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Escaping these 7 property investment traps: Tips from PropHero

Property investment traps to avoid

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Property investment traps to avoid

Escaping these 7 property investment traps: Tips from PropHero

You wouldn’t be wrong in thinking “complex, confusing and overwhelming” describe the traditional way of buying properties in Australia. This complexity can lead us into investment traps. But if we could find ways to avoid them, why don’t we?

In this article we explore the most common investment traps we may find ourselves in and how to avoid them.

Emotional Decision-Making

Emotions remind us that we are human beings. While emotions don’t impede rational thoughts, they do underpin them. In 2013, the Commonwealth Bank of Australia found that 44% of buyers paid more for a property simply because they liked it. Letting emotions drive decision-making can be a significant trap. We need a balance between emotional insights and logical reasoning. Investing in property should be based on sound financial principles, not personal feelings or attachments.

Tip: Evaluate potential properties based on their investment potential and financial metrics, not your personal tastes or feelings.

Picking the wrong area

As a property investor, you want to maintain a high occupancy rate and ensure the property generates a consistent income stream. Choosing the right location is important. Is the area experiencing rising home values? Is it near popular amenities that will attract renters? Will it attract quality tenants who will take care of the property and pay rent on time? Location determines demand, rental income, and property appreciation.

Tip: Evaluate the potential of the location by examining factors such as proximity to amenities, quality of local schools, transportation links, future urban development plans, and crime rates.

Lack of Research and Due Diligence

People often rush into the property market without adequate research, feeling dazzled by the constantly changing market and lost in their investment pursuits. Without awareness and clarity, it’s easy to fall into traps. It’s essential to understand local property values, the potential for capital gains, and the nuances of different real estate markets, whether urban, coastal, or regional. Doing thorough research and empowering yourself with valuable knowledge will make you a successful investor. 

Tip: Get professional help and leverage their technology to interpret and investigate all data sources and peel back layers to assess more thoroughly. This will give you confidence and certainty in your investment decisions. 

Underestimating Costs 

Investment properties can come with unforeseen expenses, which can affect your positive cash flow. This includes not just the initial purchase but ongoing maintenance, property management fees, and potential vacancy periods. Over time these expenses can strain your budget and shrink the size of your profits. 

Tip: Take into account the costs and the rental yield to ensure your property generates enough cash flow to sustain your investment. 

Ignoring Market Trends and Economic Indicators

Broader economic factors, such as employment rates, the labour market and overall economic conditions are influential to the property market. These are aspects that people often overlook because they seem abstract and high-level. However, it’s essential to remember that the economy is driven by people’s sentiments, and property investing is fundamentally about people. Ignoring these trends can result in investments with limited future growth potential.

Tip: Regularly monitoring key economic reports and forecasts from reputable sources helps you anticipate market shifts and make proactive investment decisions.

Not having insurance

Property is a big financial asset so you will want to protect that asset and your long-term financial future. With home insurance, you can live in comfort and security knowing you’re covered for any damage caused by tenants or any legal liability and loss of rental income. 

Tip: Consult with an insurance broker if you’re unsure about the best policy for your needs. Regularly review and update your insurance coverage to reflect any changes in the property’s value or condition.

Inadequate Property Management

Taking good care of your property is all about prevention. It is like taking your car in for a regular service and an oil change. Slow repairs or maintenance can snowball into more serious problems, like mold, termite issues, or plumbing failures. Underestimating the importance of good property management is a common pitfall. A poorly managed property can lead to low tenant retention rates and higher expenses.

Tip: Employ a professional property manager to ensure your property is well looked after and tenants’ needs are promptly addressed.

We hope these insights help you avoid common investment traps and make smarter property decisions. For more personalised advice, book a call with our expert team today!

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