9 Common Property Investment Mistakes to Avoid

Choosing the wrong ownership structure

There is no ‘one-size fits all’ solution when it comes to structuring property investments because everyone’s situation is unique. However, many investors don’t spend enough time upfront planning the structure with their accountant and financial advisor, causing a great deal of trouble down the track.

Failing to have a long term strategic plan

Not knowing what you want to achieve with your property investment is not a good way to start. Many first time investors don’t consider their long term strategy.

When working out your strategic plan, think about what you want to achieve and when, immediate cash flow, long term capital growth, ongoing income in retirement, and funding of additional investments to name a few.

Forgetting about the tenants when buying an investment property

Before you buy an investment, remember that it is not the same as buying a home for yourself. When you are looking at buying an investment property consider every aspect of the potential property from a tenant’s perspective – what would they value, what would they pay more for?

Whilst it is a good idea to like the property, you don’t have to love it. What is more important is location; being close to transport and retail centres, schools, parks and universities will increase your rental value, as will a nice view. Another factor to consider is the neighbourhood itself. Is it safe, do people want to live here, are there any rowdy neighbours in the area?

Borrowing too much money and not planning ahead

Many investors can get over-confident when they have bought multiple properties – they think they are on a roll. However, refinancing can become an issue if the investor has borrowed to their limit. This is especially problematic given the tightening in lending restrictions.

Not adjusting rent to market conditions

The market determines the appropriate rent and if you don’t take this into consideration you may end up pricing yourself out of the market. Tenants either won’t be able to pay their rent or you won’t be able to find new tenants to move in.

If your rent is too high, every month you spend trying to find a tenant who is willing to pay it means another month of vacancy and no rental income. Compromise is the key here and, as market conditions change in the future, there may be an opportunity to adjust your rent then. 80% of something is better than 100% of nothing.

Having the wrong insurance

Things go wrong and properties get damaged or are vacant – some tenants willingly damage properties, whilst other residences fail to attract tenants for an extended period of time. Not having the right landlord insurance to help cover damage and rental shortfalls can have a massive impact on an investor if they have to find the cash to make repairs or pay the bank back.

Spend time researching the market and remember cheapest isn’t normally the best.

Not claiming all expenses and using a depreciation schedule

Many investors are not claiming all of their expenses including depreciation on the property, and therefore they are missing out on significant tax deductions.

Make sure you keep your monthly rental statements and invoices from your property manager, or ask them to provide you with a yearly summary of your property detailing rent received and expenses paid on your behalf. This summary must be given to your accountant. We buy houses in Auburn

Thinking you’ll save money by managing the property yourself

Although many investors are financially-savvy, when it comes to finding tenants, dealing with day-to-day property issues or legal jargon, they are left in the dark. Experienced property managers can help make sure you receive a reliable income stream, excellent capital growth and the best returns possible – as well as a guarantee of exceptional customer service.

Not keeping and supplying all documentation to your accountant

Not keeping good records can really impact your investment profitability. Make sure you talk to your accountant about what documentation the ATO requires you to keep to support your tax return and claims. A safe suggestion is to keep all your receipts even if they are small, as it doesn’t take long for these to these expenses to add up.

Your accountant is the best person to determine what is claimable and what is not, so provide all information to them. Be careful not to lose any receipts, as misplacing them may mean you show a higher capital gains and therefore tax relating to it.

Not doing enough research and due diligence

Investments are big decisions, and they can go tragically wrong if investors don’t spend enough time doing their due diligence and researching the market.

Many investors use property investment companies to help advise them on what and where to invest. Whilst this can help people who are unfamiliar with the process, it is still critical that the investor double checks any suggestions from the investment service.

Make sure they provide multiple independent sources of price data and suburb information, so that you can verify what they have been told. Once you have this data, do your own research. With so much data at your fingertips this is relatively easy to do.

Here are some key data points to look out for:

  • The median price: Not just the current figure, but also how it has fared over the previous 12 months. Also, how does it compare to surrounding suburbs? An area that is significantly cheaper than its surrounding suburbs may indicate imminent growth.
  • Recent sales: Studying the most recent transactions will give you the most up-to-date information on prices in the area.
  • Vacancy rates: High vacancy rates can indicate a less desirable area, which could make it harder to find tenants and sell in the future
  • Future changes: If there are any scheduled or proposed developments in the area, you need to know about them. A new school or refurbished amenities could be beneficial to the area’s value, while rezoning or commercial construction could be harmful.
  • Expert opinions: There are a number of professionals that offer tips on up-and-coming suburbs via blogs and market reports. Just be wary of any potential biases they might have.
  • Local council: Get in contact and see if there are any planned major council developments and infrastructure projects. While this may seem like a good thing at first glance, it is important to determine whether this infrastructure boom is a result of planned growth in the area, or whether the growth has already happened and the infrastructure is just catching up.

A final tip here – if you are using a professional investment service, make sure they provide everything in writing before you jump in and buy.