Yahoo Finance 5 biggest mistakes property buyers make and how to avoid them
A successful property investor has warned Aussies to not make these home-buying mistakes.
Aussie property investor Kev Tran grew up in social housing and received no family support to get a foot onto the property ladder. Now, he has three investment properties under his belt, totalling $1.8 million.
Tran is a first-generation Australian and said he grew up watching his parents work hard, juggle multiple jobs and live frugally. His parents saved up to purchase their first home but he said he saw them make some bad investment decisions along the way.
Seeing the mistakes his parents made motivated Tran to build his own property portfolio. Now a buyers agent at InvestorKit, Tran has revealed the biggest mistakes people make when purchasing property.
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1. Purchasing the wrong asset type
“The first and most common mistake I see people make - I notice it because I made a similar mistake when I bought a townhouse at the start of my investment journey too - is buying the wrong asset type,” Tran said.
“Because many people can’t afford to buy a house as a family home these days, they may opt for an apartment in their local area. But it’s a trap in which families will get stuck with an underperforming asset.”
For instance, Tran said apartments were often in high-density locations and if you planned to sell, you could run into oversupply issues. Owners can also face capital expenses or a special levy if anything in common areas needs to be fixed or improved (something Tran witnessed his mum go through).
2. Not doing your due diligence
It’s essential to check the property’s surrounding areas and if there is any planned development.
Tran said buyers needed to answer the following questions: Are you next to any commercial sites? Are you next to a water-treatment facility? Are you in a flood zone or at risk of bushfire?
3. Only purchasing in your backyard
Buyers may feel wary about buying in an area they are unfamiliar with, but this can mean missing out on the biggest capital growth.
If the property is purchased as an investment, buyers also need to consider long-term rental returns. Tran recommended people do their research and due diligence.
4. Not understanding finance fundamentals
“When I made that first poor purchase on the townhouse, I did it because I only had enough for a 10 per cent deposit and I thought that was the only option,” Tran said.
“But when I educated myself, I realised I could have bought an established house and I could have capitalised the lender’s mortgage insurance into the loan.
“It’s vital to get a grip on how money, leverage and investing works as a bare minimum.”
5. Having no emergency buffer
Some investors focus solely on purchasing their next property and don’t take into account unexpected issues such as repairs, vacancies or rising repayments.
To cover these issues, Tran recommends having a six-month buffer. He said this could give you extra peace of mind.
One of his biggest lessons since purchasing his first investment property has been the importance of changing his financial habits and mindset. He recommended buyers reduce their costs where they can, pay themselves first and ditch any credit cards.
He also advised buyers to buy established houses, rather than building or purchasing off-the-plan, and said existing home owners should look at refinancing.
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