Investing in property is an exciting way to build wealth, but not every investor is successful in their endeavour. While property investment is one of the easiest pathways to financial freedom, there are a multitude of risks which can lead to financial ruin if mishandled.
Property investment is a serious business venture that requires extensive research, strategic planning, good timing and well-informed decisions. Avoid these five common mistakes to increase your chances of successfully investing in property.
1. Buying in the Wrong Location
Buying a property in a location that is unattractive or oversupplied is a common mistake made by first-time investors. It usually arises from a failure to properly research the area they’re buying in.
Thoroughly research the rental yields and capital growth rates in the area to determine its potential as a good investment. Inspect properties in person to get a good idea about its condition and the distance to amenities such as shops or transport, all of which significantly affect its value.
Some people buy an investment in their comfort zone, close to where they live or where they holiday. If these are good areas, it may not be a mistake but it’s not the best approach to property investment. Locations need to be chosen strategically. Targeting major cities and surrounding suburbs is the safest bet for ensuring sufficient demand.
2. Poor Financial Management
One of the most difficult aspects of property investment is developing an understanding of the property market. Equally important is understanding the cost of acquiring and holding property. You need to understand the financial risks and be in a position to retain a property in dire situations. These circumstances range from increasing interest rates to long-term vacancy periods.
Ensure you understand the debt you are taking on and how it affects your overall financial position. Account for expenses specific to your situation and buy insurance to protect yourself from unforeseen and expensive incidents.
Approaching property investment with a ‘get rich quick’ attitude is a mistake. This approach often steers investors towards unwise decisions, such as selling their property before they’ve even capitalised on it. Successful investment is about patience and time. Renovating a property then selling it right away will earn you a fraction of the profit you would gain by holding onto it for longer.
Long-term strategies focused on holding appreciating properties and building a diverse portfolio are far more likely to lead to effective wealth creation. The safest option is to secure a property in a proven area that will grow consistently over time. Hold onto the property for at least two or three business cycles to build a sufficiently large capital base.
4. Waiting Too Long
Others hoping to invest in property make the mistake of waiting too long and missing opportunities. Life is always going to be busy and property prices are increasing. If you have your finances in order, you should start planning your entry into the property market as soon as possible.
Interest rates in New Zealand are currently at an all-time low and a growing population means future demand will steadily increase. Investors who are serious about securing their financial future should be prepared to take advantage of these conditions.
5. Getting a Badly Structured Mortgage
Finding the right mortgage structure is crucial to a successful property investment. Mistakes like stacking your investment mortgage on top of your personal mortgage can have negative tax consequences that undercut overall profits.
Leverage the help of a professional mortgage adviser to ensure you have a suitably structured mortgage for your situation. Having the right mortgage will help you maximise return on your investment and minimise unnecessary costs.
iLender can help local and overseas property investors to create wealth in the New Zealand property market. We offer expert advice and great home loans. Call us today on 0800 LENDER (0800-536-337) or contact us online for more information on how we can help you achieve your investment goals.