The idea of investing in property is one of the most effective ways to ensure a steady income stream on a side basis.

There are many great benefits to managing and doing it right, but there are also pitfalls to avoid, as well as costly mistakes to make

Researching poorly

If you are thinking about buying an investment property for your own use, it is important to do some research about the location, the local amenities, rental yields, the vacancy rate, and the property itself before making a decision.

Even though it may not always be possible to ensure that you will know everything you need to know about the neighborhood in which you intend to invest, there is no guarantee that you will be able to do that.

In some areas, such as mining towns and tourist destinations, there are some markets that are on the rise, but you have to be cautious.

There is no doubt that these investments can produce excellent returns over the short term, but what about if there is a downturn in the industry long term?

It is important to keep in mind that a good investment is not one that is based on speculation.

Lack of professional property management

Currently, there are a lot of people who assume that property management is simple and they can handle all aspects of their property in their own capacity when it comes to taking care of every aspect of their rental property.

Managing a rental property can soon become a tedious and stressful task, not to mention the ever-increasing legislative requirements that fall upon landlords.

It may even seem like taking on another job at times!

A professional property management company will be able to provide you with everything you need, from advertising the property, screening potential tenants, filling the vacancy as soon as possible, maintaining regular inspections of the property and responding to maintenance requests from tenants.

If you don’t feel that you have a good property management team on your side, you are better off finding a new property manager, as this will give you peace of mind and keep things running smoothly.

A common issue faced by many property investors is the tendency to maintain bad property management teams for a much longer period of time than is necessary as a result of their inexperience.

Neglecting tax benefits

There is a golden rule that it is always best to invest based entirely on the strength of the investment alone – any tax benefits that come along with it should only be considered as the icing on the proverbial cake.

You should, however, be very aware of what you can claim when it comes to filing your taxes.

When you don’t take advantage of tax deductions, you could be putting yourself at risk of losing thousands of dollars in potential income.

Tax depreciation should be taken into account – even in the case of existing property, there may be a claim that can be made.

An additional benefit of having a property management team in place is that they will be able to keep track of all expenses and outgoings for tax purposes on your behalf.

Be aware of your numbers

It is important to consider the upfront cost of purchasing a property, as any property purchase can add up quickly.

You should keep in mind that even though you need to take into account the normal costs associated with buying, such as stamp duty, conveyancing, council rates, and building inspections, you should also account for the extra costs that come with property investment.

It includes, but is not limited to, the cost of maintenance and refurbishment, landlord protection insurance, home insurance, as well as body corporate fees, if any.

As things always seem to go wrong in the first few months after buying an older property, it is important to allow for the expense of a few repairs when considering your budget because an older property will usually require some immediate maintenance.

Make sure you allow for two weeks of vacancy per year in your schedule. It is important to price your property according to the market so it won’t remain vacant for an extended period of time.

Ensure that you have a financial contingency plan in place in case rental returns drop or if you need to sell the property.

When you finalise your year-end accounts each year, it’s always a good idea to overestimate your incoming funds and underestimate your outgoing expenses, in order to avoid any unpleasant surprises during the close of the year.

Long-term planning

The majority of people do not understand that property investment is not a ‘get rich quick’ scheme, which is often misrepresented by people.

In general, the longer you hold onto a property, the better your chances of reaping a greater profit as you sell it down the road.

It is important to remember that if you are planning on selling your property at a large profit in a few years so that you can make a profit on your investment, then you are speculating rather than investing, and you may end up very disappointed when the sale period arrives.