Property can be a great investment. It’s generally quite safe and can provide some great tax benefits. But if you go in unprepared the only thing you’ll earn is heartache. Here are the biggest mistakes you can make and how to avoid them.
Not Shopping Around
An investment in property is a little like a bargain hunt and to spot a bargain you need to know what things are worth. Have a good look around and compare a number of properties. Then give yourself an idea of how much you can expect to make on a property. Keep an eye out for similar development projects. How much is another development in that area selling for? This can help gauge if the investment will make a good profit.
Purchasing without a Plan
This may seem like an obvious point but if you see a property you think is a bargain you might be tempted to jump in before finding out if it’s really worth it. A simple way to think about the value of the property is to think about the location, condition of the property, costs (including development, taxes & insurance) and market conditions.
Making a cost assessment can be a difficult exercise if you have never developed a property before. You may want to consult an accountant to help you figure this part out. Keep in mind that you need to factor in development costs, maintenance (for rentals), insurance, rates, taxes and your time.
Don’t make an estimate on development costs based on one contractors quote. Ask several contractors to look at your property to get a more accurate estimate. If you are renovating a house always account for extra costs because there are likely to be unexpected issues.
Not Understanding the Investment
You may be planning on buying to let, developing and selling, investing in overseas markets or purchasing distressed (bank repossessed) properties. Although all of these can be great investments, make sure you are aware of all the costs, risks and legal & tax considerations before you buy. You don’t want to invest in a rental and then find that a slight shift in the market means you can’t cover your mortgage costs.
No Exit Strategy
With any investment, there is risk. If the market turns and you can’t sell your investment for a profit, what do you do? A simple solution is to rent out the property and wait until the market turns around. There are a multitude of other options but you should plan for this before you even purchase the property and make sure you don’t end up with a major loss.
The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.