The 5 Reasons People Fail When Investing in Property
When it comes to investing in property, many of us know it can be a safe way to secure our financial future and our retirement. Unfortunately, not everyone who chooses to invest in property succeeds. So let’s have a look at the 5 reasons why people fail when investing in property.
1. Buying the Wrong Property for You
One thing many people don’t realise is that an investment property that is right for someone else may not be right for you.
However if your motivation to buy an investment property is, “Prices are going nuts, I better get in” or “My accountant says I need to buy a property”, then any investment property will do.
That’s a scary place to be.
You’re less likely to take the time to do the right due diligence to ensure you’re buying something that is actually right for you, your family and your financial future. This can cost you big over time. So ensure that when you buy, you buy the type of property that is right for your financial situation, plans and goals.
One of the first things I do when I sit down with someone who wants our help is spend as much time as it takes to help them get clear on what they want to achieve in the next 5 to 10 years. Only once we are both clear on what they want to achieve do we then move on to looking at the right loan structures, where to buy and what to buy.
Getting clear on your end game is one of the most important things you can do when it comes to investing in property. Taking the time to do it will help you avoid buying the wrong investment property for you.
2. Failing to Consider Long Term Cash Flow and Borrowing Implications
In Sydney between 2012 and 2015, property prices were on a near vertical trajectory.
Properties being sold almost as soon as they appear on the market and auctions achieving prices well in excess of reserve were almost the norm.
Many people bought hoping this price rise would continue – hopefully indefinitely.
Rationally, we know that can’t happen. Prices will start to level out, as they always do and always must.
I’m not talking about a crash, perhaps a slight correction but certainly a period of flat lining and next to no growth. The problem is that once this happens, many investors will be left with a property that won’t grow in value for a period of time and the rent and tax rebates won’t cover the cost of the property either.
So the poor investor will have to fund the property from their own hard earned savings. I can see this happening a lot in the next few years. In fact many investors are facing this cash flow strain right now. Yet interest rates are currently at record lows.
So if cash flow is strained at the moment, imagine what is going to happen once rates start to increase? Whenever you buy an investment property, you must consider what could happen when the market conditions change.
3. Getting Swept Up in the Moment and Buying on Emotion
I’ve met many investors who have rued their decision to get into the property market because they got caught up in the moment. Either lots of people were buying or lots of people were telling them to buy and they didn’t want to miss out.
If your motivation to buy an investment property is based on what others are doing or what the media is telling you to do, it is so easy to buy something in the heat of the moment, only to regret it later.
For example, many clients of mine often tell me some version of this: “We were on holiday and the area was beautiful. We just went to look at something and then we bought it.”
Unfortunately, they find over the long term they can’t get the rent they wanted for their holiday rental, the price growth is not there and this “beautiful property” is now a cash flow drain! An experienced investor I met said one of her first mistakes was exactly this. She bought a holiday rental on the spur of the moment – and it was vacant for 26 weeks of the year.
Ouch! She was very happy to finally sell it. Never invest on emotion!
4. Wishing You’d Bought Earlier
Don’t you wish you has bought just one extra property in Sydney before 2012?
How much extra money would that have given you today?
Unfortunately we only realise we missed out on opportunities after they have gone past. The cost of procrastination is immeasurable. For instance, property prices rose over $200,000 on average in Sydney between 2012 and 2015 (and more in some areas).
So the cost of procrastinating and only buying an investment property in Sydney in 2015 vs doing so in 2012 was approximately $200,000. That’s $200,000 worth of capital growth that should have been yours.
Of course nobody has a crystal ball. However, when you do your due diligence and you see an opportunity, don’t delay!
5. Doing it Alone
One of my Investing philosophies is that Property Investing is a Team Sport. If you were a football player, I don’t care how good you are, if you try and play solo against even an average team, you will get your butt kicked. The same applies to property investing. Make sure you have a team of people who are on your side, working with you to achieve your goals.
Consider the following… Do you have the time to research all the best areas to find a property?
Do you have the experience to know what the right loan structure is for you? (Hint: There is more to investment finance than just getting a loan. For instance, you want to use the bank as your research partner but most people have no idea how to do that!)
Do you have the willingness to keep yourself accountable to your investing goals and grow your portfolio safely and securely as fast as you can? I mean no disrespect. You are a professional at what you do.
You now need to get property investing professionals on your team to help you achieve your financial goals and avoid some of the common pitfalls of property investing. . Remember, wealthy people have a team of professionals around them – those with a proven track record with the credibility, experience and expertise to guide them on their journey.If the wealthy have a team of advisors around them, don’t you deserve the same? After all, having the right team of advisors around you is how you become wealthy.
So if you want to find out more where to invest for this year and beyond, how to structure your finances correctly (often the missing element of most property investment portfolios) as well as how to judge whether a team of advisors is right for you, I’m holding a special no obligation Online Class where I’ll cover all of this and so much more.
To find out if this will be a good fit for you, visit our Online Class page
To your success, Niro
November 13, 2020
November 4, 2020