Savvy investors currently have a golden opportunity to grow their wealth. However, too many people blow this chance because of basic errors, explains Richard Sheppard.
Here are five common mistakes investors make
1. “We don’t need no education.”
With apologies to Pink Floyd, yes you do. Investors should educate themselves about the fundamentals of the property market and improve their financial literacy. Enrol in a reputable property investment workshop or course and learn the fundamentals. A typical property on the Northern Beaches costs in the vicinity of $1 million. That’s a lot of money for the uninitiated, but on the back of some solid knowledge, it is a great opportunity to secure your financial future.
2. “It’s easy. I can make all my own decisions.”
Closely linked to a lack of education is investors’ failure to seek advice from a trusted property investment advisor. Find someone with specialist property market experience. If your advisor doesn’t encourage market education and simply wants you to blindly follow their suggestions, get rid of them. Advisors should also be making informed investment decisions on the back of market research from reputable groups.
3. “Lazy equity? What does that mean?”
There is a lack of understanding about the amount of underused property equity. This lazy equity can cost you a fortune. For example, the growth in the Sydney property market in the past year means many assets have recorded a rise in value of 15 per cent to 25 per cent. You should re-evaluate your equity position every six to 12 months.
4. “I’m scared of borrowing more money.”
The aim is not to overstretch yourself financially – the key is to utilise your borrowing capacity. Having a clear understanding of your equity position and creating a safe borrowing strategy is the key. Many are surprised to realise that it can cost just $50 a week to fund an investment property. To get peace of mind, have a buffer. You can borrow an extra $20,000 to $50,000 just in case something unpredicted happens. With this buffer – and taking the appropriate risk-management steps – you build in added protection.
5. “I’m OK to take a big risk for a big pay-off.”
On the flip side, some property investors roll the dice when there is no need to do so. Topping the list of risky behaviour is buying a property off the plan. The biggest risk of long term off the plan purchases is that banks loan approvals only last six months, so if the build is more than six months from completion, you run the risk of not being able to obtain enough finance to settle. If this happens, you can lose far more than the 10 per cent deposit.
Off-the-plan properties are usually overpriced and – and they often underperform – whereas with a completed property, you typically get a higher-performing asset more quickly and far more safely. The other big risk is not having your insurances in place, especially income protection, life insurance and trauma cover in the event of a serious injury or personal crisis.
Richard Sheppard is the Managing Director of inSynergy Property and Finance Solutions. inSynergy is a licensed investment property buyers’ agent that provides professional property investment advice, property market research and specialised mortgage broking services. Phone 1300 308 808 or visit www.insynergy.net.au