What are the biggest mistakes in property investing?

Buying with emotion, buying near home because it is familiar, chasing hotspots, trusting the selling agent, having no long-term strategy, ignoring risk, forgetting why you started, treating all debt as bad, reacting to short-term price moves, and trying to do everything alone.

Why is buying close to home a mistake?

Because it narrows the search to one market for a reason that has nothing to do with returns. Familiarity feels like knowledge and is not. The right property for the portfolio may be in a city you have never lived in, and the only thing stopping you is comfort.

Can I rely on the selling agent's advice?

They are working for the vendor, and that is not a criticism, it is their job. Information from them is useful as long as you remember whose interests it serves. The problem is treating a friendly conversation as independent advice.

Is all debt bad in property investing?

No, and the comparison the article uses is cholesterol: there is a kind that helps and a kind that harms. Debt used deliberately against an appreciating asset, with buffers, does a different job from debt that simply funds spending. How it applies to you is a question for your broker and accountant.

How do I avoid reacting to short-term price movements?

By writing down what the portfolio is for and over what period, before anything moves. A plan with a timeframe makes most monthly news irrelevant. Without one, every headline looks like it requires a decision.

Home / Insights / Risk & Behaviour / 10 Major Dangers in Property Investing & Smart Solutions

10 Major Dangers in Property Investing & Smart Solutions

Avoid Costly Mistakes with Smarter Property Investing and Long-Term Strategy

Published: June 2022

When investing in property, there are no guarantees, however, you can make informed and calculated decisions that will give you the very best chance of success.

Over a long period of time, the property has outperformed just about every major asset class in Australia. While it’s important to be aware of the risks, over time significant wealth has been created through the property.

10 biggest property investment dangers: common mistakes Australian investors make

Here are 10 ‘dangers’ of investing in property and how to properly manage them.

1. Buying with emotion

The easiest way to make a poor investment decision is to start thinking with your heart and not your head. Investing in the property needs to be treated like a business with all factors being weighed up. Making quick decisions on an opinion or emotion will in all likelihood lead you to a poor outcome.

2. Buying in your local neighbourhood

The best opportunity for capital growth is probably not going to be in the suburb that you live in. If there are over 10,000 markets across Australia, statistically speaking the odds are very low that the property for sale next door is your best choice.

By assessing the entire country and finding those areas that stack up based on supply and demand factors and fundamentals, you’re giving yourself the best chance of success and minimising risk.

3. Chasing hot spots

Everyone loves to have an opinion on the property but rarely are the ‘experts’ ever held to account for their decisions. Focus on the fundamentals or certain areas and worry less about so-called hotspots from commentators. These are normally just opinions and not backed up by research and data.

4. Relying on ‘friendly’ sales agents

While a sales agent might be a nice person to deal with and incredibly helpful, you have to remember, that they are working for the vendor. Their goal is to get the best result for their client.

The same goes for non-independent buyer’s agents who effectively are just sales agents for developers. Do your own due diligence on any investment or seek the help of a truly independent buyer’s agent to assist you.

5. Not having long-term goals/strategy

If you’re treating the property as a business, you should be starting with a goal and building a plan about how you’re going to get there. Most people purchase property reactively when they have the funds in place to do so. Start with a plan first then actively seek out properties that suit your investment criteria.

6. Not considering the risks in an investment

There are a number of risks that come along with property such as vacancy, bad tenants or even interest rate rises. Fortunately, there are a number of things you can do to mitigate these risks by doing your research and engaging professionals to help. It’s important to embrace these risks and learn how to reduce them not shy away from them.

7. Forgotten the ‘why’ to build wealth

Most of us want to invest in property to help us build wealth so we can stop trading time for money through our job. This is easy to forget and it’s why you need a goal and a plan before you start investing. If you’re reactively buying property, it’s very unlikely that you’ll get to your goal as you are virtually just speculating and hoping for the best.

8. Like cholesterol, not all debt is bad

While we’ve all heard that debt is bad, when used correctly it is incredibly powerful. There is both good and bad debt. The incredible thing about property is that you can control a large asset with a small amount of capital through leverage. This allows you to build wealth faster. On the flip side, if you’re using debt for assets or purchases that decrease in value over time, that is where debt can quickly cause a lot of problems. Our finance and structuring pillar covers the structural decisions that prevent over-leverage from becoming a problem in the first place.

9. Buying based on short-term price movements

Investors and people in general, tend to be very reactive to what is happening right now. The key to success in property is to take a long-term approach and ignore all the short-term noise. Over time, the property will continue to increase in value and if you go in with a good plan and long-term thinking you’ll move away from just being another property speculator to a true investor.

10. Doing it all by themselves

More than 90 per cent of property investors never purchase more than one or two properties. The main reason is they don’t start with a plan and get themselves into a situation where they cannot afford to expand their portfolio any further. Focus on getting a team of professionals around you that can guide you on your journey and then set a goal and create a plan with their help – that will allow you to get you where you want to go financially. Our property due diligence checklist gives you every acquisition check in one structured format.

There are always going to be dangers and pitfalls with any type of investment, but when you know what they are you can navigate through them. With due diligence and the right team, you too can create wealth by investing in property. It’s not as hard as people would have you believe.

If you want to work through which of these risks apply to your current portfolio position, a strategy call provides a structured assessment.

You can also read real case studies showing how investors avoided these exact dangers through structured advice.

Next steps: Should you want to learn how the author built his $5m balanced portfolio in 7 years and aspire to own something similar, feel free to get in touch via email at [email protected] or book an appointment here.

Disclaimer: This article is general in nature and does not take into account your situation. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a financial adviser.

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