If you think that buying any property and simply make money out of renting it or selling it out, then you might want to reconsider your options.
Applying the right way to buy a house will help you not to lose any money in the future – knowing it might save you enough cash to reinvest in another house.
Here’s 4 common mistakes you should avoid:
1. Buying above market value
Maybe you have set your eyes on this one house and you think – wow! It’s near to public transport and the university, pretty sure there won’t be any tenant demand problem.
Well maybe you are right.. But then again consider checking the market value of the property as well.
There are lot of times property buyers neglect market value factor and buy above the market value in the end.
Sometimes due to emotional auction biddings or high-end property facilities (pools, security, exclusive gardens) offered that makes the buyer completely illusioned.
This will mostly lead to mistake #2
2. Negative Cash Flows
Let’s compare property A and B
Let’s say the average market price for property A
Compare this to property B
Property B (under auction)
Let’s say you are buying property B and then you got swayed away by yout emotions. Rather than stopping the bid at the most optimum ROI (Return on Investment), you now increase your bid further for the sake of winning the auction.
Instead of buying the property below market value, you have now gotten overboard.
This leads to higher bank instalments you have to pay. This also means that if the average rental in that area is $750 per month, you have a negative outflow of $150 because you are paying the banks at $850.
3. Buying a property far from your usual place of presence
Well, sometimes you might think that can still manage your property from another state whilst you are in another state – you can. However, it might pose certain challenges such as time and convenience of visits you can make.
Few things to note is that you may need to add more controls to these types of challenge. These includes:
- Setup an automated payment system
- Build close relationship with the property management team (if any)
- Get to know the local repairmen in the area
- Find trustworthy tenants.
However, if you think all these demands too much from you then you might want to consider hiring a property manager at a cost which is not too bad either.
4. Not buying an investment grade asset
A property pamphlete may seem too convincing sometimes. The timber wood floor, glowing kitchen cabinet, big windows – you name it!
But the biggest things being promoted on the pamphlete are the things you need to stop and think back again.
Do you need the luxury items offered?
What’s your initial purpose to buy?
And always go back to basics.
You must try as best as possible that the property you buy especially for investment purposes must be below market value, have positive cashflows, near your usual place and most importantly it has capital appreciation.
But if it is your dream house and not for your investment purposes – theres no issue to buy it even if its priced higher and that you can afford it.
After all, buying a good house for investments may prove to be one of our best ways to conserve as well as amplify our wealth – it is one of the best tools to achive financial independence.