10 biggest dangers of investing in property

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

Over a long period of time, 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 property.

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

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 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.

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.

Chasing hot spots

Everyone loves to have an opinion on 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.

Relying on ‘friendly’ sales agents

While a sales agent might be a nice person to deal with and incredibly helpful, you have to remember, 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.

Not having long-term goals / strategy

If you’re treating 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.

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 risk 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.

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.

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.

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, 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.

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.

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.

View the article as published on News.com.au here.