Have you considered getting involved in property investment even though you’re still relatively young?
Want to avoid the minefield that causes around 50% of those who get started in property investment to sell up?
A number of years ago Finder.com.au interviewed me for my thoughts on this topic, and one of the things we discussed was the many mistakes made by young investors.
Here are 8 of the common mistakes I see them make:
1. Lack of research and knowledge
Knowing how to find a good investment location and property type is a valuable skill to have, but young people often fail to research, which can lead to poor investment choices.
In Australia, there are around 2.3 million property investors and 92% never get past their first or second property.
Only around 20,000 investors 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 invest for cash flow, you most likely will miss out on the long-term capital growth required to build a substantial property portfolio.
2. Property investing is for cashed-up baby boomers
This is a common misconception that deters young people from investing in property.
While saaving 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.
3. 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 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?
4. Buying only based on price
Many young people are preoccupied with buying a property that’s ‘cheap’ and use these criteria alone to guide their decision-making.
However, price should only form part of the investment choice.
It would help if you also considered a range of factors such as the location (does the suburb have growth potential?) and the market (is there positive buyer sentiment?).
5. 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.
6. Buying emotionally
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.
7. Not reviewing property portfolio
All 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?
8. Buying for cash flow
Many young investors make the mistake of buying for short-term cash flow rather than capital growth.
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.
