You want to get involved in the investment game? Then you need to know how to play.
Every venture that involves chasing wealth has its risks, but if you familiarise yourself with what can go wrong, then you can always stay one step ahead. So what better way to get to the top of the game than by learning the most common mistakes every investor is bound to make… except you!
With that being said, here’s a list of 8 mistakes that will ruin your investment dreams:
1. Being short-sighted
Good investors aren’t going to restrict themselves to just one market. There are endless opportunities out there so do yourself a favour and try to avoid limiting your investments to just one area. Regional markets can so often be overlooked by inner city fanatics, as well as smaller big cities such as Hobart. Looking outside a narrow market is going to broaden your horizons and bring about a plethora of opportunities you may never have expected.
2. No contingency plan
Now I’m not trying to be a Negative Nancy here or anything, but if you’ve gone into the investment game without planning for the worst, there’s a good chance you’re going to end up in some hot water. As boring and pessimistic as it might sound, you’re going to need to have a back up plan. When things are running smoothly then the investment life is great, but what happens if your tenants suddenly up and leave and you can’t find new ones, or a tree falls on the house and you get hit with massive repair costs?
Basically, you’re going to need an emergency fund and better yet, you should also be contributing to a separate savings account for unforeseen repair costs and maintenance. So get your game plan ready if it’s the last thing you do… although it should really be the first.
3. Not doing your homework
If you want to become an investor, you will need to do your research. You won’t be able to get away with pulling an all nighter here. There are countless online sources available at your very fingertips to take you through the A-Z of investing and everything you could hope to learn about the state of the market, demographics, median prices, vacancy numbers, you name it. There’s no excuses, so get your butt into gear and become the investment expert you know you can be.
Another great source of information can come from a good old fashioned conversation with local real estate agents. They can give you a heads up on what tenants are currently looking for and the current climate of their local jurisdiction.
4. Skimping on insurance
Of course there is merit to being frugal and pinching your pennies, but only where necessary. When it comes to insurance, it really is better to be safe than sorry. Regardless of how much you love your tenants and would trust them with your life, accidents happen, and they probably will. That’s not to say that you should end up paying more than you need to. Do some research and have a look around at the best rate you can find before settling on the first reputable option that pops up. Comparison websites are perfect for this kind of thing, or better yet, talk to a broker and get some expert advice.
5. Getting emotionally invested
Just because you’re an investor, doesn’t mean you should be investing emotionally. You don’t want to fall in love a property because that’s when all rational business-minded decisions go out the window. The best advice I could give you is to treat your investment property like a business. Does it yield a decent amount of rental? Does it have good prospects? Long term growth potential? Then that’s what you focus on. Don’t worry about if it has your favourite kind of wainscoting or the same oak tree that you had in your family home growing up. Invest with your head, and leave you heart at home… the other home.
6. Ignoring what your tenants want
When you’re buying an investment property, you need to think about what your tenants are going to get out of it, because after all, they’re the ones that are going to be living there. It doesn’t matter if you insist on washing your dishes by hand, most tenants will love the convenience of a dishwasher. It doesn’t matter if you grew up without heating or air conditioning (and turned out just fine!), your tenants aren’t going to be too happy sweating their summer days away. If you’re a bit out of touch with what renters are looking for, why not have a chat to some local agents or property managers about the most popular properties around right now.
7. Not sharing the load
It can be tempting to try to take on every conceivable aspect of managing your investment operations so that you know exactly what’s going on in every area at all times. However, this is a lot to ask of yourself, and can become problematic when there are just too many things to stay on top of. This is where a property manager comes in. They specialise in everything investment properties. They’ll find you the perfect tenants and know how to deal with the difficult ones, they can manage your advertising and paperwork tasks, as well as rent collection and routine inspections. I know it can sometimes be tricky to relinquish control, but never underestimate the benefit of a good property manager.
8. Waiting for the money to roll in
Investing is undoubtedly a reliable way to build wealth. Investing is NOT a get rich quick scheme. You might get rich. But it won’t be quick. If you’re looking for a serious overnight cash injection, then property investment probably isn’t going to be for you. To become a successful investor, you’re going to need patience, impeccable timing, and the ability to make difficult decisions. Just think long and hard about if this is really what you want to do, because if you can’t see yourself as a property investor in the next 5, 10, 15 years then you might want to rethink your goals. I know you’ve got it in you, champ, but just play it smart and think, ‘what would an investor do?’…