Since 2009, we’ve had the privilege of helping more than 3000+ investors with their lending requirements. This means we’ve had a fantastic insight into the driving forces, shared vision and common goals of these investors. On the flip side, we’ve also had the opportunity to observe common mistakes and errors that many investors have made throughout their journey.
In this article, I’d like to unpack some of those mistakes we see, so that you avoid them on your property journey. As always, if you have any questions or comments on any of the below, please don’t hesitate to reach out.
Mistake #1: Not having a clearly defined end goal
Many homeowners launch themselves into property investment ownership as soon as they have enough equity in their PPOR (“primary place of residence”, AKA their home) to satisfy lending requirements. And that’s fair enough—owning an investment property is exciting, and many people can’t wait to get started.
However, purchasing an investment property shouldn’t be the “end goal”.
Instead, an investment property portfolio should be used as a strategy to reach a certain wealth milestone. In other words, before purchasing your investment property(ies), you should create a wealth goal such as, “I want to earn $100,000p.a. in passive income from property investments”, and then work backwards towards that goal.
Mistake #2: Failing to leverage expert advice
Many investors dive into a property purchase without consulting with their accountant, financial planner, or finance broker (or even a property advisory firm).
It’s important to remember that the purchase criteria for buying an investment property should not be the same as buying a home. An investment property needs to perform as an investment (ie. provide you with a return in the form of capital growth and/or cashflow). To achieve this purpose, each investment property you purchase must be analysed with a different set of tools… which are often beyond the expertise of many new investors.
So, it’s important to leverage expert advice as much as you can when choosing and buying a property, so you don’t end up with an expensive mistake on your hands. Learn more about the 9 experts you need to engage when purchasing an investment property.
Mistake #3: Thinking emotionally about each purchase
As I mentioned above, many investors mistakenly evaluate their investment properties using the same criteria they use when they choose their home, for example:
- The way the property ‘feels’ when they walk in
- The property’s finishes, paint colours, fittings, etc.
- How happy they would be living there themselves
- And other emotional criteria
This is not how you should find and select an investment property.
Instead, you should assess a property using logical, data-driven criteria such as:
- The property’s rental yield
- The property’s expected capital growth
- The surrounding suburb’s vacancy rates
- The age of the property, and if it has a depreciation schedule or not
- And other logical criteria
As I mentioned above, it’s important to remember that the suitability of an investment property should be determined by its ability to provide you with a return on your investment.
The way you “feel” about an investment property shouldn’t contribute to your decision-making process.
Mistake #4: Not being able to measure the performance of property assets
I’ve spoken with countless investors who weren’t, in any way, aware of the performance of individual properties inside their property portfolio. They couldn’t tell me how effective their properties have been at growing their wealth.
Like anything, if you need to improve something, you’ll need to measure its performance. A property portfolio is no different, and it’s important to have metrics in place to monitor and assess its capital growth, instead of just weekly rent and cashflow. Chat with us if you’re not sure how to do this.
Mistake #5: Not assessing and mitigating risks correctly
As I mentioned earlier, many investors dive into investment property ownership without consulting appropriate experts. This can have a knock-on effect whereby certain risks are not assessed or mitigated correctly.
For example, investors may overlook possible:
- Property underperformance
- Damage from tenants
- Tenancy issues
- And increase in mortgage interest rates
All of these things should be considered when creating a property investment plan, which leads me on to the next mistake…
Mistake #6: Not having a long-term property accumulation plan
As per Mistake #1, many investors dive into investment property ownership without having an end goal in place. Of course, to create a goal, you need a plan… and many investors fail to implement this planning process, too.
The benefits of having a clearly-defined property investment plan are obvious:
- You have clear goals to work towards
- You know when you should be buying your next property
- You know what you shouldn’t be doing to work towards your plan
- And so on.
Plus, having a well-designed plan can often help you reach your wealth goals sooner, too.
Mistake #7: Not having a long-term finance plan
Lastly, many investors fail to create and implement a long-term finance plan. Instead, they simply “go to the bank” when they need their next loan, without considering what their future finances should look like for future loans.
A finance plan looks towards the future and ensures your finances (and loan choices, and loan configurations eg. cross-collateralisation) can accommodate the requirements of your long-term investment plan.
For example, if you’re planning to own six properties by the time you retire, you’ll need to create the right conditions for six mortgages (or whatever is needed to achieve this goal, based on your own personal situation).
Having a finance plan in place will help you:
- Avoid future lending restrictions in the future. For example, having too many loans with one bank, or implementing a restrictive cross-collateralisation strategy may prevent you from being approved for future mortgages.
- Borrow more. Borrowing more means you can grow your portfolio, which means you’ll have more wealth when you retire.
Can We Help With Your Long-Term Finance Plan?
The quickest and easiest way to get your own long-term finance plan is to request a Free 30-Minute Finance Strategy Session during which you will…
- Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure loans for cashflow positive investors
- Gain greater clarity over where you want to be in terms of owning investment properties (and how to structure your loans to get there the fastest, safest way)
- Discover how to unlock the equity in your current properties, so you can build your portfolio – and your wealth – faster (and enjoy a better lifestyle now and in retirement)
- Discover clever, no-cost ways to save money on interest, fees, and charges — immediately
- Learn about our process to find you a better loan that will save you thousands.
This no-obligation session will be held with one of our experienced mortgage brokers.
Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.
Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.
Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)