Anyone who has watched the hit TV series, ‘The Block’ would be forgiven for thinking that property is a quick and easy way of making money. But whilst it’s reality TV,
the reality of property investment is very different.
Buying and selling property is not a ‘get rich quick’ strategy, nor is it something to be undertaken lightly – yet a surprising number of Australians don’t spend sufficient time and energy developing an investment plan and understanding exactly what they’re getting themselves into before committing significant sums of money.
Creating wealth through property investment is very possible and there are proven ways of achieving this, but there are pitfalls and obstacles. Let’s investigate five property pitfalls and how you can avoid them.
1. Inadequate groundwork
Reading newspaper articles or attending a seminar aren’t sufficient grounds for making an investment decision. Nor is falling in love with a property and thinking that everyone else will feel the same way. Property investment is not about emotion or instinct. It requires due diligence, it requires accumulation of market knowledge and information and it requires a financial plan. All of this takes time and effort – and many property investments have failed to live up to expectations simply because people haven’t done sufficient groundwork and preparation.
2. Buying a property for the wrong reasons
‘It’s close to where I live.’ ‘It was a bargain.’ ‘There are lots of other rental properties in the area’. Inexperienced investors often buy properties for the wrong reasons and that makes capital growth even harder to achieve. The advice from the experts is to buy property that:
• will ultimately appeal to an owner-occupier and not to a tenant
• offers something unique or special
• has intrinsic value
• provides opportunities for capital growth through refurbishment or redevelopment.
3. Not managing risks
One certainty about life is that there will be surprises – even some nasty ones, so when it comes to investing in property, a sound risk management strategy is essential. Many inexperienced investors come short because they don’t have a sufficient buffer to weather the ups and downs of the property cycle, absorb interest rate increases and maintenance costs or deal with changed personal circumstances like unemployment or illness. A sound risk management plan which includes things like insurance, a separate ‘emergency’ account or an additional credit line is essential in order to prepare for the unexpected.
Vacancies are bad news for investors as they not only mean a loss of rental income but they also mean additional costs (such as cleaning, garden maintenance etc) in between tenants. Steps should be taken to minimise vacancies which include selecting the right property to buy at the outset, making it pet-friendly and choosing a reputable property manager.
5. Going it alone
When the market is strong, it’s easy to get swept up by all the good news and think that you can go it alone. The truth is that you should seek advice from various professionals, be they real estate agents, property managers, investors or financial advisors so that you get a balanced, informed perspective on the market before you buy. Many property investments fail because of impulse buys or uninformed buys – so don’t be afraid to ask for help and advice.
Yes, there are many pitfalls to property ownership but there can be significant upside, so it’s crucial to do your research, stick to your strategy and ensure you’re thoroughly prepared for every eventuality.
If you do want advice on investment properties from one of the most experienced property managers in Perth, then you should talk to the professionals at Time Conti Sheffield. They have been at the forefront of real estate and property management in Victoria Park and surrounding suburbs for over 60 years and they can help you prepare for any property pitfalls. Call them on 08 9362 5333 or visit their informative website, www.timeconti.com.au.