The 5 Biggest Mistakes Property Investors Are Making in the Market
1. Avoid not getting your finances right from the start.
If you get finance right, you’ll always have equity and the capacity to move forward while being flexible as you invest in more properties.
Two things here that you need to avoid when you get finance are: Cross-securitization and cross-collateralization. In a nutshell, this means the bank takes all your assets, values it as one package then holds security over all of it. This can include your business, your property investment and your personal accounts. This is one of the biggest and most dangerous things that can hold investors back.
Separate your assets and their lending. Have your property investing with one institution, your personal accounts with another and your business accounts with another. If you’re going to get an additional property investment, then use another lending institution or bank. This way one institution cannot group them all together.
2. Avoid investing only in your own backyard.
We all like investing in our own backyards because we can drive around the corner and touch it and feel it. The reality of the situation is that there are fantastic deals all over Australia and you must get comfortable and understand as a property investor how to take advantage of different states, towns and markets at different times to create your equity and continue to grow your wealth.
For example, rural towns. Are they booming? Is it the right time to be in a town? What is its long term plan for infrastructure? What about different capital cities or regional centers? At different times in Australia these will grow and is now the time to buy?
3. Avoid the ‘buy and hope’ mentality.
What do I mean by that? Many investors I’ve met have bought something and hoped that it went up in value. They had no plan or strategy as they went into “I’m going to buy this and hopefully sometime in the future, the capital growth will come.”
A lot of people say that “every seven to 10 years, property prices double in value.” That is not always true and not every property doubles in value. While some properties triple and quadruple in value, others don’t. You’ve got to choose the right properties and you’ve got to choose the right marketplace to get those gains. Don’t have a buy and hope. Have a strategy when you enter into property investing.
4. Positive cash flow and negative gearing. Avoid focusing on one (always take both into account)
It’s the never ending divide! Should you have positive cash flow only? Should you go negative gearing for tax? Which one’s best? The reality is, neither of those is the only answer for everyone. Sometimes a combination of both is the answer.
Let’s say negative gearing is useful right now if you’re a high income earner. If you’re nearing the end of your working life, positive cash flow (positive gearing) is better for you. If you’ve got a problem with your ability to service your mortgages, add some positive cash flow properties into your portfolio. That will keep you rolling forward as it increases your income.
There isn’t one right answer with negative gearing and positive gearing. Sometimes they work together and sometimes they are independent. Choosing just one is not a good thing to do because you may get caught with either a lack of capital growth through positive gearing or lack of cash flow through negative gearing. There are benefits and bonuses for combining these two things.
5. Avoid going it alone.
The last one is the biggest mistake I find. Lots of property investors get a certain way down the track and hit a brick wall. They stop and they can’t go forward because of a lack of support. There may be a lack of professional people around them or a lack of a support network who can help them through any problems that they’re facing. What happens when I can’t borrow anymore? How do I now get my equity out of a property I’ve invested in and I want to get it back? What should I do?
As I buy property I am thinking about my strategy. Having people around you such as good mortgage brokers, good solicitors, good accountants and a good property mentor will help you make good choices and keep you on track. This makes sure your investing is successful and continually moving forward, creating wealth, and getting momentum towards your financial goals.
These are the five biggest mistakes I’ve seen as a professional property investor and mentor for many people over the last 17 years. When you fix these points up you will fast forward your investing and focus on achieving a good financial outcome.
If you want to get more information about these topics, we cover all of this and more at our property investment nights all around the country.
We have professional property coaches who come along on the night and they talk about these things and a whole lot more. They take these strategies and concepts and communicate them in a way that’s easy to understand and implement in the marketplace.
You can register to come along to one of those nights. Spend about 90 minutes with us and we’ll share everything we’ve learned from the school of hard knocks, doing real deals. It is on the ground, out in the market, buying deals, and learning this stuff, by doing, not reading a book. We’d love to see you at the property investment night and until then, take care, and bye for now.
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Take the Next Step
After a lot of bad news over the past 12 months – thanks a lot COVID-19 – it’s nice to be able to kick off 2021 with some good news. There’s going to be a lending boom which, if you have your property investment strategy in place, is going to make your life a whole lot easier so you can build your property portfolio faster and cheaper.
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However, unlike your favourite Shiraz, property values can go up and down, and up again.
Getting to know how, why and who is valuing your property can help us understand what property to invest in.
There are three ways to value a property – and three very different people doing the valuing.
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