Common Mistakes to Avoid When Buying an Investment Property

Investing in property can be a great way to build wealth, but it comes with challenges that must be taken into consideration to ensure you meet your financial goals.

Here are some common errors you want to avoid when buying an investment property.

Buy With Your Head

Buying an investment property is very different from buying a home for yourself to live in.

You should view an investment property objectively, focusing on the numbers and growth potential rather than personal preferences. You’re not going to live there after all, your future tenants are.

At the same time, don’t disregard your tenants’ needs and consider factors like parking, proximity to public transport, and local amenities. These will be important to maximise the ROI of a rental property.

Overlooking Location

Location can play to your advantage when choosing a property (i.e. parking, amenities, public transport).

However, you should also pay attention to other location features that can negatively affect future price growth such as proximity to industrial areas, main roads, or busy shopping centres. How will these affect the value of your property in the long run?

Don’t Trust The Hype

Be cautious of areas experiencing sudden price surges. Property markets are dynamic, with unique pockets subject to their own supply and demand factors. In other words, certain areas see different trends than what the wider market may be experiencing. The problem with these “micro markets” is that if the price surges aren’t backed up by underlying investment fundamentals, prices could stagnate or even fall once the hype dies down.

At the same time, if you don’t recognise the signs early enough you would find yourself overpaying for a property in an inflated market, and it might be advisable to look at neighbouring locations instead.

Overvaluing New Infrastructure Projects

Infrastructure improvements can boost property values, but they should not be looked at in isolation. New amenities might make a location more appealing, but limited local job opportunities or a high supply of property in the area might hinder long-term growth.

For example, a small infrastructure project in an area with low supply might carry more value than a bigger infrastructure project in the outer suburbs where new housing supply is usually built.

Neglecting Financial Details

There’s more than mortgages and interest rates to consider. Don’t forget to account for ongoing costs like maintenance and repairs, property management and strata fees (if applicable) once the property is tenanted.

Don’t Skip Due Diligence

Never skip important steps like pest and building inspections, independent valuations, and securing proper insurance. These precautions can save you from costly surprises down the road.

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