Property has always been considered a great investment. This is true, but many investors new to the market do not make great investments and can end up losing money in the long run. Below are three of the most common mistakes new investors make and how you can avoid them:
Making an Investment Based on Cost Alone
It may seem obvious, but many budding property investors make the mistake of deciding on an investment based on cost, rather than looking at the neighborhood in which they are investing. This is an easy mistake to make, and of course it is important to decide whether you are going to invest in luxurious 4-bedroom homes or small studios that can be leased to students.
However, the soundness of a property investment relies on much more than the cost of the purchase and the aesthetics of the home. The real crux in determining whether a property is worth investing in is determining whether the neighborhood is worth investment. You need to consider a range of things, such as local amenities, schools, and transport links before trying to attract a target tenant. When it comes to choosing a property to invest in, the neighborhood is often by far the most important part, so make sure you do your due diligence and analyze the entire area before looking at specific plots.
Negating Potential Rental Yield
It takes time to build a property portfolio, and when you start out, you should be looking for properties with the most potential rental yield. Rental yield is defined as the percentage of the purchase cost that can be recouped in rent each year. For example, a property that costs you $150,000 and brings in $15,000 per annum in rent would have a 10% yield.
The reason rental yield is so important is that it dictates how long it will take to pay off your initial investment and free up funds for additional purchases. The more capital investments you have on your portfolio, the more leverage you have for climbing the property ladder, so it's important to choose properties with high yield to help you to get to the next rung.
Not Negotiating Enough
A major advantage of investing in a rental property is the fact that you don't need to wait on your current home finding a buyer in order to have your cash ready. Rather, the fact that you are managing a growing portfolio means that you should always have enough leverage in order to negotiate a good deal with your lender and ensure that you can make your investments quickly and easily.
This leverage can often translate into a saving on the cost of the property. The vast majority of people selling their property will not be in a similar situation to you and will be looking for a quick sale in order to free up capital. The fact that you are able to offer this cash injection quickly means that you are seen as much lower risk and a much more lucrative deal for the seller. However, many developers new to the market do not utilize this and can miss out on a significant cost saving.
To learn more about investing in rental properties, contact a real estate agent.