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5 Common Property Investment Mistakes



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By : Whitney Cox    99 or more times read
Making the right financial choices can be difficult for property investors, especially newbies in the current market. It is still possible to make a good profit by avoiding some common mistakes when buying and selling property. Here are 5 classic examples:


Lack Of Research

The research that goes into purchasing a house is the most time-consuming portion of the whole effort. You are looking for more than basic information about the house and land it is on. Knowledge of the area, neighborhood, permit issues, recent extensions or upgrades and land stability (does the house stand in a flood zone) are all topics you need to query before purchase.

If everything seems to check out fine, now is the time to order a building inspection. This will let you know about any major structural issues. Many buyers are caught out with homes that unsellable without expensive repairs for structural damage, so overlook the cost and order the inspection.

Another important question is “why is the homeowner selling?”. In some situations you may be able to retrieve more information from the neighbors, rather than the home owner themselves.


Poor Financing

There is a vast range of finance options available including several loans that allow lenders to purchase property that would normally fall outside their budget. It’s very easy to become comfortable with an adjustable or variable loan without thinking about the consequence or financial pressure once the interest rate increases. Never over-loan, always ensure you have extra to cover repayments if rates or interest increases and have a back-up plan to change to a fixed rate mortgage down the track.


Attempting to close a transaction without help

Many buyers consider themselves to be pros after a few property purchases and make the mistake of attempting to close a real estate transaction on their own. The problem is that by doing so you are limiting the help available if a deal starts to go sour.

Instead, make use of every available resource to make the transaction as smooth and stress-free as possible. Entrust the help of a competent estate agent, home inspector and reliable lawyer. Take peace in knowing any problems that arise with the purchase can be taken back to them for referral.


Overpaying

Buying a house with your heart instead of your head is a common mistake made by buyers - this is especially a problem for investors. For example, falling in love with the beautiful bay windows of a villa and paying more than the property is worth because of it is a costly mistake. The purpose of purchasing an investment property is to make a profit, not to buy your dream home.

Over-bidding on a property only leads to over-extending yourself causing stress from the debt and years to recoup the investment - time you don’t have if you are trying to make a quick profit.

Research other homes for sale in the area to gauge an average market value, negotiate all offers and if you still fall short look for another property.


Underestimating Expenses

One of the most commonly made mistakes is investors underestimating expenses - especially with structural repairs and renovations. Monthly costs while the house is tenanted or renovated need to be considered as well, such as rates, insurance and general maintenance.

Before bidding or putting in an offer, add up all costs involved in the purchase to ensure it is worthy of investment. This is especially important for house flippers.

Included should be:

  • Maximum bid or offer

  • Rates

  • Insurance

  • Interest on any loans

  • Renovations and Repairs

  • General maintenance

  • Relevant lawyers or accountants fees

  • Payment penalties and cancellation fees (for early sales)


Investing in property isn’t as simple as people like to think, there is risk and you need to be prepared for the worst case scenario with the constant rise and fall of the property market. Luckily with careful research, experience and planning it is still possible to become a successful investor. Avoid these common mistakes and you are well on your way.
Whitney is a blogger based in New Zealand. She is always keeping an eye out for investment property for sale, and loves to keep up to date on the latest developments in real estate investments.

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