Common mistakes property investors make
1. Poor property selection
In general, they owned the wrong properties and didn’t get
sufficient capital growth. While some bought "off the plan” and overpaid for
their property, others bought in regional Australia where generally long-term
jobs growth is slower there, unemployment is higher, wages growth is generally
lower and there is no shortage of land.
2. Poor cash flow
Investors hadn’t organised their finances correctly and didn’t
have a cash flow buffer in place to cover their negative gearing shortfall.
Investors could look to have a line of credit or offset account and then use
this facility to fund your property portfolio cash flow shortfall, such as the
interest on the property investment loan, or for property expenses, and
importantly keep it as a "rainy day financial buffer” to buy you time if the
markets turn sour.
3. Wrong ownership
With so many options and so many positives and negatives for each,
it’s important to make sure you choose the correct option, whether it be the
property be held in a trust, company ownership, in your personal name or
another ownership type.
4. They try time the
Rather than taking action, they don’t even make any purchase as
they try to "time the market”. If you are a long-term buy-and-hold investor,
then in the long run you will almost always generate wealth in your property.
If prices go down, it’s only a loss if you sell. I rarely hear of investors who
purchased in the main cities and regretted it 20 years later.
5. Buying off the plan
While some investors have made money buying off the plan, the
landscape is littered with many, many more who’ve regretted their purchase.
Frequently they’ve found the value of their property on completion is
considerably less than the contract price and some will have to wait for over a
decade before they see any capital or rental growth.
6. Buying in
Many unfortunate investors bought the wrong property because they
looked for the next "hotspot”.
Many investors have been burned investing in one-industry locations, such as mining
7. Tax advantages and
There are those investors who didn’t maximise their tax position
because they hadn’t obtained a depreciation report or known of other tax
advantages. Depreciation deductions can make a real difference for investors
helping them reduce their taxable income.
8. Property management
Investors trying to manage their own properties or using
inexperienced property managers.
Professional landlords know to think of the big picture and use property managers
to attend to the day-to-day issues.
9. Not having a good
This network includes a good finance broker, a smart solicitor and
a property-savvy accountant. Having a great team will make and save you a lot
of money and potential headaches.
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Wednesday, 9 December 2020