5 Biggest Mistakes Investors Make
5 Biggest Mistakes Investors Make
As someone who loves helping people on their journey to create wealth through property investing, I thought it might be helpful to articulate some of the common mistakes I see people making. I am certainly not saying if you do these you will not be successful, but because every property you buy ties up a lot of money, every mistake can cost you dearly. Make each investment count.
So here’s my two cents:
1. Letting Emotion Get In The Way Of Your Decision Making
There are so many reasons why when it comes to money, many of us get flustered or lose clarity when making financial decisions. At one end of the spectrum, a person may jump in head-first with investment decisions based on ‘gut feel’. At the other end there are those that feel paralysed by the worry of making the wrong decision.
Property in the Canberra market is so multi-faceted. There are so many styles of homes and such a wide range of price points on offer, not to mention the various sub-markets that co-exist.
The best strategy to counter emotion getting in the way of your property investment decision making, is firstly, never rush an investment decision (the deal of a life-time comes around more often than you think) and secondly, always get a second opinion from someone qualified to give advice on property. Making investment decisions based on solidly researched facts, rather than emotion or what a ‘friend of a friend’ told you, will net you better results.
2. Lack Of Patience
The history of the Australian property market over the last 10-14 years, especially here in Canberra, is, to put it plainly, that prices went bananas. Lots of growth over short periods of time. For those who invested over this time, it seemed you couldn’t go wrong in this market.
But as with all property cycles, after a lot of expansion, there has to be some degree of contraction or slowing. Australia as a whole is experiencing the aftermath of some tough economic times around the world. Generally we have fared well, but making investment decisions to try and make a ‘quick buck’ no longer makes sense.
An example of the ‘get rich quick’ behaviour is selling up within a short space of time to realise a profit. Selling costs and taxes erode much of the profit, and prevent further acquisition of wealth via future growth cycles.
If you want to be successful as a property investor today, it is important to buy good properties, in areas that research tells you will outperform the norm and have realistic expectations.
3. Focusing On What The Media Are Saying
When it comes to property investing, the media are famous for reporting news either well after events have been and gone, or are pushed by an outside influence to shape public opinion. This means from an investment perspective, you have to be careful not to absorb media information without first comparing it with the facts you have gathered.
Many a time I have seen media publications declaring a certain area was a ‘hotspot’ when in fact it had already had massive growth. Also, there is a lot of ‘opinion’ out there used to drive people to buy in certain markets. The easiest way to avoid being swayed by the media, or by the opinion of others, for that matter, is to do your homework. Spend the time to research an area you are thinking of investing in and look at both the macro and micro indicators.
4. Not Having A Plan And Forgetting To Review Actions
Most of the 1.2 million Australians that own investment properties could be described as “accidental investors”. Their lack of planning prevents them from being one of the 14,000 Australians who own 5 or more properties. Worse still, lack of planning can lead to investments that cost you. If you plan to use property as a vehicle to create wealth then you need to develop a plan to achieve your investment goals.
While property investing is a long term strategy, any portfolio needs a periodic review and re-assessment. Speaking to a certified property advisor about cash flow, tax, speeding up your five- or ten-year plan to take advantage of changing market conditions – these are all ways to stay ahead of the game, and maximise your investment performance.
5. Waiting For The ‘Perfect Time’ To Invest
Many people understand that a single well-chosen investment property can make a massive difference to their overall financial position over time. The problem for most people is that they have trouble knowing when it’s a good time to invest. There are always good opportunities out there for the savvy investor. Analysis paralysis is a troublesome, but the easiest way to avoid this is get help. Piggyback on the work that professional researchers develop.
Salena Kulkarni is a Chartered Accountant and Certified Property Advisor with Phoenix Wealth Group
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