At a certain stage of a rising market cycle, investors start making a return in growing numbers. It’s almost like clockwork that this occurs when prices have already firmed quite substantially courtesy of owner-occupiers and first home buyers. The Australian Bureau of Statistics Lending Indicators for February show this turn of events in action yet again, with the volume of owner occupiers and first-time buyers falling but investors ramping up. What is interesting with graphs such as this one is that you can see quite clearly that the current market boom has been driven by owner occupiers, with many of them buying new property due to the HomeBuilder grant that was on offer until recently. In my experience, the surge of investors in this part of the cycle is generally from those people have not usually invested in property before outside of their own homes. They read the plethora of media stories about rising property prices and decide they need to act immediately, unless they miss the boat. While it’s always a good time to invest in property, regardless of the stage of the market cycle, novice investors who are motivated by a fear of missing out are also have the potential to err when it comes to asset and location selection. While real estate is a very forgiving asset, making a significant blunder on your first investment purchase can set your wealth creation goals back years. So, with this in mind, here are three common first-time investor mistakes that should always be avoided.
1. Not having a clear investment strategy
It’s imperative that investors have a clear investment strategy on what they want to achieve, which is different for each one of us. For example, young people have plenty of time on their side to create a portfolio as well as property wealth. But people in their 40s and 50s only have one or perhaps two market cycles before retirement for their portfolio to work its compound growth magic and change their financial futures. Likewise, some investors require properties with more stronger cash flow potential than others because of the salaries that they earn. Of course, these are just a couple of considerations that every investor needs to understand before they purchase their first investment property, but it highlights the importance of having a clear investment strategy.
2. Not buying strategically
Another mistake that novice investors often make is not being strategic with their asset or location selections. Unfortunately, many people remain blinkered to the potential of property markets in areas other than their own, which reduces the opportunities to maximise capital growth over the years. Buying interstate is a solid investment strategy for an investor who wants to make the most of differing market conditions as well as more affordable property prices. However, buying elsewhere does require skill, experience, and local networks, which are not attributes that first-time investors generally have in their toolkits.
3. Not working with an expert team
One of the big differences between successful investors and unsuccessful ones is the use of an expert team. Savvy investors recognise the value of creating a team of experts that can help them purchase strategically every single time. This expert team usually includes a qualified property investment adviser, mortgage broker, conveyancer, accountant, and property manager. By gathering a team of experts around them, successful investors can ensure that they are creating a strategic property portfolio primed for superior performance over the years ahead. It’s also eliminates the risk of making the common mistakes – such as buying in the wrong location or investing in an inferior dwelling type – that new investors often experience.