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Top 15 risk topics for newbies to consider

Discussion in 'General Property Chat' started by Leo2413, 6th Feb, 2016.

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  1. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Just a list of 15 things that newbies (never invested or bought property before) may want to read up on/ask about from other investors if contemplating doing or not doing any of the following. It’s just a list for awareness before jumping into a decision about them. Personally I perceive them to be either higher risk items or things that could negatively affect their portfolio, either by engaging in them or not engaging in some of them. There are many, many more so please add to the list. This thread is not intended to tell newbies how to make a decision or what to do, but only make them aware of these points, so that they can then go away and do further research/ask questions about positives, negatives etc to other investors. This is my personal top 15 though somewhat subjective and will always depend on individual situations. Please add your tips.

    My top 15

    1. Buying in mining towns.

    2. Buying at the peak of any boom markets

    3. Buying Off The Plan units in high rise buildings

    4. Buying a place without having a good understanding of the value of similar dwellings in the area.

    5. Going to buy at auction

    6. Buying in a high vacancy rate suburb

    7. Cross collateralising their loan when unnecessary

    8. Attending a property seminar and then buying property from them, arranging finance, legals etc all from the same company.

    9. Buying a place, then left with no money at all for a buffer.

    10. Buying land and intending to build a house and keep as an Investment property

    11. Buying to renovate and flip for profit

    12. Property development

    13. Not wanting landlord insurance

    14. Listening to friends/family who have never invested in property about what to do and where to buy

    15. Buying in areas that have a history of natural disasters, flooding, bush fires etc.
     
    Last edited: 7th Feb, 2016
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  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I have seen people make all of those mistakes.

    Other common ones that I have seen are mainly loan mistakes:

    redrawing from main residence loan without splitting

    using main residence offset cash for deposits on IPs

    Buying without setting up the deposit loan first and using cash

    Then trying to reimburse themselves and claim the interest.
     
  3. Adele

    Adele Well-Known Member

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    16. Following blindly to someone 'in the know'. A little knowledge is a dangerous thing.
     
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  4. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I'd add
    16. How LVRs, Valuations and Loans work
    17. Contracts (how to read them, how they differ between states and the risks)
     
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  5. Xenia

    Xenia Adelaide Property Manager Business Member

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    leaving their jobs - killing the cash flow without creating other streams of income - this is what you do when you want to lose everything
     
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  6. dabbler

    dabbler Well-Known Member

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    Insurance issues.

    Make sure your covered and not doing something that may void policy. Read the PDS many times and then look at what your doing and what is covered.

    rarely discussed till someone is already knee deep in it - well it seems that way to me !
     
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  7. Bran

    Bran Well-Known Member

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    @Leo2413

    A lack of any kind of awareness was the killer for me and my first purchase (bought as a temporary PPOR). I knew nothing about cycles, or the local market. I offered the first house I saw (Machans Beach) and pulled out on building and pest, then offered and bought the second (edge Hill). I paid close to 40k too much. It's still worth less than I paid and costing me 15k a year pre-tax to hold. (It's now for sale). Ouchie.

    My second IP was nearly similar circumstances, but I did what every new buyer is doing now. Started Coorparoo and couldn't afford it, got pushed out from Greenslopes, Holland Park, Holland Park West until I found that Mount Gravatt East was affordable. Paid a relative premium at the time for an LMR site (with no concept of what this really meant). Got lucky with gentrification and timing early post-rezoning. I'd buy it again today, at current market value.

    Based on these first two, had I made the first mistake in Brisbane 8 years ago instead of Cairns, I'd be doing far, far better. So, no small towns for me.
     
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  8. HannibalK1ng

    HannibalK1ng Member

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    :( will buy my first IP soon and was going to redraw from my home or use money from offset.

    What should I do instead
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Split the loan first. See my tax tips for a thread on this
     
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  10. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    Good post @Leo2413 - thanks.
    I would like to add to this:
    Building a knowledgeable team around you that understand what it is you are trying to achieve; prior to purchase. The team should include:
    Broker
    Property Manager
    Solicitor
    Builders/Tradies
    B&P guys
    etc…
     
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  11. Leo2413

    Leo2413 Well-Known Member Premium Member

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    @Bran but see how far you've come now mate. I'm sure that now your much more aware you'll be able to make more informed decisions, growing from strength to strength. ;).

    @neK said something the other day which I think sums up a lot in 1 sentence. He said "knowledge is a form of risk mitigation".

    Personally I think it's one of the best ways to mitigate risk.
     
  12. York

    York Finance Broker Business Member

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    Great thread @Leo2413 like usual. :)

    Like @Bran I also made my first buy without any awareness. Absolutely no idea. Lucky for me, I bought in a rising market so I did ok but that was purely coincidental. Not an educated decision. I could have easily have bought it at the peak and wouldn't have known the difference at the time.
    I also overpaid by not negotiating at all. I just offered the asking price out of fear of missing out. I should have kept emotion out of it. This was confirmed when the agent accepted immediately.
    Definately have learned so much along the way. Education and experience go a long way together.
     
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  13. Fullysickbro

    Fullysickbro Well-Known Member

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    This may sound negative but it has to be said. Every book/magazine I have read on investing in property, does not give you worst case scenarios. They all assume property always goes up. So, as with any business, understand what your break threshold will be. Try not to over extend it.

    1. Have an understanding of world economy's and how they directly effect us, and our property market.

    2. Property can crash, 20%, 30%, 50% in price for what you paid for it, in a gfc/ economy meltdown. Can you survive if you lost half your borrowed money? Now multiply that one house by 3, can you survive 3 houses in a worst case scenario?

    3. What happens when you need to sell your house but it's worth much less than what you paid for it. Can you sell it?

    4. What happens when you declare bunkcruptcy? How does this effect your life, the people around you, and for how long.

    Best of luck.
     
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  14. Leo2413

    Leo2413 Well-Known Member Premium Member

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    @York me too mate. My biggest blunders (which are quite a few) were from not knowing enough about certain topics at the time. It's impossible to know everything you should when making a decision but more knowledge rather than less never hurt me.
     
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  15. hammer

    hammer Well-Known Member

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    Not discovering this forum......
     
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  16. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    Expanding on these 3 points which would catch out many unaware newbies.
    The boom markets attract their attention from the delayed media hyping.
    Then they search for opportunities, but due to the overwhelming complexity of property investing strategies, they often fall for fancy marketeers spiel making everything seem so easy and rewarding.
    One segment which comes to mind is purchasing timeshare apartments in seasonal locations, making out that it's a win win as you get an investment but also get lifestyle benefits for yourself too.
    This would suck in a fair share of victims.
     
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  17. Cactus

    Cactus Well-Known Member

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    I've made most of my money from 10 & 12. But not without research, buffer and stress.
     
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  18. Bran

    Bran Well-Known Member

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    No real property achievements yet, but future looking brighter
     
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  19. mrdobalina

    mrdobalina Well-Known Member

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    Same. It's also one of the few ways to make money in a declining or stagnant market.
     
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  20. New Town

    New Town Well-Known Member

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    Good thread for newbies

    1. buying a house that requires a lot of maintenance
    2. buying in a secondary location. eg busy road, rail noise, under flight-path, next door to industrial/ service station/ housos