5 Big Mistakes Investors Make When Analysing Rental Properties.
There are so many things to consider when buying an investment property that it’s no wonder so many people get overwhelmed. Aside from the cost and how the property will fit into your investment strategy, there’s also the issue of rentability.
How do you know if it’s a goer or a dud?
Unfortunately, a lot of investors make the wrong decisions when it comes to analysing rental properties. Here are five of the most common mistakes buyers tend to make.
1. They choose based on emotion and not facts.
There’s nothing like emotion to kill your logical mind. It’s fair enough if you let your feelings about a place guide you when choosing a family home. But, there’s no excuse for this when it comes to investing. Just because you may not like the kitchen benchtop or views from the bedroom window, it doesn’t mean it is a dud property.
Equally, you may love the way a place looks or its proximity to the local school – but the numbers don’t stack up to a good deal. Why throw away money on a place because you love it if you aren’t even going to be living there?
Property investing is business venture. It is for this reason that you should focus on the deal itself. Do the numbers stack up? Is it located in a good growth area? Does it have a strong cashflow? Can you afford it? How will the property take you closer to achieving your end goal?
2. They forget to include all costs.
When doing a cashflow analysis, many first time investors make the mistake of stacking up mortgage repayments against rent.
To truly know what the cashflow will be for a property, it is important to include all running costs – not just the loan repayments. These can include strata levies, council rates, water rates and usage, insurance, property management fees and maintenance costs. Other costs may include land tax and a buffer to cover against prolonged vacancies and unexpected repairs.
3. They avoid blue collar areas.
There are plenty of people out there who only want to invest in big ticket areas. Our experience has shown that blue collar areas can provide plenty of potential when it comes to renting out properties.
There will always be a need for affordable rental housing in the less salubrious suburbs. As long as they are good growth areas with plenty of rental demand, the numbers should stack up well.
Compared with more expensive suburbs, blue chip locations offer more affordable investment opportunities which can often result in higher yields.
4. They focus on the cosmetic rather than the numbers.
This often comes down to the emotion factor. Sure, the house may not be all shiny and new, but if the numbers stack up then it is a good deal.
If you invest in an area with strong rental demand, most renters can’t afford to be choosy. You may turn down a red brick house with linoleum floors for a good price. But, someone else will buy it and rent it out.
The way a property looks isn’t that big a factor in its rentability.
If the property is structurally compromised in some way, then, that could be a different story.
5. They get stuck in analysis paralysis.
After looking at the numbers, the growth prospects and renter demand for a suburb, it can be easy to feel even more confused than before. It seems that the more you research things, the more aware you are of everything that could go wrong.
Many investors come to a point where they can’t move beyond the due diligence phase to take action. This can be just as big a mistake as buying without researching first. Why? Because, they end up missing out on making money.
It’s great that you have spent endless hours researching what and where to buy. If you also have a good team around you, you can be confident in the knowledge that you have done everything in your power to reduce risk. Now, you just have to take that plunge and do it.
Because, what’s the point educating yourself if you aren’t going to make use of your knowledge?
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