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Five costly sins of property investors
Investing in property has been proven as one of the most effective ways of building wealth. From Australia’s top rich listers to the mums and dads who have successfully built wealth over the years, property has been a mainstay and a common investment vehicle.
However, like any other investment, there are important and key factors that can help ensure success when investing in property.
In this article, we will look at five costly sins that property investors make. If you are only starting in your property investment journey, it may be worth spending some time to consider these sins to make sure you don’t commit them.
If you’re already well ahead in your property investment path, it won’t hurt to review these items either.
Here are the five costly sins that may impact your investment journey:
1. Failing to plan – There is a saying that if you fail to plan, you plan to fail. Like in any other areas of life, failing to plan your property investment journey is planning to fail. If you don’t have a plan before you start your property investment, you will be tossed and turned when there’s market fluctuation. Then you will face the risk of making emotionally-charged decisions that may impact your investment.
At Wealthi, one of the tenets we go by is to do our own research and make investment decisions on informed judgement and analysis. This helps in making a firm commitment and data-backed decisions in line with your long-term plans rather than on spur of the moment reactions.
2. Following the herd – while it is easy to do what everyone else is doing, following the herd is not always the best thing to do. And this is especially true when it comes to property investment.
Just because everyone is selling or buying at a particular period doesn’t mean you have to do the same. Sometimes, being a contrarian in your investment decisions will deliver better results than following the herd or doing the same thing that everyone else is doing.
The best thing to do is to do your own research and make the decision that best suits your investment goals.
3. Overextending yourself – one of the guidelines used by successful investors is not to overextend themselves. Invest within your means. Start small and build on the success of your initial investment. By not overextending (biting more than you can chew), you will give yourself better chances of making rational decisions around your investments.
When it comes to property investment, overextending may take the form of buying multiple properties at once or taking on a huge mortgage beyond your capacity to pay.
4. Putting all your eggs in one basket - another pillar guideline used by successful investors is diversification. This involves allocating a certain amount of your investment capital in different assets to diversify your portfolio.
When it comes to property investing this may mean investing in different arrears like buying in Sydney or Melbourne rather than just in one city.
The idea behind diversification is to offset any fluctuation in the different segments of your investment. While one area may be going through a slowdown, another one may be going through strong growth. This means a soft patch can be balanced off by a strong performance by another.
If you have all your investment properties in one city or one suburb, chances are if there’s a slowdown in that area, all your investments may be affected.
At Wealthi, we prefer to invest in areas with strong and tested historical growth in terms of rising population and vibrant economy. This means we tend to invest in major capital cities and regional areas with massive potential for growth.
At the moment, our preferred investment areas include Sydney, Melbourne and Canberra and areas within 20-30 kilometres from major CBDs. In terms of regional areas, we favour Newcastle which is in line for a multi-million infrastructure build and a solid growth plan.
5. Set and forget – compared to equities/shares, property prices tend to be more stable in that they don’t go through massive fluctuations daily. You don’t have to monitor the price of your investment property the way you check share prices every day.
However, despite the long-term and more stable price movement in the property market, you can’t take a set and forget attitude when it comes to managing your property portfolio.
It is best to have a more active management plan (related to item number 1). This may involve monitoring and evaluating the growth of your equity in each property.
If you know how much equity you have built over a period of time then you can plan for further investments.
If you want to discuss the Australian market or learn more reach out to the team to have conversation about how Wealthi can help you build a successful property portfolio.