Traditionally, it’s the first of July when we see a wave of new property investors coming into the market with the beginning of the new financial year. For those planning to purchase their first investment property after 1July, there are seven common mistakes that should be avoided.
1. Purchasing a home in an area that is unattractive to renters, i.e. too far from conveniences like transport or shops. There would likely be higher vacancy rates and lower rents in these types of properties, thus restricting your cash flow.
2. Purchasing the home with a principal and interest loan, same as buying an owner-occupier property. Only the loan’s interest portion is tax deductible, and paying off the principal curbs your ability to purchase more properties. This is the reason for investors opting for interest-only loans.
3. Purchasing an older house, which can deplete your funds with maintain expenses. Newly built homes may have builder’s warranty, and investors can claim the maximum tax depreciation breaks.
4. Forgetting to perform a complete evaluation of the actual cost of purchasing and owning the property. For instance, you’ll pay strata fees and other costs if you purchase an apartment than if you buy a stand-alone home.
5. Choosing an oversupplied location to buy a property. Rents will be low and capital growth rates minimal in these areas. The lack of capital growth will limit your future equity in the house to utilise as security to buy more properties.
6. Not using a reliable property management company to choose your tenant. You may not be paid rent and your property may be damaged by bad tenants.
7. Purchasing a rental property for quick money, instead of seeing it as a long-term investment and the first steps towards buying a portfolio of properties to set you up for your retirement.