Biggest mistakes new investors make

Cheap credit will be enticing more Aussies to invest in property over the year ahead but the market remains fraught with dangers for novice buyers.

Freedom Property Investors chief analyst Lianna Pan said there were some pitfalls new investors frequently overlooked before signing a contract on a home and warned buyers to be cautious.

“The most important thing to note is, you are not buying a home – you are buying an investment,” Ms Pan said.

“All too often people make investment decisions based on emotion … (this) can mean people take unnecessary risks and fail to look at the figures that should make the basis for any investment decision.”

Ms Pan said it was paramount the numbers behind an investment stacked up and the property ticked all the right boxes.

“Remember: you are not going to live in this property, so it doesn’t matter if you don’t like the benchtop or it doesn’t have the layout you like … don’t get hung up on the colour of the walls.”

Another big mistake many investors made was failing to set any specific financial goals that would guide their investing decisions, Ms Pan said.

“A good financial goal might be: I want to pay off my family home and generate $200K passive income a year from my property investments in 10 years’ time. This goal is very specific and quantifiable,” she said.

Setting a clear goal-orientated strategy allowed the investor to consider suitable pathways to finance their property investing, according to Ms Pan.

With property purchases attracting considerable added costs such as stamp duty and legal fees, considering the ‘how’ of buying was just as important as the ‘what’, Ms Pan added.

“Changing the ownership of the property later is going to be a costly exercise, so it is worth considering the options before you go shopping for the right property.

“Consider all the options before you pursue purchasing a property. Getting the right advice from suitable professionals with experience in structuring investment portfolios is highly recommended.”

Investors also needed to take action early and avoid procrastinating.

“I’ve never met any investors that would say to me that they wish they started investing later in life,” Ms Pan said.

“Everyone regrets not taking action sooner. The biggest factor to wealth accumulation in property is time. Delaying your decision for just a few months in a moving market could mean tens of thousands of dollars in lost growth.”

Avoiding procrastination meant working hard to overcome “analysis paralysis”: the fear of action that comes from having too much information.

“If the numbers stack up on the big picture level, then don’t sweat the small stuff,” Ms Pan said.

“When you find you are getting bogged down in the details and your mind conjures up millions of questions on the property details that have nothing to do with the big picture, just be mindful that this might just be fear of commitment manifesting itself.”