Learn from others mistakes

When purchasing an investment property, there are many common mistakes which can be made, with some being quite difficult to reverse.

To avoid making the wrong decision, West Real Estate spoke to a number of industry experts, who provided strategic ways to invest in property.

Momentum Wealth Buyer Agency Team Leader Emma Everett said it was common to see a buyer’s emotions drive their decisions.

“For first-time investors particularly, and especially in cases where a property is attracting high levels of buyer competition, it’s easy to let emotions drive the buying decision,” she said.

“This can lead to overpaying for a property beyond its worth or overlooking red flags, which could hold back the property’s longer-term performance and lead to unforeseen costs further down the line.

“It’s quite common for first-time investors to limit their property research to areas they are more familiar with, however, these sometimes aren’t the areas with the highest-growth potential.

“This is where we often see buyers miss out on better opportunities elsewhere, which are within their budget and have stronger long-term growth fundamentals in place.”

Ms Everett said another common mistake among first-time buyers was focusing too much on the upfront appearance of the property and overlooking its long-term growth potential in the process.

“For instance, newer properties or house-and-land packages on the outskirts of the city may offer potential for lower maintenance costs and may look appealing, however, these properties often won’t offer the same growth potential as an established house in a tightly held suburb closer to the city with more of its value in the land,” she said.

Ms Everett said as market conditions improved it was common to see investors get carried away with a bargain hunting mentality and overlook a property’s long-term potential.

“Buyers looking to take advantage of market improvements need to target areas with the right growth principles in place, paying close attention to fundamentals such as demand and supply, local amenity and upcoming infrastructure, as well as micro-factors such as which property types are in high demand in that particular area and a property’s individual potential,” she said.

As for experienced buyers, Ms Everett said they should avoid purchasing properties in hyper-inflated markets, where rising buyer competition and demand had already pushed prices upwards, and in some cases, beyond the area’s true value.

Momentum Wealth Finance Team Leader Caylum Merrick said from a financial perspective, there was a lot of experienced buyers overlooking the importance of loan structure to their ability to expand their portfolio.

“We get a lot of buyers approach us who, often unbeknownst to them, have had their loans cross-collateralised or set up unfavourably by a previous lender, and are now unable to access the equity they need to progress with a further purchase,” he said.

“Especially for more experienced buyers who will often have more complex financial needs, having their loans correctly structured can be critical in giving them the flexibility to move forward with their investment goals.”

RiskWise Property Research Chief Executive Officer Doron Peleg said off-the-plan units, especially in areas of over-supply, topped the list for potential investment disasters.

“The first and most obvious is the risk of oversupply which creates weakness in the market leading to lower valuations, rising defaults on settlements, major discounting, falling rents and ridiculous incentives to get buyers across the line,” he said.

“The widespread oversupply issue is universally acknowledged by banks, which have blacklists for postcodes suffering potential unit saturation. In addition, lenders are scrutinising loan applications much more vigorously and either require a much higher deposit as security or they may turn down the application entirely.”

Mr Peleg said another common mistake was taking advice from a property professional who is not paid for their services.

“In the housing industry no one works for free,” he said. “As a general rule, if you are not paying, you are not the client – for example a property developer – which means there is an agenda to get you to buy whether it is for your benefit or not.”

Besides steering clear of advisers offering their services for free, Mr Peleg said to perform your own independent research and be aware of all the risks involved with purchasing investment properties.