With all the talk about investment property these days, it’s tempting to think that everyone’s doing it – and doing it in style.
Yet the statistics are sobering. Around 73% of property investors get stuck on their first property, being unwilling or unable to purchase another.
These investors are missing out on prime opportunities to grow their portfolio and emerge with tangible family assets producing a passive income stream for life.
Story: Build Wealth With Property
Why do so many people fail to get past their first investment property?
1. Botching the first purchase
Whatever you are buying, things can go awry.
If you buy a computer, the stakes are relatively low. When investing a substantial sum in an investment property, however, it’s critical to know what you are doing.
Many first-time buyers of investment property make the mistake of:
- Over-capitalising on a house talked up by an estate agent.
- Buying in an area of low tenant demand or minimal capital growth.
- Trying to manage the property themselves.
- Getting a great house and failing to take out landlord insurance.
Any one of these factors can prevent you moving on to your next purchase.
- If you pay too much, you are constantly playing catch-up with your finances.
- Buy in the wrong area and you may struggle to find a tenant.
- Managing the property yourself involves time, stress and multiple demands.
- No landlord insurance leaves you liable for property damage from tenants, accidents or natural disasters.
Using an experienced property manager and keeping comprehensive insurance cover up-to-date are both crucial aspects of successful property investment.
2. Buying without a strategy
What’s the worst way to buy an investment property? Blunder in first and ask questions later.
Yet many people fall for the temptations of a nice looking property spruiked by the agent as having great investment potential.
Every investor needs a property strategy worked out well before setting foot on the property ladder.
It’s vital to know your short, medium and long term goals in order to work out a customised investment plan to get you there.
Are you after retirement income? Houses to pass on to your children? An ongoing income stream? Paying down your home loan?
Once you know where you’re heading, a property investment specialist can determine the right property with figures which stack up.
3. Relying on negative gearing
Property investment in Australia has traditionally relied on the tax benefits of negative gearing to help finance the asset.
But times are changing. Smart investors in 2017 are realising the enormous advantages positive gearing can offer in terms of building a portfolio.
Quite simply, negatively geared property involves you making an ongoing loss. You are constantly having to cover the gap between your property expenses and the amount of income you receive from it.
A property offering positive cashflow is a breath of fresh air for the average property investor – and it doesn’t have to be in a remote mining community with an uncertain future.
Contemporary, family-orientated duplex properties in growth hotspots offer a double rental stream on one property title and one loan, enabling you to cover all property expenses as well having enough over to invest in your next property.
This ‘leapfrog’ effect is the secret ingredient in the portfolio of many top Australian property investors.
4. Failing to secure finance
If you negatively gear your first property, chances are you’ll find it hard to get finance for your next purchase.
Lenders like to invest in positively geared properties offering good cashflow and moderate capital growth.
Where do you find them? In growth corridors of capital cities and well performing, fast growing regional locations.
Lenders love properties which are easy to service and located in areas of expanding infrastructure, new employment and economic development.
If the figures stack up, you are likely to secure far better loan conditions and more attractive packages from your bank or lending institution.
If you need a good mortgage broker, please give Ben a call as we have some excellent local brokers on file.
We are also more than happy to do a rental appraisal on any new local properties you may be considering for investment. This is a free service offered by Property North Agency.