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Why investors often buy the wrong property!

Friday, 23 May 2014 - melanie

A photograph of a way over the top house that started out as a normal looking property and has grown to be 7 floors of craziness.Many new investors buy the wrong property because they think like an owner occupier and not an investor. They tend to look for property they like and buy with their heart and not with their head. The end result is - they often pay too much and the style and construction of the property is too high maintenance to be good as a rental.

Here are my top tips to help you to avoid this mistake:

  1. Before you start looking at property talk to a property manager about what type of property and features are popular with tenants. e.g. air con, number of bedrooms, appliances and so on.  
  2. Use this information to formulate your ‘must have’ list of property features.
  3. When you think you have found the perfect property, stop and think about the ongoing maintenance requirements, e.g. pools are great but need regular servicing; beautiful gardens look nice but need to be watered and maintained (your nuts if you think a tenant will spend hours sculpting a hedge); and no, timber is not your friend. High maintenance = higher running costs = lower return.
  4. Consider the age of fittings and fixtures like carpet, paint, kitchen, bathroom, blinds and hot water system. They will need to be replaced/redone at some point so you need to factor this into your budget.
  5. You have to be firm about exactly what you are prepared to pay for a particular type or condition of property. You should leave yourself a buffer to act as a maintenance fund for the first couple of years – see point 4.
  6. Clarify your investment goal. How long do you want to keep the property? Do you want to have multiple properties? Do you want a higher rental return or are you focused more on capital growth? This will help you to determine the best area to buy property in.
  7. When you have thought everything through write it all down on paper so it becomes like your buying contract with yourself. This may prevent you from getting side tracked or carried away.

Your motto as an investor buyer has to be ‘buy with my head and not with my heart’. You don’t have to like the property because you may never have to live in it. If your smart about chosing the right property, owning an investment property can be a positive experience that can help build your financial security.

My final tip is that it’s often better to get professional advice from financial planners and property managers before you embark on this journey. Plan well, stick to your plan and you can avoid a very costly mistake.