Three Biggest Mistakes Aspiring Investors make

As Buyer Agent, we are often asked to talk about biggest mistakes investors make. The most significant mistake however is not always the obvious one. People associate property investment mistakes with poorly chosen assets in areas which don’t exhibit capital growth, or financial mistakes (like paying too much), or dodgy buildings… or better still… dodgy tenants. The list goes on. While any and all of these elements can be big mistakes, they are all mistakes that can be mitigated via some careful planning and sensible networking with the right professionals. We call that the due-diligence phase.

But when it comes to big mistakes – we think there are three.

The third biggest mistake is jumping into a suburb or area on the back of advice they’ve received from a friend or family member who is NOT a property professional. We hear it all the time… One of our BA even met someone on the weekend just gone who spoke about a relative who was investing in a small regional town and suggested it could be a good idea. Sometimes it’s “Uncle Bob” who knows someone who made it rich in a particular suburb. Other times it’s a risk-averse friend or family member who suggests a more benign type of property asset based on low entry price or friendly locals in a given area. And every now and then, there’s a cousin or colleague who works in banking or finance at a barbeque who knows ‘everything about everything’ and suggests an area he or she really knows very little about. Taking advice from a friend, while it’s cheap and well-meant advice, can be a huge mistake if they don’t know what they are talking about.

A mate of one of our BA chided a friend of his recently. She was about to jump into a property decision without too much serious thought. His words were “You spent how many weeks researching and looking for a wedding dress on a $4,000 budget? And you are about to spend $420,000 in, what – a day? And with no research?” Taking advice and not questioning it can be a serious mistake.

How independent can that be if the person who is telling a buyer to buy the property is selling the buyer the property?

The second biggest mistake is taking advice from someone who is a spruiker or is not independent. There are lots of guises for these types of offerings. “Free Seminars”, “all-inclusive-advice” which includes financing the property, selling the client the property off a list of available stock, conveyancing the property and even managing the property. How independent can that be if the person who is telling a buyer to buy the property is selling the buyer the property? Spruikers come in many shapes and forms, but what sets them apart from genuine independent property advisors is that they are making a profit out of selling the buyer the property, and they are NOT going out to the ENTIRE market and selecting the best asset for their client. They are working off a stock-list and selling a property which is, in turn, delivering them a commission payment (often not disclosed). Sometimes these properties can work out for the best, but often they can go horribly wrong. Buyers may not have understood the cash-flow implication of buying and holding the property; and if the negative cash-flow shortfalls they are sustaining become too testing on their lifestyle budget, the property may need to be sold. Sometimes the prices buyers pay for such assets are inflated above and beyond market value. This means that the buyer needs to hold the asset for quite some years until the property value rises enough to be commensurate with the market. Not only is this a difficult scenario when it comes to financing the property in the first place, it’s also a lost opportunity for the buyer when they could have paid market value for a good asset in the first place and enjoyed healthy capital growth as opposed to retrospective, longer term market correction.

The final, and most significant mistake however, is to do nothing when you actually have the means and the intent to do something. To procrastinate. Lost opportunity haunts every procrastinating wanna-be investor. We don’t think we need to say more.

We were asked the other day by a 32 year old new investor “How old is too old?” Our answer to him was “Start as early as you can. There is no day like today .” Life is too short to have regret or to lament not having done something. But to feel this way and to continue to put it off is a shame.