Successful property investing is easier than most people think. The mistakes that prevent most would-be property millionaires from realizing their potential are predictable and easy to avoid.
Mistake number 1: Starting too big
One of the biggest mistakes is to look for a property which is too expensive for you. This is even more critical when it’s your first investment property. Regardless whether you choose to buy the property or not, starting too big is certain to have a devastating effect on your portfolio.
If you do buy the property:
A friend of mine, let’s call him Andrew, bought his first investment property about five years ago. It was a beautiful, well-appointed, brand new inner-city apartment with a price tag that, although quite high, represented great value. Despite it being a great buy for someone wanting to move in, it wasn’t for a first-time property investor with a modest income. In the five years since he bought the property, almost all of Andrew’s spare income has gone into paying the property off. His cashflow has been so limited by the financial commitments he has to this investment property that he has barely paid down any debt. Consequently he is no closer to buying his second investment property than he was five years ago.
It’s not all bad news for Andrew – he has at least gained through capital growth.
If you don’t buy the property:
This is an even worse fate! Twice in the past week I’ve had colleagues talk to me about how they wish they could start a property portfolio. Neither of them have started investing and both are on handy incomes. Both were looking at properties priced well above median prices. Sadly, both of them could have started investing years ago if only they’d known the right price range in which to start. Looking too high convinced both of my colleagues that they just couldn’t afford to be a property investor. Nothing could have been further from the truth.
So what can we learn?
Clearly, Andrew has experienced the lesser of two evils as he’s enjoyed the benefits of having a property which has appreciated in value.
Unfortunately, though, he’s had to endure the stress of wondering how he will make his repayments while knowing he won’t be able to expand his portfolio in the near future.
The lesson to be learned here is to find properties that will enable you to start investing without crippling your cashflow. You will experience several benefits including:
- Paying your debt down faster and therefore enjoy lower levels of debt (and stress!)
- Growing your portfolio faster
- Having a wider variety of properties, further reducing your risk
And if these arguments aren’t compelling enough, keep in mind that cheaper properties generally have higher yields than more expensive properties.
What can we do now?
Stop looking at the most visually appealing properties on the market and start looking at those which will serve your purposes.