Investing in property can be a great way to build wealth for many people. However, there are also some common mistakes that stop property investors from realising the gains they hoped to achieve.
Here are some things to avoid if you’re thinking about residential property investment:
Buying on emotion
Property is often the most expensive asset many people ever purchase, so it’s easy to get caught up in the emotion of how a home makes you feel. If you’re buying an investment property, remove emotion from the equation.
Your investment should be chosen based on completing your due diligence. Take the time to ask questions and speak to specialist advisors about your options. Know what your costs will be and understand what your responsibilities are as a landlord. When you remove the emotion, you treat your investment solely as a vehicle for building wealth for your future.
It’s tempting for many would-be landlords to borrow as much as the bank will lend them when buying an investment property. Before you head into the bank to submit your application for an investment mortgage, be sure you’ve done your sums first.
Ask rental managers for a realistic estimate of how much rent you’re likely to receive from your tenants each month. Then work out how much you’ll be expected to pay every month to own the property.
The mortgage repayments on your buy-to-let property are likely to be your biggest expense each month, but there are other costs associated with owning an investment home.
Work out whether your rental income will cover the costs of owning the property before you borrow. If you’re left short, consider putting down a bigger deposit to help reduce your loan amount. You’ll reduce your monthly mortgage repayments and make it easier to leverage your investment later if you hope to build your portfolio in future.
Choosing the wrong mortgage
Many people believe that all home mortgages are the same. In reality, banks and financial institutions offer a range of different mortgage products. Choosing the wrong mortgage type for your financial goals could have disastrous effects on your ability to build your investment portfolio.
Wrong ownership structure
It’s easy to sign a purchase contract when investing in property in your own name. Yet the ownership structure you choose for your portfolio can be crucial, especially if you’re investing for a specific reason. For example, you might be investing to leave property for your children or to build wealth for retirement. Take the time to check with a tax specialist that you choose a tax effective ownership structure before you purchase.
Relying solely on future growth
Many of those investing in property base their investment strategy solely on the hope that the value of their property might increase over time. While capital growth is a desirable outcome for all property investors, don’t rely solely on prices rising to realise your profits. Be sure to factor in the returns you receive from rental income before deciding on the right buy-to-let option.
Not diversifying your portfolio
It’s common for many people looking into investing in property to stick to buy-to-let opportunities in the same locations. After all, if you’ve achieved success with one, it’s easy to believe that owning a few more in the same area should yield similar results. However, a well-designed investment portfolio should be diversified to help minimise future risk. Consider buying different types of properties in a range of areas that will appeal to prospective tenants in their own ways. For example, some tenants may prefer a two bedroom flat, while others may want a larger family home.
Before you jump into the market with the aim of investing in property, you should take the time to look at some of the options available. Blackmore Homes has a range of development options available at varying price points that give you access to popular locations with strong rental demand. When you know what common mistakes to avoid and you take the time to do your due diligence before purchasing, you’re in a stronger decision to make a good choice for your wealth creation plans.