Business & Finance Investing & Financial Markets

Novice Investor Mistakes

The rental market is the tightest it has been for years.
With increasing volatility in the stock market property investment is increasingly seen as an alternative place to park your money.
However, there are traps for the unwary.
Australians love putting their money into bricks and mortar; it is the favoured path to a comfortable retirement.
And there is no doubt that the demand for rental property is historically high, but this does not necessarily translate to mean all properties are a good investment.
If you're convinced that investing in rental real estate is the way go in with your eyes, as well as your wallet, open.
Here are some common mistakes made by new real estate novices: 1.
FALLING IN LOVE WITH THE PROPERTY Stop thinking like a home-owner and start thinking like a business owner.
Get emotional about the deal, not the house.
Yes, it's a good check to ask "could I live in this house?" If you could, it's likely someone else could also and so the property is probably rentable.
2.
NOT UNDERTAKING DUE DILIGENCE This is more than just an inspection of the property.
What are the vacancy rates and average rents for comparable units? What's the average age of the rental housing stock? 3.
FORGETTING THE RULE FOR IMPROVEMENTS It will always take twice the money and twice as long as you expected to get a property to market.
Allow for additional funds to pay the mortgage while the property is vacant.
4.
ASSUMING YOU'LL GET THOSE LOW RATES YOU SEE ON TV Those are for owner-occupied homes.
Investment property is considered riskier loan and therefore you'll pay more.
Expect a margin above the home owner rate.
The credit standards also will be higher.
5.
NO CASH RESERVES A lack of cash reserves puts unnecessary pressure on you to do sub-standard repairs, accept sub-standard tenants or make other poor decisions.
6.
NOT SCREENING TENANTS New landlords can get excited about prospective tenants who show up, take one look at the place, hand them a cash deposit, and want to move in that weekend.
Don't do it.
When selecting renters, make them fill out an application, and check their credit, employment and rental history before you take them on.
Better still, find a reputable real estate agent and give them the job of managing the property.
6.
BREAKING YOUR OWN RULES Landlords establish policies for good reasons.
When they start ignoring those policies, they're headed for trouble.
No pets means no pets.
Don't ever let someone move in without a security deposit.
7.
DOING IT ALL YOURSELF New investors often attempt to manage it themselves.
That approach can end up costing more in the long run.
Find an accountant, a lender and a reputable real estate agent to work with you.
8.
NOT STUDYING THE COMPETITION Why does the landlord across the street fill his units the same day someone moves out while yours sits vacant? He might not be very picky about whom he rents to, but, then again, he might also have lower rents or have his building on a wireless network.
9.
PAYING TOO MUCH When signing a contract of sale ensure it has a "subject to finance" clause.
This gives you the desired protection as your lender will value the property before offering you a new loan.
You need a lender who will disclose this valuation to you.
10.
BEING UNDER-INSURED Insurance needs to cover more than the building against fire or natural disaster.
You also need to consider landlord protection insurance.
This should cover you for damage to the property and also loss of rent.


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