Carrying out the right research before purchasing an investment property could mean the difference between making a loss and creating wealth.
However, property research isn’t always as straightforward as it seems. Here are some mistakes you should avoid as a property investor:
Mistake No. 1: following hyper-inflated property markets
Staying up to date with market news is important but misinterpreting those trends can leave investors in hot water when a property doesn’t perform to expectations.
When property prices in Sydney began to rise during the upcycle, certain areas began to experience unprecedented demand, leading to an increase in competition and hyperinflation in prices. As a result, some investors were overpaying for properties that likely wouldn’t offer long-term returns.
To avoid this, it’s important to consider the long-term prospects of a property. Will it hold long-term value? What are the key indicators that suggest this property will experience growth five years down the line, as opposed to just in the immediate future?
Mistake No. 2: stopping your property research at suburb level
Even investors who take the time to research a local property market often make the mistake of stopping at suburb level.
While it’s important to identify what is driving growth in an individual suburb, investors also need to consider the potential of specific streets and property types within the area when narrowing down the search.
For example, an investment property in an area with an oversupply of villas is unlikely to pay off due to the strong competition.
However, infrastructure such as railway stations or local development such as a new new cafe strip could significantly increase the growth potential of an individual street or area.
The factors that drive demand can vary significantly across different suburbs, so it’s important to gain an understanding of the specific area before investing. As well as researching property statistics to find out what is renting well in the local market, visit the suburb in person to get a feel for the area and the local amenities.
Mistake No. 3: Not understanding property market data
Many investors fall into the trap of following market data without understanding the bigger picture.
Data doesn’t always tell the whole story, so it’s important to consider the trends that could be influencing market results before following the figures without the facts.
When analysing market data, investors need to be aware of any context that could be influencing these results.
For example, if a particular suburb has witnessed an increase in sales of more expensive properties, the suburb data could be showing unusually large growth.
While the data would be correct, this wouldn’t necessarily be reflective of all properties within the area, and the results could be skewed due to the composition of sales.
Market statistics reflect current demand within a suburb but not future demand.
Mistake No. 4: Limiting your investment opportunities
It’s natural instinct to stick to what you know, and investors will often choose a property close to home. While this is understandable, they could be missing out on key opportunities elsewhere.
By the time investors have considered their capital growth and rental expectations, their budget and the demands driving the local market, they could be left with just a handful of properties that meet their criteria.
By expanding the search radius, even just by a few suburbs, they could increase the range of available properties and possibly a better opportunity in the market.
[Source: The mistakes you’re making when looking for an investment property by Shaun Strickland.]