6 property investment mistakes to avoid

When it comes to buying an investment property, it is important to do your research.

So, if you are thinking about buying your first investment property you’ve come to the right place. While buying an investment can be as stressful as buying a residential property, proper research and preparation you may find the journey less daunting.

Before you try your hand at investing, watch out for these common mistakes:

Mistake #1 Skipping the planning stage

With a plan you can analyse how much of a risk owning the property may be. It allows you to see how long you can afford to have the property if finances dry up, or if you are tenantless for a while. How long can you survive without that spare income?

Having a plan can take the stress out of such challenges. For example, a budget that includes saving money in an emergency fund is a good idea.

Here’s an example of budget considerations:

  • Weekly income
  • Weekly expenses
  • Insurance
  • Existing debts
  • Utilities 
  • Maintenance costs
  • Weekly deposit into emergency fund 

Your emergency fund is the key piece of planning here. Any emergency fund should cover the basics – rent or mortgage repayments, utility costs, groceries and daily travel costs. Having this fund will save you stress if you find yourself struggling to get new tenants in your property.

Mistake #2 Buying in the wrong location

The location of the property may impact the chances of securing a good tenant, which may affect the value of your property. 

If you buy a property near a university, then it is very likely that your future tenants will be university students on tight budgets. You might also have a high tenant turnover rate with students. If you don’t want to be dealing with this type of tenant, an investment property in a student-centric location isn’t ideal. 

Typically renters search for property near handy amenities or infrastructure like transport, shops and parks. The more amenities a property has, the more attractive it might be for potential renters. 

So, rather than thinking like an investor, think like a tenant. What sort of property did you look for when you were in your rental years? What kind of facilities did you require nearby? Based on that checklist, look for potential investment properties.

Mistake #3 Getting the wrong financing

Much like getting a home loan for your residential property, getting a loan for your investment property follows a few basic rules. Getting a loan that suits your budget and buying at the right time among them.

While interest rates are at record lows, it is also good to prepare for potential market shifts. Keep in mind that investment properties are a different ball game because of the aforementioned risk that you may go without tenants for a few weeks or months, especially at a time of a shifting marketplace. If that happens and you don't have enough funds to cover the mortgage, you may run the risk of falling into default

The property market isn’t going anywhere, so consider investing when it is well within your budget, but also when the market is favourable with plenty of prospective tenants.

Mistake #4 Buying with your emotions

Investment properties are not supposed to be dream homes. When looking for property, remember that you’re not going to be living in it, so don’t get too worked up if you don’t love the carpet, layout or the lack of balcony. What you’re after is a serviceable place for tenants.

Just like you shouldn’t be making big financial decisions based on emotions, picking your new property should be based on balancing pros and cons. The best course of action is treating your property investment like a business. So if the numbers don’t stack up in your favour, walk away.

Mistake #5 Lack of research and due diligence

Conducting thorough research of the market may help you from making silly mistakes.

What to keep in mind when researching:

  • Costs of property maintenance: If you purchase an older property, there’s a chance the tenant will experience issues that you’ll have to look after. This could include pest control, plumbing, electrical issues or unexpected property damage. 
  • Initial condition of the property: When inspecting property, keep an eye out for any issues before advertising it as a rental. Unless you want to renovate, having a property in good condition from the start may help you get tenants faster.
  • Having good amenities and features: If your property lacks a washing machine and other rental properties in the area seem to be offering one, your property may appear less attractive for potential renters. It is important to remember what you wanted when you were a renter.

Mistake #6 Not considering a property manager

Managing property may become a full-time job, especially if you have multiple investments. Sometimes it is best to pay professionals to do all the nitty gritty work for you. It may bring peace of mind, but also might help with the overall success of your property investments. 

If you are looking to buy new investment properties, check out Mozo’s investment property guides to make your journey a bit smoother.

Home Loan Comparison Table - rates updated daily

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure.
  • placeholder
    Mozo Experts Choice 2021
    Smart Booster Home Loan

    2 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    1.85% p.a.variable for 24 months and then 2.25% p.a. variable
    2.21% p.a.

    New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.

    Go to site
    Details
  • placeholder
    Mozo Experts Choice 2021
    UHomeLoan - Discount Offer

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    2.19% p.a. variable
    2.19% p.a.

    Enjoy a super low rate. $0 fees to consider. Fast and easy online application. Free redraw and free extra repayments. Flexible payment terms. Min 20% deposit required.

    Go to site
    Details
  • placeholder
    Mozo Experts Choice 2021
    Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required. Winner of three Mozo Expert's Choice Awards for 2021.

    Go to site
    Details
  • placeholder
    Variable Home Loan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.

    Refinance only. Super-fast digital application process. Zero upfront fees. No on-going service fees. Free 100% offset sub account. Minimum 25% deposit required.

    Go to site
    Details
  • placeholder
    Basic Home Loan

    Owner Occupier, LVR<60%, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    2.14% p.a. variable
    2.14% p.a.

    Competitive low variable rate. No application or account management fees. Flexibility to split your loan and set different repayment types. Fee free withdrawals of your savings.

    Go to site
    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.