Property Investing mistakes

Successful property investing is easier than most people think. The mistakes that prevent most would-be property millionaires from realising their potential are predictable and easy to avoid. In this series of blogs, Den details each of the most common mistakes and how to ensure you don’t make them.

Mistake number 5 – Letting your emotions get in the way

I know an intelligent, professional couple who recently bought a house to live in. As my friends tend to do, they called me to ask for advice. We chatted about their future purchase and agreed that it was a good buy for them. I was stunned to hear later that there was a pool in their back yard, but not quite as stunned as they were to find it after they had settled on the property! Fortunately it didn’t worry them too much but it does highlight the need to do your due diligence.

When you’re buying the house in which you are going to live, you look for a place that you fall in love with, as my friends did. The kitchen can be adorable; you can topple head over heels for the solid jarrah benchtops and the back-yard spa bath can be everything you’ve ever wanted. An investment property, however, is always better selected with a tempered heart and a logical mind. Too many wanna-be investors I know are too willing to buy a house because they like the look of it, they think the area is lovely, or they reckon it’s going to go through the roof with capital gains. Put simply, these emotional reactions won’t serve you well as an investor – you need to leave them at home!

How can you make sure you stay logical when it comes to making important financial decisions?

By far, your main concern when choosing your investment must be the bottom line. Ask yourself:

  • What are the numbers like?
  • Is this the property that’s going to progress me towards my financial goal?

Once you’re satisfied that the property is going to be a good investment now, look at the future trends and numbers. Ask questions like:

  • Is this property in an area that will see rental demand continuing into the future? What industries are here and are they growing? Are they diverse? How is the infrastructure allowing this area to remain desirable?
  • Is this property going to be reasonably cheap and easy to maintain?

By far the best tactic that I’ve ever employed is to create a “property checklist” and stick strictly to it. I score the properties out of 100 and I know a property must need a certain score for me to consider putting in an offer.

So what can we learn?

1. Stay calm and objective. A checklist is an ideal way to keep you on track.

2. A property that might be adorable for you to live in might be a nightmare to be a landlord for; consider the heartbreak when you find a million knife cuts in your solid jarrah benchtops and a pool of algae in your luxurious spa bath. Look for a place that’s tenant friendly, not one you fall in love with.

3. Have building and pest inspections completed by professionals, and ensure their satisfactory reports are conditions of your purchase.

4. Do your research. Know your area, your population drivers and the future prospects for the location.

What can we do now?

If you’re looking at properties to buy, or you’re educating yourself for the future, our investment property cashflow calculator is a great tool to use.

Make sure you create a list of what really matters for your investment property, and keep your list handy.

And finally, check the back yard to see if there’s a pool!