Rookie mistakes

Anyone got any advice about rookie mistakes to keep an eye out for while I try to gather info about making my first plunge into the investment property market.

I feel that I'm going to make some very middle of the road decisions to try and minimise any mistakes I might make on my first IP. I'm going to stick with the Brisbane market because while it may not be the very best it still looks ok, and I know most of suburbs pros and cons very well (and if I don't I can go and check them out). Middle ring, close to the median price is the general plan (around 500k to invest but don't know if I'll use that much just yet. I just don't want to hamper my serviceability down the track.

Thanks for ANY thoughts or suggestions.

 

• Talk to lots of people, network with other investors, ask lots of questions. This will fast track your knowledge base and confidence.
• Make sure you have an excellent team (property manger, accountant, mortgage broker). Pay for great services and advice. Think "value" not "cost".
• Particularly, ensure you have a fantastic finance structure/strategy in place with help from your broker. As you mentioned, not hampering your serviceability down the track is critical–availability of finance is the biggest single barrier and enabler to, and enabler of, investment. It's critical to get things right from day one. I took advice from family on finance structure for my first property and cost myself $50k in the process. At lest I learned.
  
• Don't rush into a decision our of panic or fear of missing out. The deal of a lifetime comes by every week.
• But be decisive. Act quickly when the time is right. Don't get analysis paralysis.
• Run ideas, deals, properties, your reasoning, rationale etc by us for input. You’ll learn fast.
• Easy for you but get on the ground, go to every single open you can until you are intimately familiar with the area you are interested in.
• Build rapport with local agents.
• To get a feel for your understanding of prices, find properties online, record what you think they'll sell for and then check after they are sold. This is a great barometer of how well you are getting to know a market.

 

What Steven said.

I'll also add that it's very easy to overcapitalise by thinking about what you would want in a property, rather than what tenants would want in a property. Don't let emotion get in the way.

Also, OTP is generally a bad idea. That was our rookie mistake!

 

My most obvious mistake was trying to self manage. I'm definitely not the right person to do that job for quite a few reasons. Getting professionals to help you might cost a bit of money, but it will save you a lot more in the long run.

I wish I hadn't bought into body corporate. Overall I think there's more value to be had in a property on its own land. I don't regret those purchasing decisions, I just think I could have done better in the long run had we bought stand alone houses. That said, in may areas these days, in certain markets the price point and yield probably makes town houses and villa units better investments than many houses.

Plan for the best, prepare for the worst. Always have something extra up your sleeve. I've seen people loose a lot by pushing too hard, too fast, too much risk. Many investors these days have only seen capital growth and low rates. Whilst I don't disagree with this over the long term, there will be patches where things get tough either in the market or personally. You need a bit in reserve to make it through these tough times.

Don't try get too creative or cunning. Certainly this can get you ahead faster, but your partners (banks) are conservative by nature. They simply don't like ultra creative strategies and they have the ability to shut you down very quickly. I've mostly seen problems here where people try stretch a small deposit into a JV to try get ahead. There are sharks out there which will take it all and leave you with nothing.

 

I can share some of mine:
* buying a development site in my own name and then finding developing and selling would cost a lot more in tax than if I used a different ownership structure
* not getting my finance structures right up front. Since then I have developed a strategy and discussed my strategy with my mortgate broker. It took more than 3 years for my broker to undo the mess I caused through bad DIY loans!
* for me, buying into a strata was a mistake because my strata manager was a jerk and drove all the property owners crazy. Another rookie mistake was not telling him to get stuffed
* if you buy a place to rent, get a good agent. I was self managing my first IP and doing quarterly rent reviews. After I sold it, the new owner listed it for $100 a week more than I was getting and they found a tenant at that price! I have used agents to find tenants since then.

Some things I did right:
* going to lots of inspections
* buying properties that needed renovating

 

understand the investment clock and apply it to your data and historical graphs.
dont listen to people that aren't investing, especially parents, family

 

All great advice, don't follow hotspots its probably too late and don't buy properties with 3% yield if you want to grow your asset base quickly. Once rates rise if your income isn't really strong you may be a forced seller, not a great place to be.

 

Avoiding analysis paralysis is important. Once you've done your DD and made your decision, lock it in and block your ears - don't watch the news, read any articles, ask for any more advice and if you're easily swayed, don't even come onto this forum*. What if WW3 breaks out or another GFC, something that should be incorporated into your decision making process? Well those events will be so big, you'll find out one way or another.

At one point you just have to lock in your strategy and go for it. If you're at risk of being paralysed with fear, in some cases it's better to fail fast and learn fast than to be stuck on the sidelines.

*Even the pros have differing opinions. For example I'm not a huge fan of Rixter's strategy but there's not a single person on this forum that will deny he's been successful. Even if you ignore the bears, this forum still has such a wide variety of investor types that even listening to the successful and optimistic ones will paralyze you to the core. Once you've done your DD, I believe it's OK to become bone headed in your ignorance. Block out the world and just do it.

 

Some great words of wisdom from some seasoned investors and professionals above. Just to add...
Have a plan for when you do find something you want to buy.
Do you understand QLD contracts? Every state is different so make sure you do, and know the ins and outs/rights and wrongs of deposits, contract terms, cooling off rights, common clauses etc.
Have a great conveyancer/solicitor, building/pest/strata inspector, PM lined up ready to go.
How are you conducting research into most recent comparables/development that will affect the property/ies you shortlist?
How do you plan to negotiate with the agent when you do find something suitable? Remember to find out the selling strategy, likely scenario of events if an offer is accepted, seller motivation, relevant property info etc.
Good luck

 

Thanks for the replies. I've got a mortgage broker and an accountant I trust but thought property managers might be restricted to certain areas so have not made any moves just yet.

Is this the decision of CG vs yield to keep serviceability going. I think the fact I'm thinking I want a bit of both means I haven't nailed down a solid strategy just yet.

This I have no idea about Jacque. Do you mean infrastructure projects of an area or like for like building works?

 

Fantastic thread everybody!
I'll just echo the risk of gearing too negatively, you'll hamper your serviceability for the next deal. Also try to buy something with a twist. Something you can add value to for instant equity.

 

My comment about body corporates isn't specifically about yield or CG, it's more about control. I'm in a couple of owners corporations, whilst they're both fairly good overall, I'm still a minority and ultimately we rely on a third party (the BC manager) to ensure things get done properly. We had manager that didn't do their job for years. If I own the property and there's no other parties involved, then it's really between me and my property manager to ensure the property is taken care of. I get to choose my property manager, but have little say in who the BC manager is.

It is worth noting that had I bought houses in those areas, I probably would have had better capital gains than what those town houses have had, but that observation could be very different in other locations.

 

I see mainly people making mistakes which greatly reduce deductibility of interest. These mistakes can cost thousands of dollars over the life of the property.

 

- Don't stress about getting the "lowest" rate. Finance structuring is so important - the lowest rate isn't. Especially in this weird new world of lending.

- Borrow what you can afford. Just because the bank says you can borrow a certain amount doesn't mean you can afford it. Create a detailed household budget - work out how much you're willing to contribute towards investments.

- Don't rush into purchases! Just because you've released some equity doesn't mean you need to spend it tomorrow. Take your time - look for the right opportunity. Don't just jump in due to a fear of missing out.

-Don't procrastinate. It sounds like a contradiction to my point above - but don't become so overloaded with information and uncertainty that you don't do anything.

- Don't forget to enjoy life now. All this planning for the future causes us to not live in the moment. Sounds cliche - but I know I've been guilty of it.

Cheers

Jamie

 

This thread is looking like becoming a gold mine.

Learning from the experience and mistakes of others is the best way.

 

Real estate agents will tell you what they think you want to hear to get a sale. Test any key selling point they give you with your own analysis or a (good) second opinion.

Early on, I had my mind set on a mid-lease Defence Housing Property as a good investment, however realised that capital growth would not be what the agent (or the media as they claimed) was telling me. The property location didn't really have anything going for it.

 

Build trust and rapport with real estate agents. They are humans.
Don't do something e.g. fixing rates because someone else said so...look at your own risk profile in isolation
Don't invest in stuff you have no idea about!
Avoid buying assets that have no yield/rental and can't leverage
Say 'No' if that's how you feel about an opportunity. Check with your gut. Walk away if it doesn't sit well with you or tick YOUR boxes
Don't listen to the naysayers...look at what they've achieved before taking their input / advice on board!

 

Don't be put off by "stigma" attached to an area, if the numbers work....the numbers work....and if it isn't on the radar today may be ripe for CG in the future.

I agree with "the deal of a lifetime comes along every week"....so don't feel pressured for FOMO....

Even a poor choice of a property "can" be forgiving over time and provide some upside.

No matter what, if you don't take action you don't create a result....just give it a crack and learn as you go.

After all, "it's not rocket surgery"!

(Forgot whose quote that was but I love it!)

 

Some of my mistakes from early on:

Buying a new apartment, should have bought an older house to manufacture the equity in that market

Paying down a PPOR loan that was always going to end up being an IP, should have set it up as I/O and kept the funds in my offset.

Using my own funds for a deposit when I could have used equity.

Not getting a depreciation schedule done.

Analysis paralysis

Not buying earlier

 

K_Point, thank you for making this thread, I am at the same stage as you and having a thread with a list of potential things we may not think of is a brilliant idea.