By Paul Bennion, Managing Director, DEPPRO
Property investor activity is set to increase in Australia during 2019 following the decision by APRA to remove restrictions on interest only loans that have been traditionally favoured by investors.
At the same time, there is a growing expectation that the RBA will be forced to cut interest rates soon because of a slowing economy and it is expected that these lower interest rates will be a major incentive for more investors to enter the property market especially are rental returns are rising.
However, many first time investors never buy more than one investment property because they make simple mistakes from the very start.
These simple mistakes such as selecting the wrong home loan or not obtaining a tax depreciation schedule can make the difference between success and failure for first time property investors.
Avoiding these simple mistakes means that first time investors can built a successfully property portfolio and thereby create long term personal wealth.
Below are 10 of the most common mistakes made by first time investors:
1. Buying an investment property they would like to live in without thoroughly looking at capital growth and rental return potential. Most real estate institutes throughout Australia (i.e. REIWA in Western Australia) provide free online information on their websites about the long term performance of individual suburbs in terms of capital growth which is a good resource for first time investors.
2. Deciding to buy an investment property close to their owner occupier home rather than looking at investment opportunities throughout Australia.
3. Selecting a property based upon advice of friends or family rather than seeking independent information.
4. Failing to obtain a tax depreciation schedule for the property. The tax benefits derived by a depreciation schedule can be as high as 60% of the rental income and this additional cash flow can assist the investor to purchase additional properties.
5. Not undertaking a full assessment of the true cost of buying and holding the property. For example, if the property an apartment, there are additional cost issues compared to buying a stand-alone house such as strata fees.
6. Selecting the wrong home loan i.e. principal and interest which is typical for an owner occupier home. Instead first time investors should focus on interest only loans which will help increase cash flow.
7. Buying a property in a location which is not attractive to tenants i.e. not close to amenities such as shops or transport.
8. Purchasing a property in an area where there is an oversupply of properties meaning rents will be low and capital growth rates limited.
9. Trying to select the tenant themselves rather than using the services of a number of reliable property management companies.
10. Buying an investment property with the view to a quick return rather than viewing it as a long term investment and stepping ladder to purchasing a portfolio of properties that will create long term wealth.