Five Common Pitfalls of Property Investors

 

Property Investment Pitfalls - Banana Skin

Whether you’re looking to invest in your first or fifth property, everyone can learn a thing or two from these some common investor mistakes.

1. Leasing serviced apartments

Serviced apartments are popular with investors at the moment. With strong demand from business travel customers, continued high growth levels in the sector are predicted.

However, this growth potential has to be weighed against a number of things:

  • the necessity of spending a good deal of money on furnishing the apartment up front
  • the hefty ongoing management fees involved
  • and the inflexibility of having to lock in a long-term commercial management lease.

Which can make the property difficult to sell in the short term, if that’s what you decide to do.

Note that banks also tend to be wary of serviced apartments, and will usually require that you have a larger percentage of deposit than for a traditional property purchase. Crunch your forecast numbers very carefully ­– and remember that if a deal looks too good to be true, it usually is.

2. Only viewing the property during the day

If possible, make sure you see the property at night as well as during the day. If you can’t access the property itself in the evening, at least spend some time in the neighbourhood.

Noise from traffic and neighbours can differ greatly during the night. Is the street full of riotous party houses? Do trucks start rolling in during the early hours of the morning? You won’t be able to tell from a daytime visit. Also consider whether the area feels safe after dark. Some areas may take on a very different atmosphere when the sun sets.

3. Over and under-capitalising on improvements

As a rule, you should spend no more than 10 per cent of a property’s value when renovating, otherwise your rental gains will not justify the outlay on improvements. If you purchase an old property that needs a new kitchen, for example, make sure the cost of the kitchen will be under this threshold.

On the other hand, especially for older properties, if you don’t invest in any improvements, you risk not keeping pace with modern living standards and the rent will remain low. Finding a balance between these two dangers is essential.

4. Buying a rental property with a friend or family member

Especially for first timers, sharing the costs of buying a rental property with family or friends is an increasingly popular option. There is nothing inherently wrong with doing this, provided you avoid the dangers involved.

No matter how close you are with your co-purchasers, make sure there is a clear written contract about how all costs are shared. These include not just the mortgage repayments, but also maintenance, agency management, body corporate fees, council rates and more.

If you have any doubts about a party’s capacity or willingness to pay these, or if you detect differing visions for the management of the property or portfolio, rethink the wisdom of such an arrangement. Remember that you risk jeopardising relationships that are far more valuable than the potential financial gain.

5. Following the crowd

It’s tempting to buy when the market is hot and certain areas are trending, but there’s no harm in looking further afield. Do your own research and due diligence, and remember that by the time an area is publicly designated an investor ‘hotspot’, the growth potential has already been exceeded.

For more expert guidance on property investment and management, contact the investment professionals at K.G. Hurst today.

Image courtesy of Chris Sharp / FreeDigitalPhotos.net

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