First-time property investment can be a daunting experience. The sums involved are large, it often entails a large amount of debt and everybody else involved seems a lot more confident. Unfortunately sometimes these mistakes are made by ‘experienced’ property investors so here are the top 10 investment property mistakes we have found our clients making.
1. Obtaining a principle and interest loan if you already have a mortgage.
Investment debt is tax-deductible debt; home loan debt for the purpose of having bought the owner-occupied home is not tax deductible. Investment debt secured against the home can also be tax deductible while the mortgage on your principal place of residence is not. Consider the benefits of having interest-only and run the numbers. You’ll be surprised how much better off you could be.
2. Putting the property in the name of the person with the lower income.
It is the ownership split on title that determines the tax benefit apportionment, rather than who is on the loan. Consider seeking advice as to having the name of the person with the higher income as a greater percentage owner on title instead, for great tax benefits.
3. Spending more than you can afford on an investment property.
Spending a million dollars on an investment property might be OK if you have plenty of money, but if it has “maxed” out your borrowing capacity, or if it will cause pressure on lifestyle, DO NOT DO IT. Borrowing less or buying multiple properties that are more affordable is a better strategy as there are more buyers at a lower level and it spreads the risk by not putting all buying power in the one property.
4. Buying near busy roads, power lines, industrial areas or bad neighbourhoods.
Failing to engage a quantity surveyor to undertake a depreciation schedule will always bite you on the backside. You may save a few bucks, but it could cost you big time in the long run. It is wise to always employ the services of a quantity surveyor to ensure any tax deductions being claimed are maximised and accurate.
5. Buying where you live.
Choosing to invest in a property specifically because it is in the same state or suburb in which the investor lives can limit your potential to leverage socio-economic and demographic trends. Buying in a different area with more growth potential 100 kilometres away, for example, is much better than buying near the owner-occupied location just because you can drive past it every day.
6. Getting emotional about property.
Investing is a numbers game. It is not for frustrated stylists or fanatic watchers of television lifestyle programs. Always treat your investment properties as a business and do not get attached to them.
7. Getting “free” advice.
Look, I’m sure your father-in-law means well, but just about everyone has an opinion about property. Few of them make it their business. Paying attention to the backyard experts can set you back decades. Ignore opinion and hearsay and seek out facts and figures from an independent source.
8. Forgetting to take out insurance.
Another false economy. Landlord and other necessary insurances, such as building insurance, can be a considerable expense. But there is no excuse for not ensuring yours is up-to-date, especially if there is no body corporate in place. Always check, and double check, your insurance.
9. Waiting for the perfect property.
Would-be property investors who wait for the perfect property will wake up one morning to find that they are 65 and do not have the means to retire. There is no such thing as the perfect property. Your job is to the find the one that has enough of the right attributes to ensure it will be a successful investment.
10. Not knowing your borrowing capacity.
A rookie mistake. Best to engage a broker, rather than going directly to a bank, as some lenders have better servicing calculators than others. A good broker should be able to get you the best deal available in the market at that particular time and save you the trouble of visiting a dozen different providers.
Need help on your next purchase? Contact our team or phone us today on 1300 88 73 28.