5 mistakes every property investor should avoid

5 mistakes every property investor should avoid

Posted by Nello Team
“Mistakes are good as long as they don’t kill you”

If you are one of the lucky few who have strolled through life without making any mistakes – I commend you. You are a unicorn!

For the rest of us, making mistakes can be tough and sometimes the pain it leaves behind takes a lifetime to fade away.

We all know that investing in property can be stressful which can sometimes lead to bad decisions and costly mistakes. As a new property investor you will be prone to making mistakes, however if possible, here are some mistakes you should try to avoid:

1. Getting emotional

Have you heard the phrase ‘Check your emotions at the door’? The same thing applies here. The mistake some people make when buying is to think of the property as a place they want to live in. As a result they are attracted to the bells and whistles of the property. They start to picture themselves living the in the property.

Lets just be clear about one thing – this is a bricks and water business, and the shining deco is not part of the deal. Pay attention to the cracks on the wall, is there damp in the property? Does it feel like it recently snowed in the property? If yes, then this might be a sign that the boiler is not working. Once the property is stripped bare, what remains is what you are paying for. Problems you spot in the property will give you negotiating power as you can request a discount on the asking price.

2. Not knowing your numbers

I am blown away when I hear about people who are super excited to view a property recommended by an estate agent without doing their numbers first. The questions you need to ask yourself are; can I afford to buy this property? Followed by how much money will this property make me? Put a figure on the cost of buying the recommended property before you walk through the seller’s door. The final question to ask is does this property match my investment criteria? An increase in mortgage rates can easily wipe off the profit from your bottom line so you should to ‘stress test’ your financial calculations. Knowing your numbers is important so you can avoid wasting time viewing properties that do not match your investment criteria.

3. Buying before viewing a property

This tends to happen a lot during auction purchases. I have heard of people who visit auction houses with a plan (to buy a property they have seen already) then get super excited by the other bargains on the lot. I will be sharing some tips on how to buy properties at auction on another blog post. For now it is fair to say that buying a property without a single viewing before hand should be avoided. Technically speaking, this minor move has increased the risk of making a return by over 1,000%. There are plenty of issues hidden away that you cannot see from the auction property photo. The general rule of thumb is to take a builder to the property in question and they will ‘look under the hood’ and tell you what might be wrong with the property and most importantly, how much it will cost to fix. The increased cost needs to be factored into your purchase price.

4. Forgetting that it is a people’s business

Investing in property is a business that revolves around people. If you do not build a rapport with your agent then there is little to zero chance that he or she will care enough to find you the best deals. Personally, I like to work estate agents who are new to the game but hungry enough to want to make an impression. As they grow in experience, my portfolio can grow with them.

You also need to be mindful that tenants are also people with aspirations and one of their top aspirations may be to buy a home for themselves. The reason they are your tenants is because they may not be able to buy at that particular point in time. If you improve the look and feel of the property, you are more likely to attract quality tenants who are motivated to stay at your property for an extended period of time. If the property is dingy and unattractive, it will attract low quality tenants who are likely to have a higher churn rate which in turn adds to the cost of maintaining your investment and eats into your profit. Higher quality tenants are also more likely to maintain the upkeep of the property and stay for a long period of time. This means less hassle for an investor – and more money in your pocket.

5. Suffering from Headless Chicken Syndrome

Headless chicken syndrome is when an investor tries to do many things at once. One minute they are buying rental properties, and the next minute they are looking for properties to flip to make a quick profit. Going from one strategy to the other can lead you down the path of confusion and ineffectiveness. There are so many different property investment strategies out there and if you try them all you could be left with little to no money left in bank after a bulk of your money is spent on courses aimed at teaching you how to make use of the new strategies. Stick to one strategy, learn the rule of the game and go to work. Focusing on one strategy at a time increases your chances of success.