7 Property Investment Traps to Avoid | Strat Prop

September 15, 2019by Darren0

The property investment journey is not always smooth sailing – with many potential pitfalls along the way.

For most people, it’s not practical to go and learn everything there is to know so that you know where each danger lies.

That’s why buyer’s agents like myself dedicate our life’s work to researching and understanding all the things that can go wrong – so that we can guide clients on the safer path.

While I can’t possibly distill everything you need to know in a single article, I can aim to give you some keynotes – and broad brushstrokes of what a safer path looks like.

So here they are.

 

1. Not Understanding Their Needs and Strategy

Too many people seem to think that property is investment is ‘safe as houses’ and a sure thing. This gives them a sense of false confidence where they buy and hope – without property assessing their needs, capabilities and forming a strategy to match.

Before you place a bid or offer on any property, you need to do your groundwork. Speak with your accountant, financial planner and buyer’s agent so that you can form the best strategy based on their combined expertise.

Once you have this as a guide, you can hit the market and search for the best property to suit your needs.

This will help you avoid buying in the wrong location, buying based on emotion or buying the wrong type of property – where the numbers don’t work.

 

2. They Don’t Make Their Money on The Way In

The surest way to make sure you make solid gains from property investment is to make sure the numbers stack up from day one.

This means knowing exactly what your expenses, rental return, capital growth will be.

In the past, many investors were lead to believe that negative gearing was a good strategy to follow.

This meant that they paid money from their pocket each week to pay for the property and the rent didn’t cover the shortfall.

They hoped that by waiting for 5 – 10 years that the property would gain value and they could recoup their losses.

To me, that’s just another buy and hope approach.

It’s much better to crunch the numbers, do the research and find solutions where you will be positive in rental return and equity from day one.

 

3. They Don’t Have an Exit Strategy

A big mistake many investors make is that they assume things will always be rosy and they don’t plan for a rainy day.

Without the right combination of properties and structures in place, it can be difficult to move to a position of financial safety if life changes.

The worst thing that could happen to an investor is to realize that a property is costing them money each week, that it will take them a long time to sell and that when they do seel they will likely make a loss.

When buying a property, make sure you can recoup your costs or make a profit if you can no longer hold the property.

 

4. They Listen To Spruikers

I no stranger to the fact that those in my industry don’t usually have a good wrap.

Let’s face it, most people’s opinion of real estate agents it something between a used car salesman and hedge fund banker – neither lovable characters!

And it’s not without reason, you never quite know what angle a real estate agent is playing. They pretend to be your friend, but you know they are working for the seller. But a run of the mill real estate agents are pretty harmless – it’s the spruikers you should worry about.

It’s these guys who will lure you into free seminars where they use all the marketing and sales tools to get you to run to the back of the room and sign your name on the dotted line – without reading the fine print.

If you ever hear the words timeshare, National Rental Affordability Scheme, holiday accommodation, negative gearing or any kind of specialty housing (like student or retirement living) mentioned then it should trigger your spruiker alarm so you can head for the door.

 

5. They Get Sucked in By Shiny Brochures

Although not quite spruikers, there are the off-the-plan sellers with their shiny brochures showing you the home of your dreams.

The off-the-plan homes and apartments are marketed with aspirational visuals, stunning websites and displays – and all of this comes at a cost.

It’s not unusual to pay tens or even hundreds of thousands more than the comparable market value for such properties – all for the sake of attractive marketing.

 

6. They Don’t Have the Right Structures

Sometimes it’s not the property itself which is the problem, but the way it was purchased.

There are many potential traps when it comes to property finance and holding structures.

If you don’t get these correctly aligned it will make it difficult for you to move forward with your portfolio and access more finance, or release your equity.

Certain structures such as complicated trusts can also needlessly cost you thousands of dollars each year in maintenance costs.

Before you buy a property, speak with a finance strategist and accountant to make sure you understand the implications of your structure.

 

7. They Get Cold Feet and Don’t Take Action

All the traps mentioned above may be dangerous, but nothing is as harmful as not taking action at all.

Too many people don’t have the confidence or commitment to take action. They worry about making the wrong decision or losing money, so they don’t act.

What they fail to realize is that the lack of action is a decision, once which costs you the potential rewards of acting upon an opportunity.

Every additional year you don’t get into the market means the market is leaving you behind – costing you tens of thousands.

 

 

 

 

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