8 MISTAKES Made by Young Property Investors
Many of the mistakes made by young investors are associated with having the wrong frame of mind about property investing.
Lack of research and knowledge:
Knowing how to find a good investment location and property type are valuable skills to have, but young people often fail to research, which can lead to poor investment choices,“In Australia, there’s 1.7 million property investors and more than 90% of them never get past their first property. 92% never get past their second property. Only 15,400 own six properties or more. In other words, most property investors fail. So you’ve got to be careful about who you listen to and the strategies you use. If you go for cash flow, you may miss out on long-term capital growth", Yardney says.
Property investing is for cashed-up baby boomers:
This is a common misconception that deters young people from investing in property. While completing a deposit may be more of a challenge for a young person compared to someone at the peak of their career, there are many competitive home loans that are suitable for young investors.
Not thinking long-term:
Many young people buy property without thinking about their future needs. As a result, they often buy properties that don’t accommodate for change. For instance, although a small, one-bedroom apartment may complement your budget and lifestyle now, what happens if you want to have kids in the next five years?
Buying only based on price:
Many young people are preoccupied with buying a property that’s ‘cheap’ and use this criteria alone to guide their decision making. However, price should only form part of the investment choice. You must also consider a range of factors such as the location (does the suburb have growth potential?) and the market (is there positive buyer sentiment?).
Not saving early:
As a young person, your strongest asset is time. By getting into property investing from a young age, you gain the ability to leverage the market and build your savings over a longer period of time. Try to get into a habit of saving by making regular deposits into a savings or transaction account, or follow a budget to boost your savings.
Many young investors are swayed by emotion and convenience when making purchasing decisions. “A big mistake they make is not having a strategy and buying emotionally. They tend to buy closer to where they live, close to where they want to holiday, close to where they want to retire. But sometimes it makes sense for people to buy interstate. You’re going to have a property manager anyway, so whether the property manager is in Sydney, Brisbane or Melbourne, it doesn’t matter", Yardney says.
Not reviewing property portfolio:
Yardney maintains that young property investors should get into a habit of continually reviewing their property portfolio: “They should annually review their portfolio and see how it works. This is your employee, this is your property investment business. If it’s not working, you’ve got to look to improve it. Can you swap property managers? Can you do it up?”, he says.
Buying for cash flow:
Many young investors make the mistake of buying for short-term cash flow rather than capital growth, as Yardney points out: “They think they need a bit of cash flow because they haven’t saved a deposit, but the problem is that you can never become wealthy with a small amount of cash flow. In Australia, there are two motives for property investment: buying for cash flow or buying for capital growth. Capital growth properties are slightly negatively geared, so you need more financial discipline, but the only way you save for the next deposit is through capital growth. It’s too hard to save for your subsequent deposit, so while the majority of Australians look for cash flow, the wealthy ones invest for capital growth.”