Common property investing mistakes & how to avoid them
Investment of any nature is never an exact science and the property market is no exception.
Interest rate changes, fluctuations in supply and demand, emotional decision making and changing financial considerations can all conspire to make things a lot harder.
However, there are still some tactics property investors can use when seeking the best possible value from their investment.
Below are some common mistakes you should try and avoid when considering your property investment.
Repaying debt indiscriminately
Trying to pay down all your different sources of debt simultaneously can be tempting. However, not all debt is created equally. Certain types of debt come with benefits others don’t have – such as tax deductibility.
One option is to use your spare cash to only pay down your non-tax deductible debt. This could include personal loans – such as those used to purchase a car or holiday – or debt used for your principal place of residence.
Once this non-tax deductible debt is eliminated entirely you should move on to your tax-deductible debt – such as the loan on your investment property. That way you will minimise debt which doesn’t give you any extra cash at tax time, and maximise the debt which possibly can.
Forgetting about depreciation
Continuing on the topic of tax – particularly as tax time will soon be upon us – many property investors may not be maximising the tax depreciation deductions on their properties This could result in missing out on hundreds or even thousands of dollars of potential returns.
This issue could be remedied by seeking the assistance of a qualified Quantity Surveyor who will prepare a depreciation schedule based on their assessment of your property.
Leaving rents to stagnate
What many investors often forget is that the rental market can move much faster than the property market as a whole. This is why rents are often left to stagnate unchanged for several years. This means that by the time investors realise they should probably increase payments, they may have to do so by $50 or $100 at a time – an amount that probably won’t be very well received by tenants.
A better approach may be incremental adjustments of $10 or $20 every time the lease is renewed. This is likely to be every 6 or 12 months, depending on the lease period, and should be far more palatable for those on the receiving end of the rise.
Taking an inflexible approach
On the flipside, investors may inadvertently be losing money by clinging rigidly to their ideal rental asking price. This inflexible approach may cause their property to remain vacant. If their desired rent is $500 per week, this means that they are losing this whole amount for each week no one is willing to pay this much.
By dropping the amount by $20 or $30 dollars investors may convince a potential renter to sign on the dotted line. Instead of considering this as a $20 or $30 loss, it could instead be viewed as a $480 or $470 gain.
Assuming you know where the value is
Investment decisions should ideally be made based on the potential for wealth generation – something you can’t “just know” without looking at the metrics. These metrics include historical growth, local employment drivers and unemployment rates, vacancy rates, yield and population growth, to name a few. These will provide a more informed indication of whether a property will perform or simply provide a trendy postcode.