Daniel Jovevski CEO and Founder from SwitchMyLoan explains the common pitfalls of property investment. In his former career as a banker, he often came across investors who jumped into a purchase decision without doing their homework. Avoid the pitfalls with these insider hints and tips.
Investors sometimes don’t plan to fail, but fail to plan. They often purchase a property then realise they've paid too much. They find themselves getting disheartened by the experience and end up losing faith in property investment altogether. You can pursue steps to avoid falling into this trap. The first thing is to ensure you have a strategy in place. It is imperative to determine how much you can afford to spend, what area your investment property will be in, what sort of a property it will be and which bank and product are best suited to your individual needs.
The next step is to start looking around for your ideal property. Make sure you don’t just limit your options to searching online. Search the newspaper, speak to local property consultants and seek financial advice. Remember that looking at your prospective property’s pictures online is no substitute for an on site visit to check it out in person.
A vital part of your strategy should be to get to know the property agents and be added to their shortlist. This will ensure you don’t miss out on any special offers such as hearing about under-valued properties that may come up. This is a great opportunity to stay ahead of the market, and be in the loop with local agents who have their ear to the ground.
Investment properties can come and go quickly, especially the well priced ones with potential for future development. Although this is no reason for you to feel you need to rush towards making a decision. It is more important to make the right decision as opposed to making a fast decision.
Having predetermined goals based on your budget and risk profile should be the bare minimum items that are based on your checklist. Some other tips could include;
Find out how much you can borrow
Have you sat down with a lender and worked out your borrowing capacity? This is a good place to start as gives you the boundaries of what you can afford to pay for a prospective investment property. Emotions can run high at auctions, getting a pre-approval from your lender is vital determining your borrowing limits.
Determine your investment goals
What is the minimum acceptable return that I will accept from purchasing this investment property? Am I planning to negatively gear this investment for tax benefits? Am I speculating that the property in a particular area will rise in the next couple of years? If so how much? These are the serious questions that any would be property investor would ask themselves before deciding to invest.
Consider in detail the total cost of the investment
Inspection reports, depreciation schedules, stamp duty, general maintenance, property management fees, the cost can sometimes be endless.. it’s important to factor in every last cent into your budget into your investment decision. This it will truly determine what return you’re anticipated to receive.
Buy renovated, or put in the elbow grease yourself?
Purchasing a recently renovated property for a high cost isn't always a good investment due to the lack of potential to add further value to build equity. On the other hand, you could have the same happening in inverse where you pay high costs for a house in its original condition, only to end up realising you could have purchased a renovated house of the same sort that was fully renovated.
Investing in property can be massively rewarding. But it's not something that should be taken lightly. Invest your time and some thought into your investment to maximise the returns.
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Daniel Jovevski is the Founder and CEO of SwitchMyLoan.com.au – one of Australia's leading home loan comparison websites.
Before starting SwitchMyLoan Daniel had was a career banker at some of Australia’s largest financial institutions including NAB and BankWest. He is passionate about empowering Australians to take control of their finances through self-education.
Daniel holds a Bachelor of Commerce (Property and Finance), a Diploma of Business Management and a Master of Business Administration.