On the back of recent data showing more than 60 per cent of investors are making a net loss, an investor with a 200-plus property portfolio has revealed what regular property buyers are doing wrong.
CoreLogic recently revealed more than 60 per cent of investors are making a net loss on their properties, with a majority aged between 25 and 29. The figures prompted Nathan Birch, an investor with more than 200 properties and co-founder of Binvested, to advise investors of the most common errors which can derail investment plans.
By avoiding these traps, Mr Birch said even “ordinary” investors should be able to build sustainable multi-property portfolios.
“Many people think having one investment paid off in their lifetime is an impressive achievement,” he said. “The fact is that ordinary, yet savvy investors can achieve this for multiple properties in a short number of years. Set your goals and plan how and when you will achieve these, mapping out each step of the journey.”
Mr Birch’s overarching message to investors was that they can easily avoid making losses on their investments by following a few simple steps.
“To avoid becoming an investor making a net loss, look for properties that are below market value, have high growth potential and strong cash flow,” he said.
“Be clear on your goals and seek the advice of someone who has already accomplished what you’re setting out to achieve.”
The “10 fatal mistakes killing [investors’] investment dreams”, according to Mr Birch are:
1. Not setting clear goals
Failing to set goals and understand why you’re investing in property, will often mean you don’t have something to aim for, or a way of measuring your progress and success.
2. Failing to structure your finances properly
Having the right structural, financial and risk management foundations is key. This is important so you don’t get trapped, financially stuck or take on too much (or too little) risk, and could be the difference between one property in five years, or five properties in one year.
3. Not having a safety buffer
Sometimes all it takes is a rates or strata bill at the wrong time of year for investors to start scraping the bottom of their savings barrel. Investors should have a clear projection of all their upcoming expenses for the year and a reserve to pay for these, without having to take a sudden hit to their cash flow.
4. Letting emotion enter the equation
Metaphorically speaking, emotion will get you killed. Looking for a ‘dream home’ rather than a smart investment will leave you vulnerable and likely see you paying more for a property. I often won’t personally inspect the properties I purchase, so I can’t form an emotional attachment — I need to be able to walk away if the numbers don’t add up.
5. Listening to the wrong advice
Before you take advice, ask yourself whether the person giving that advice is properly qualified to do so and has achieved the kind of results in property that you are after. How many properties have they bought? How long did it take them? Are they financially free?
6. Insufficient research
Whilst some investors get stuck with too much information and conflicting investment strategies that hold them back from starting; others are guilty of not doing their due diligence before investing. Knowing what else has sold in the area, for how much and also understanding the neighbourhood, not just the suburb you’re investing in, is essential.
7. Buying in remote or rural locations
I always recommend buying within an hour of the largest CBDs in Australia. Investing in rural areas where there is poor infrastructure or an unpredictable population increase, such as in mining towns, is never a sound idea.
8. Not managing their properties correctly
Some investors let their properties languish, while others over invest their emotions, money and time into them. The trick is to find a balance where your property is well-maintained and will attract the right kind of tenant, but where you’re not over extending your purse strings and forking out for lavish renovations.
9. Purchasing off-the-plan
From an investment perspective, buying off-the-plan properties or house and land packages, are often fraught with risk. I see a lot of investors paying $50,000 to $100,000 more than the true value of the property, and these investments often have poor cash flow and poor growth.
10. Letting fear hold you back from getting started
The biggest mistake I see investors make, is letting fear hold them back from starting. The sooner you start investing, the sooner you can build a portfolio and get one step closer to financial freedom and security in retirement.
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