The Seven Deadly Sins of Property Investing

Avoid these seven deadly sins.

Property can be a great investment vehicle to grow your wealth.

In fact, more of Australia’s wealthiest people attribute their fortune to property than any other investment class. But, as many will attest, it’s not all roses.

Here’s a list of seven deadly sins committed by property investors the world over.

Avoiding these pitfalls could mean the difference between investment success and disaster.

Confusing investment and taxation strategies

Many investors confuse investment with income tax minimisation or are distracted by tax depreciation benefits. However, an investment property needs to be viewed independently of other financial benefits and assessed on its own performance and ability to grow in value and produce income.

Failing to be choosey

There are many variables that affect a property’s liveability including location, size, layout and local amenities.

Unfortunately, most investors consider too few of these factors when buying property for investment, which impacts their marketability to tenants and future buyers, and subsequently capital growth potential.

Neglecting to review historical performance

When buying shares we analyse past performance; when buying a car we consider mileage and performance. But when investing in property many people fail to investigate historical capital growth performance.

A property’s track record of capital growth is a good indicator of its future performance and will indicate whether it is a suitable investment.

Chasing hot spots

Many investors make the mistake of chasing the next big hot spot, which is a suburb or area predicted to benefit from rapid short-term gains in value.

However, despite an initial spike, a hot spot is usually characterised by slow or limited growth in the long-term that often undermines any short-term gain.

Uninformed property flipping

Novice renovators or ‘flippers’ often underestimate the commitment required to transform a property, which can cost them significantly.

When deciding to renovate, it is important to consider the needs and wants of its future tenant or buyer, and avoid falling into the trap of overcapitalising.

Sitting on the sidelines

Adopting a ‘wait and see’ attitude to buying real estate can be disadvantageous.

Base your decision to buy on your personal financial circumstances, not market sentiment. History shows that most buyers tend to return to the market after a positive shift in sentiment, and subsequently value increases have already occurred.

Forgetting all aspects of location

Location is integral to the performance of a property. Many investors assume that buying in a blue-chip suburb is sufficient to selecting a blue-chip asset. But location is far more than just the right suburb or even the right street – it is as specific as the lot number or position in a block of units.