The 4 Biggest Mistakes First-Time Investors Make
Property investing, like any other journey in life, has learning curves. The longer you’re in the game, the more you understand based on experience and the mistakes you might make along the way. For first time investors, some common mistakes can impact the growth of your portfolio and subsequently stop you from reaching your goals. This article outlines some of the common mistakes first-time property investors make and how to avoid them.
1. Repaying all your debt at once
When you’re early into property investing and building wealth, it can be tempting to decrease your debt as quickly as possible. However, this can tighten your cash flow and remove the potential benefits of holding some debts as well. For example, when you have investment properties, some of your debt is tax-deductible, such as interest payments and the shortfall on negatively geared properties. If you’re looking to reduce your debt, start with non-tax-deductible debt first.
2. Ignoring or forgetting depreciation
Tax deductions on depreciation can provide you with a significant cash flow boost at tax time, but only if you have everything set up properly in the first place. When you first buy your investment property, get the help of a quantity surveyor who can prepare a deprecation schedule for you. This will help you maximise depreciation deductions at tax time.
3. Leaving rent unchanged
Rental prices can fluctuate quickly, so it’s important you capitalise on these in small increments. If you wait and leave a tenant’s rent price unchanged over a few leases, you may need to increase the rent by over $50 to reflect the current market price, which won’t be received well by your tenants. Instead, consider incremental adjustments of $10 to $20 per week each time the lease is renewed.
4. Extended vacancy due to a high rent price
If you’ve set the rental price on your property too high, you run the risk of your property remaining vacant for weeks, sometimes months. The lost rental income can often equate to the price difference between something too high and one that will have your place tenanted within a week. For example, if your desired rent is $450 per week, you’re losing $450 for every week of vacancy. Dropping the price to $430 could attract a tenant quickly and equates to a difference of $1,040 annually, or just under two and a half weeks of vacancy.
Embarking on your property investing journey can change the course of your life by building a strong foundation for wealth that serves you and future generations. By being aware of the common pitfalls when you’re early in your investing career, you can reach all your goals and create the financial future of your dreams. Further, speaking with real estate agents and property managers for advice on rental prices and other important information can be invaluable, so make sure you seek their help and advice.
Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.