Tuesday, July 16, 2024
Home Investment NewsReal Estate Investing 11 things you could do to lose money in property in 2024

11 things you could do to lose money in property in 2024

by xyonent
0 comment

Key takeaways

There is no real ‘secret’ to property investing success, but there is a strategy.

Location is the most important thing to consider when it comes to buying your next investment property.

Location is one thing, but the property type is also vitally important.

Not doing a thorough property inspection can lead to very costly surprises later down the track.

Many investors make the mistake of embarking on property investment without fully understanding all the costs involved.

It’s easy to do, but taking on too much debt can be catastrophic for your cash flow.

Letting your heart rule your head is a deadly sin when it comes to property investment. Trusting your “gut instinct” should never form the basis of a property investment strategy, however, buying a property is an emotionally-charged decision and inevitably there’s room for mistakes.

Investors who put all their eggs in one basket run a risky game. If the markets change, they could risk losing out significantly.

There’s no real ‘secret’ to property investing success, but as I’ve said many times before, there is a strategy.

There are so many articles around about how to make sure your property investments outperform the rest of the market.

The right location, the right price, the right plan…

Searching for the ultimate path to guaranteed riches is addictive… after all, we all want to reach the ultimate goal of financial freedom through passive income.

But the problem is, blindsided by the ultimate goal of guaranteed riches, many investors make many fatal errors.

Because with enough ignorance and misguided advice, you can lose money faster than in the blink of an eye.

And that goes completely against the Oracle of Omaha Warren Buffett’s most famous advice: “Rule No. 1: Never lose money.

Rule No. 2: Never forget Rule No. 1.”

 So, if you really want to achieve property investment success, first you need to know the moves that are certain to put your finances on the path to catastrophe.

And then you need to know how to avoid them.

Here are 11 things you could do to lose money in property in 2024.

Location

1. Ignore the location, location, location mantra

Location is the most important thing to consider when it comes to buying your next investment property.

Because the location of your property will do around 80% of the heavy lifting of its capital growth.

So ignoring this mantra could quickly put you in hot water.

Buying in regional Australia, in an area with below-average income growth, poor infrastructure or rising crime rates is a great way to make a substantial loss.

How to avoid losing money:

Follow the mantra!

Not all locations are created equal.

Like a monopoly board, the market is split into 4 different types of locations: discretionary, aspirational, affordable and last-choice locations.

Aspirational locations are where you should focus your efforts.

These are the upper-middle-class areas and gentrifying locations of our big cities which would also be considered A-grade suburbs.

These include suburbs where affluent millennials aspire to live as they move to the family formation stage of their lives.

When this wealthier demographic moves into a suburb they tend to push up property values and create a ripple effect producing economic, social, and cultural change.

Avoid the top-end discretionary locations – these locations are the established inner-ring suburbs of our capital cities or suburbs and while they would ordinarily be considered A-grade locations, their property cycle values are usually more volatile.

Certainly, avoid affordable or last-choice locations such as regional Australia which gives limited opportunity for capital growth.

Once you’ve chosen the location type, you then need to look for the right suburbs in that area.

And if you don’t know what you’re doing, these can be tricky to spot.

You’ll want to look for areas with good demographics, limited supply, strong employment opportunities, good infrastructure and amenities, good walkability to these amenities, gentrification and low crime rates.

2. Buying the wrong property type

Location is one thing, but the property type is also vitally important.

At any given time there could be over 350,000 properties for sale in Australia but in my mind, less than 4% are what I would call “investment grade”, so let’s look at what type of property a property investor should not buy.

  • Off-the-plan properties: This might seem like an attractive option, but they usually set investors on an inevitable path to catastrophic disaster. These properties lack scarcity, have high body corporate fees and a low land-to-asset ratio which means they’re a poor recipe for rental and capital growth. Add to this the recent concerns about the well-publicised structural integrity issues in Opal Towers and many other buildings which have dampened investor confidence in the new apartment market and falling apartment values and you can start to see how the problem worsens.
  • House and land packages: Like off-the-plan properties, house and land packages are a bad investment move. Most home and land packages are located on the outskirts of the city, in locations which have an abundant supply of land but therefore weak economic drivers and poor infrastructure. They also lack scarcity and therefore, offer minimal growth.
  • Serviced apartments: These carry more risk than buying an ordinary apartment as you’re relying on the operator to get it right and on the tourism and business markets to remain strong to maintain occupancy. These properties have a limited resale market, and a limited letting market and often have expensive ongoing management costs.
  • Department of Defense Housing and NDIS accommodation: While these properties come with the certainty of long leases and no ongoing maintenance, they have a limited resale market and hefty management charges.
  • Small units, studio apartments and student accommodation: These have restricted markets because of their size, they also offer a limited scarcity factor.

Buying Property

How to avoid losing money:

Put simply, don’t invest in a property type that the bank is wary of.

And certainly DON’T invest in off-the-plan or house and land packages.

Think carefully about the property type that you’re looking to invest in and question its scarcity and potential for capital growth.

A good alternative would be to buy an established property that will outperform the market averages.

Ideally, you want to buy below its intrinsic value (which is why I avoid new and off-the-plan properties, which come at a premium price), with a substantial land-to-asset ratio and a twist (something unique, special, different or scarce about the property).

Finally, you want a property where you can manufacture capital growth through refurbishment, renovations or redevelopment.

3. Skipping property inspections

Not doing a thorough property inspection can lead to very costly surprises later down the track.

Structural issues, pest infestations and other hidden problems can quickly turn into a financial nightmare and turn a profitable investment into a financial drain.

Sadly, the trend of buying ‘site-unseen’ is taking off in some parts of the country as buyers become desperate to secure properties at an affordable price in a rising market.

We are seeing a lot of this in WA at the moment we’re even East Coast buyers’ agents asked the local selling agent or property manager to do a FaceTime video rather than inspecting the property themselves – REALLY!

And while they’re lured in by cheap prices, something much worse can be unknowingly waiting.

How to avoid losing money:

 Attending property inspections in person or engaging a proficient buyers’ agent in that city – not one that flies in and out to inspect the property at the outset and throughout the sale process (such as for the pre-settlement inspection) is vital to ensure that you know exactly what you’re buying, and the condition it is in.

Never buy site unseen.

The property might look great in the video or online but there is a chance you can be stuck with a bad investment that causes significant financial stress due to and major loss of money.

Inspection

4. Underestimating costs

Many investors make the mistake of embarking on property investment without fully understanding all the costs involved.

From fees, maintenance, inspections and even tax, there are many costs that can add up quickly and catch a poorly-educated investor off-guard.

How to avoid losing money:

 Any property investment should begin with research, due diligence and a carefully formulated plan.

You need to be aware of all the costs associated with the property, including regular ongoing costs and unexpected ones, like damage to the property.

Landlord insurance can cover some costs, like tenants leaving or failing to pay the rent, and insurance on the building can cover things like storm damage.

But you’ll still need to have money set aside for things that aren’t covered by any insurance.

5. Taking on too much debt

It’s easy to do, but taking on too much debt can be catastrophic for your cash flow.

A simple mistake for novice investors is paying too much for their property, especially when buying at an auction.

By overspending, they will likely create cash flow issues for themselves (paying more stamp duty and extra interest for years) as well as having to wait longer for any decent capital growth.

It also means that if the property market takes a downturn or interest rates rise, that investor has taken on too much risk to remain resilient.

How to avoid losing money:

Start with your finances and cash flow – create an investment plan that includes variations for if your financial situation or the market changes.

You need to ensure that you can withstand changes in market conditions so that your investment isn’t at risk.

Keeping your debt-to-equity ratio in check is key to having a plan to manage the debt you do have firmly in place.

6. Ignoring legal and regulatory changes

Australia’s property market is constantly changing, with laws and regulations constantly evolving, and usually in favour of the tenants.

You may also like

Leave a Comment

About Us

Investxyon

At InvestXyon, we empower individuals with knowledge for informed investing, financial navigation, and secure futures. Our trusted platform covers investments, stocks, personal finance, retirement, and more.

Feature Posts

Newsletter

Subscribe my Newsletter for new blog posts, tips & new photos. Let's stay updated!