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With 2020 shaping up to a be a big year in property, an expert has provided insight into seven traps investors often find themselves in.
Troy Gunasekera, national manager for Property Club, said 2020 is going to see many investors reap the benefits of activity that occurred last year.
“Firstly, interest rates are now at record lows and are expected to fall even further during 2020,” Mr Gunasekera said.
“Secondly, finance is becoming more easier to obtain for property investors compared to previous years.
“And thirdly, property prices are overall expected to rebound during the coming year, making it a great time to create wealth through buying real estate during 2020.
While 2020 is shaping up to be the “year of the property investor”, Mr Gunasekera said, there are key traps that property investors should avoid during the coming year.
The seven mistakes property investors should look out for in 2020, according to Mr Gunasekera, are:
1. Having the wrong mindset
“Investors need to keep a financial perspective, have a firm understanding of the market and make factual decisions.
“Property investing is a business – very different from buying your own property.
“It’s important to maintain a business mindset, where you keep track of the property’s value and rental growth, maintain accurate records, conduct an inspection at least yearly and attend to any council or strata matters that affect the property value and rental returns,” Mr Gunasekera said.
2. Getting the wrong advice
“Most people would never allow a friend or family member do their tax, service their car or even cut their hair. So why, then, when it comes to purchasing a property do so many choose not to seek professional help and instead take advice from family and friends who lack the expertise?
“Investors need to take advantage of professionals who are active property investors and are experts in their field.”
3. Buying the wrong property
“The wrong property may lead to long vacancy periods, low rental yields and difficult tenants,” according to Mr Gunasekera.
“Research what the rental demand is for in the area, and invest in what tenants will want rather than what you personally prefer.
“You may prefer to invest in a house, but there may be more rental demand for units in areas 10 kilometres from the CBD. You might also think one-bedders are too small, but these may be preferred in inner-city areas.”
4. Selecting the wrong location
“The right location should experience capital growth and good rental yields – and is more important than the property. The latter can be improved, the location can’t.
“Location is so important that at Property Club, we research the market weekly for areas that are due for growth. Clues to look out for are growth in infrastructure such as roads and public transport, or changes such as population growth.
“Essentially, it’s areas that are due to have property undersupply, with relatively low future supply coming through, and yet buyer demand is growing.”
5. Wrong tax planning
“Ensure you seek an accountant who specialises in property investments, as this will make a significant difference to your cash flow,” Mr Gunasekera advised.
“They should know, for instance, that using the principal part of your repayment to fund a second property will make more money than you will otherwise save in tax.”
6. Wrong funding
“Many investors get caught with the wrong loan by committing to a high fixed interest rate, being charged extra unnecessary fees or having high break fees and hidden penalties,” Mr Gunasekera said.
“I recall Property Club discussing with one investor about the benefits of selecting a 7.5 per cent variable rate, which was predicted to come down. He was instead talked into fixing for five years at 12 per cent by the bank manager.
“It pays to do your research, get professional advice and stick to it.”
7. Selecting the wrong tenant
“Many investors experience the nightmare of having a tenant that can’t be evicted or does damage to their property.
“Look for a property manager who knows how to spot a bad tenant, attends to your every request, is unflappable, can advise you on maximising your rental returns, and has investment properties of their own.
“When you have a good tenant, consider locking them in to a 12-month agreement, as this will help guarantee your rental income,” Mr Gunasekera advised.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.