Eight common investor mistakes eating into your wealth

Here are eight common mistakes investors make when trying to build a portfolio:

1. Not knowing where you’ll finish

In the recent Winter Olympics, Austrian competitor, Teresa Stadlober, was cementing her second-place position in the cross-country ski. With 7 kilometres left in the 30km race, Stadlober inexplicably veered right on a downhill slope while the rest of the skiers went left.

By the time she had corrected her course, she dropped from second to eighth and her silver medal hopes vanished.

It’s no good charging headlong into an investment journey if you haven’t taken the time to consider where you want to end up and how you’re going to get there.

Goals are beacons for our success, so if a comfortable retirement is your dream outcome, decide when it will be, how much you’ll need and how you can achieve your ambition.

2. Using heart over head

We’re all (mostly) human and there are emotional hurdles we all must clear when making sound financial decisions. Know your numbers and trust the results.

Don’t be suckered into a real estate investment just because you could imagine yourself living there.

Investing is a business, and the best way to go broke is to set aside numeric logic. Make sure your potential holding ticks the right boxes for occupancy rates, price, amenity and future growth.

Also, lean on your trusted advisors and have faith in their experience.

3. Poor cash flow management

Long-term property investors often cite potential capital gains as their purchasing criteria. Unfortunately, many are so keen to get a piece of “blue chip” real estate they forget about things like loan servicing, expenses and future maintenance costs.

Forgetting about cash flow is a common mistake and everything seems sweet until suddenly you find yourself short and scrambling to make up the funds.

Along with monitoring cash flow, ensure you have an adequate financial buffer. Kept in an offset account, a contingency fund will help minimise interest while being readily accessible whenever it’s needed.

4. Short-term thinking

Why do investors suddenly step off their well-thought-out path, leading to a disastrous outcome capable of setting their plans back years?

Disciplined investors know the best results come from ignoring those ‘bright and shiny’ speculative ventures, and staying in the course for long-term success.

5. Treating property as a passive investment

Despite what some might say, “set and forget” is the wrong approach for an investment strategy.

Property portfolios are like a business – they require ongoing attention to operate at peak performance.

Everything from rentals and valuations, through to the prospects for capital gains and yields.

Real estate markets are fluid, so checking in on the strengths, weaknesses, opportunities and threats that affect your holdings is imperative.

My recommendation is to run a fine-tooth comb over your portfolios and finances every quarter so you can stay on top of the game.

6. No hustle

Sometimes the perfect opportunity presents itself – but if you aren’t quick enough to act, this diamond buy can slip through your fingers.

Getting ready to hustle means ensuring your goals are decided, your plans are in place, your finance is in order and you have the investor mindset, so when the phone rings and your boxes are ticked, you can say a fast ‘Yes!’ to a property with less fuss and regret.

7. Negative gearing as a strategy

Despite what some ‘investment advisors’ might say, negative gearing isn’t a wealth-building strategy – it’s a moment in time.

Buying property with the view of using negative gearing to get ahead is fraught with danger.

Your ability as an investor to access any benefits of negative gearing should be considered a bonus to your usual investment approach.

Purchase with long-term gains in mind first and foremost, then look for ways to maximise your tax advantages as they present themselves.

8. Self-managing the rental

This is an absolute amateur error. Almost any landlord who takes on the rigour of self-management will live to regret the decisions.

From tenant selection, to chasing late rent, to complying with the various state tenancy laws, property management is a speciality field best tackled by professionals.

Don’t fall into the trap of ‘saving a few dollars’ by self-managing, because it’ll cost you plenty in the long run.