How to avoid the three most common property investment mistakes
After many years in property investment, sales and coaching, I have found that the three greatest, and totally unnecessary property investment mistakes made by investors can be summarised by the 3 P’s
- Property
- Price
- Place
I talk about them in this short video
Wrong type of Property
What do I mean by the wrong Property?
When you are buying an investment property the objective is to acquire a property that is;
- Income (rental) producing – with growth that is faster than inflation.
- Positioned for capital growth – will grow in real value over time
- Easy to maintain – watch out for those gutters, geysers and gardens!
- Easy to manage – keep an eye on let-ability, can you outsource management easily?
Wrong Price
No businessman ever stayed in business by buying his stock at retail prices. He has to leave a margin for profit! And the same goes for your property investment business.
Fortunately in property investment you can stay in business and thrive by paying market related prices, but it isn’t necessary, since you are at an advantage.
A property investor is not restrained by location, property specifications or timing when he buys. He is not competing with Joe Public who has been transferred, has 2 children moving to a specific school, who needs to consider his proximity to his place of work and who will have to buy his property at a specific time with specific features (like 3 bedrooms).
The investor also has the advantage of making a decision that is not driven by an emotional need, since he or she will not be the resident. He will be able to consider the fundamentals of the property rather than being drawn in by a property with a beautiful kitchen or bathroom or pub!
Wrong Place
Location – location – location
How many times have we read that phrase? It is mentioned so much because it is true, Location is almost everything when it comes to property investment.
My personal opinion is that the location is more important than the property itself.
So what are the most common location mistakes?
“Best area”
“Bad area”
“Convenient area”
“Best area”
An exclusive, prime, fashionable area doesn’t necessarily provide the best investment returns. An example of an exclusive area is Sandton
Residential property in these areas is expensive and gap between the rental income and monthly holding costs is high. This requires a lot of the investors cash, and therefore lowers the return on investment.
“Bad area”
A bad area initially looks good when you do the cash-flow analysis. Rentals are quite high when compared to the monthly bond and levy costs. The reason for this is that the sellers have to keep their prices very low to attract a purchaser and there are not many purchasers in that area. Egs are Hillbrow and Windsor
The problems it the bad areas are many …. But they are primarily poor quality of tenants, and poor capital and rental growth prospects.
“Convenient area”
If only I had a penny for every time I heard an inexperienced investor say, “I bought a property close to my house so I could keep an eye on it”
It is easy to fall into the trap of buying in a suburb near where you live so that you can manage the property easily. You may get lucky and buy the right kind of property and live near a great investment area, but why leave it to luck?
I liken this investment approach to a farmer planting a crop in the poor soil near to his house where he can “keep an eye on it”, rather than down in the fertile valley on the other side of his farm.
His folly will be obvious to an outsider.
My advice?
Do your homework, get some coaching help from an experienced investor along the way and avoid these common property investment mistakes. An investment decision is a 20 year decision, and cannot be taken lightly or left to luck.
I go into more depth on each of these three main property investment mistakes in a training video series for property investors in the Organic Growth Investors Club area.
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