Last week I had a frustrating experience.
One that is unfortunately all too common for inexperienced property investors.
A client was looking to purchase a property and it seemed they’d found the right place. All the correct reports were done, however a note in the builder’s report became a cause of concern for them.
Now, there was also a structural engineers report which classified the property as safe and structurally sound. Still, they still decided to back out of the sale.
Why? They had already voiced their concern to a friend who advised them personally, they ‘shouldn’t touch the place with a 10-foot pole.’
Was this friend a structural engineer perhaps? Heck no! They had no comprehension of the deal at all, but their comment was influential enough to make it all crumble.
The way I see it, the only real cause for concern here was how quickly this client was swayed by an outsider who, on all accounts, has no qualifications to back up their recommendation.
In situations like this, I find it more important than ever to remind clients of the basic do’s and don’ts of buying with your head, not your heart.
DON’T: Listen to Joe from next door – He’s never invested before!
Let’s say your partner is having their appendix taken out tomorrow. Would you trust your favourite hairdresser to perform that surgery on them?
Sure, a hairdresser is trained to have a steady hand – and they’re handy with a pair of scissors – but that ability doesn’t compare to the knowledge and skill of a highly trained surgeon.
Maybe you’re lucky and you have a friend that specialises in an aspect of the investment process. If that’s the case – wonderful! I hope they offer a family and friends discount.
However, if you’re caught up listening to the advice of Joe from next door who does not have the ability or experience to give recommendations, you’re setting yourself up for failure.
Don’t let outside influences impact your decisions.
DO: Source Advice from the Actual Experts
Experts are experts for a reason. They bring a wealth of experience and knowledge that will help immensely when it comes to making a big financial decision like property investment.
Of course, you should always do your own due diligence. You should know your numbers, your lending, your insurance, your market knowledge, and how it all fits in with your overall investment strategy.
However, building the right team around you – particularly with professionals who have investment experience themselves – will ensure you are buying smarter, not harder.
Who are the right people to talk to? An accountant, a financial planner, a buyer’s agents, a conveyancer or solicitor, and a mortgage broker will all be able to make the process a whole lot simpler and easier for you.
While this probably sounds like a hefty additional expense you’ll have to bear, solid financial recommendations will likely save you more long-term by minimising costly mistakes.
DON’T: LET Preconceived Ideas Dictate Your Strategy
The number one trap new property investors fall into is having preconceived ideas on what and where they should buy based on past behaviours.
Location in particular is a constant bias impacting success for new property investors. A lot of people will let the history of certain areas and neighbourhoods sway their decisions, even if on paper it’s proving to be a steady growth area.
Do your research into what renters are looking for, like easy access to public transport, employment drivers and solid infrastructure. If you’re unsure, speak to a professional who tracks these things on the daily.
Most importantly, keep your mind open to areas you may have previously disregarded, because you won’t ever bank anything from a property you didn’t buy.
DO: Understand How The Market Works
I still have people say to me they’re only interested in buying a house and land package, because apartments have no value. Maybe 50 odd years ago that was the thinking, but the market has changed a lot since.
While house and land is still the right option for many, inner city living has become increasingly popular for young professionals who actively seek a lifestyle change bringing them closer to the action, and having these amenities (restaurants, shops, bars, the gym, etc) all within walking distance.
As a property investor, owning a quality apartment can be the perfect way to round out your portfolio if you buy smart.
With high-rise apartment buildings popping up every other Sunday, you will have to search to find a well-positioned, affordable, low-rise (boutique) property. But the right apartment can lead to consistent capital growth and tenant demand.
DON’T: Let Your Heart Dictate Your Decisions
Yes, emotion is a part of investment. I for one feel very emotional about the bottom line of my balance sheet. But what you have to understand first and foremost is that you don’t bank emotion – you bank dollars.
When you’re buying an investment property, you need to categorise it separately in your mind as different from a residential property.
Unless you plan on making it your home one day, it doesn’t need to fit your particular taste and you certainly shouldn’t be paying more for a property just because you love it.
DO: Rely On Analysis And Research
Property investing really is about using your head over your heart.
A smart investment strategy should be objectively based around where you are and where you want to be in the future. That is why bringing in experts – who understand your goals and how best to achieve them – is the best way to make logical, savvy decisions.
It’s perfectly okay to let yourself be influenced by those who have done it successfully before. Just don’t let the ones who haven’t alter your course.
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