When it comes to investing in property, there are a lot of traps out there that unsuspecting investors can fall into if they’re not careful. So how do you make sure you don’t fall victim to them? In all honesty, the easiest way to avoid these traps is to know they exist in the first place! If you know about the problems, the more likely it is you’ll be able to spot them when they come your way.
In order to successfully avoid common property traps, there are 4 key areas I focus on:
- Invest For Long Term Gain
The best way to avoid losing on investments is to invest with the long-term in mind! This is exactly why I always like to create a 5-year plan before doing anything else.
Before you make a property decision, you need to create a long-term plan that suits your age, financial situation and risk profile. It’s a far better decision to invest for stable growth than to gamble on short-term investments that have huge potential for gains AND LOSSES.
I generally work on plans that forecast from 5-10 years, as this gives sufficient time to realise potential gains and rental increases.
- Diversify, Diversify
Remember that old saying “Don’t put all your eggs in one basket”? Well, I can’t think of a better place it applies than in property investing! When it comes to investing, it’s important you diversify your portfolio so that you can minimise your losses should the market go down. Not all property markets work on the same cycle, so while one area may be down, another could very well be booming!
Some other benefits of investing in various locations include:
- Each state has different stamp duty structures and grants
- Land tax thresholds may be avoided by investing in an alternative state
- An investor is generally less emotional about the purchase than they would be closer to home
- Investors generally carry out more due diligence on properties located further from home
Sadly, plenty of investors do not take this advice, which often leaves them exposed and vulnerable to losing when the one market they are invested in faces slow growth. Not fun, right?
- Focus On Sustainable Cash Flow
Unfortunately, in property investment, you hear a lot of horror stories regarding shonky investments – and a lot of them are true!
Too many properties are sold on the promise of high returns and low risk. It often leaves investors in a situation where they have insufficient cash flow to cover their mortgage and ongoing costs.
I always ensure that I have a minimum of two independent rental opinions, as well as a good handle on the local market by speaking to local agents. Good investment assets should generate clear viable cash flow and not rely on excessive gearing or financial engineering.
I also like to think of it this way – if an investment looks too good to be true in terms of the return on offer, then it probably is. Your own gut feeling is a great tool – use it!
- Beware Of Market Hype
You might be tempted to follow the crowd and invest in a ‘popular’ property with lots of hype around it, but the reality is it’s not always a sound investment strategy.
Often when property investment comes up in conversation, people tend to quote the last thing they read in the papers or online, and I can tell you, there are very few journalists who really know what they are talking about when it comes to property! Try not to let them influence you, or you could miss your chance to retire on a healthy portfolio of investments.
Now you know how to avoid falling for the traps, be sure to keep these lessons in mind throughout your property journey!
Still have questions? Feel free to leave me a comment below!
Until next time,