfolio will be dependent upon your ability to service your borrowings. Not being able to service borrowings could force you to have to sell while not being able to increase your borrowings will hinder your ability to grow your portfolio. Watch your debt ratios at all times and always have a buffer for changes in your income, times without a tenant, repairs and maintenance and other contingencies.