When I was buying my first investment property, I made a lot of mistakes.
Some of them I’m only discovering now 3 years later. Here’s what they are so you don’t have to make the same mistakes I did.
1. Leading with emotions rather than facts and figures
When I inspected homes, there were definitely some that I fell in love with instantly. It’s easy to get caught up in the emotional aspect of buying a home, but when you’re buying an investment property, you need to be more rational.
You need to look at the numbers. Does the rental income cover the mortgage repayments? Are there any areas that need fixing? What is the long-term potential of the property?
If you’re leading with your emotions, you’re more likely to make an emotional purchase – and that’s never a good idea.
I assessed the properties based on my own personal preference and whether I would consider living there myself. If it wasn’t for my taste, I would have immediately dismissed it as an investment opportunity – even if the numbers were good.
It’s important to remember that you’re not buying a home for yourself, you’re buying an asset to generate income. So, don’t get too caught up in whether you like the property or not.
2. Being overly obsessed with first home buyer grants
I was so focused on getting the first home buyer grant that I didn’t even consider whether the property I was buying was a good investment.
Younger me at the time thought that getting the grant was a once-in-a-lifetime opportunity that I had to take advantage of.
Looking back now, the measly $30K that the grant and stamp duty exemption provided was not worth it for the property I ended up buying.
Obtaining the grant meant I had to live in the property for at least 6 months and forgo roughly $10K of rent. To crunch the numbers, the grant only ended up being worth around $20K to me.
This covers roughly two years’ worth of interest on the 30-year home loan.
In the biggest scheme of things, it’s not a lot of money and it certainly wasn’t worth sacrificing my investment strategy for.
So, if you’re thinking about using the first home buyer grant to purchase an investment property, make sure it stacks up as a good investment first. The grant shouldn’t be the deciding factor.
3. Not considering all of my options
Being so wedded to the grant meant I had to buy a nearby property. I was so focused on getting the grant that I didn’t even think to look at other options outside of my immediate vicinity.
Had I looked further afield, I would have found cheaper properties with better returns. Instead, I overpaid for a property that was in an area with very little potential for capital growth.
I hadn’t even considered interstate options.
For most newbie investors, the idea of buying an interstate property can be daunting. But, with the help of a good buyer’s agent, it’s not as complicated or risky as you might think.
You can actually get some great deals by going outside your local market. Just make sure you do your research first and always use a reputable buyer’s agent to help you navigate the process.
4. Thinking negative gearing was the only way
Growing up in Sydney my whole life, I was convinced that negative gearing was the only way to go when it came to investing in property.
It’s what my parents did and it seemed to be working out OK for them. So, I just assumed that’s what you had to do.
But, as I started doing more research (and looking at rural and interstate options), I realised there were other options available to me. I could actually make a positive return on my investment without negatively gearing it!
For those not in the know, negative gearing is when your rental income doesn’t cover the mortgage repayments and you have to make up the difference from your own pocket.
With positive cash flow investing, your rental income actually covers the mortgage repayments and then some. You’re making money from day one!
It’s a much more sustainable way of investing in property and it’s what I now focus on with all my investments.
5. Not having a plan for growing my property portfolio
You’ve probably heard this property advice before “you just need to get in the market”.
And while it’s true that you need to take action and get started in property investing, it’s also important to have a plan for growing your portfolio.
Investing in property is a marathon, not a sprint. You need to have a strategy for where you want to be in the long term and what kind of properties you need to buy to get there.
Buying a negatively geared property from the outset really hurt my ability to buy my second property sooner.
If I had started with a positively geared property, I would have been in a much better position to grow my portfolio more quickly.
If I could go back in time, I would have started with a retirement plan with property at the core. From there, I would have built a portfolio of positive cash flow properties that would give me the passive income I need to retire comfortably.
These are just some of the mistakes I made when buying my first investment property. I hope by sharing them, it’ll help you avoid making the same ones. Remember, it’s not about avoiding all mistakes – we all make them. It’s about learning from them so you can make smarter decisions going forward.