6 property investment mistakes to avoid

By Mozo ·

Investing in property seems to be all the rage these days and it’s no surprise when you consider the countless benefits that come with it like capital returns and rental yields.

But just like all things in life, investing in property comes with its downfalls and if you’re not careful you could be lead down the garden path.

So before you try your hand at investing in property, watch out for these common mistakes to avoid:

Home Loan Comparison Table - last updated January 23, 2021

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

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

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a.variable for 12 months and then 2.48% p.a. variable
    2.47% p.a.

    A super low introductory rate home loan with no monthly or ongoing fees. Unlimited free redraws and unlimited additional repayments to help you build your equity and own your home sooner. Multiple loan splits available. (Rates revert after introductory period ends). 20% minimum deposit required.

    Compare
    Details
  • mozo-experts-choice-2020
    UHomeLoan - Discount Offer

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    2.34% p.a. variable
    2.34% p.a.

    Enjoy a super low rate, $0 fees and easy application with the Mozo Experts Choice Home Lender Bank of the Year.^ Free redraw with flexible repayments. Min 20% deposit.

    Compare
    Details
  • mozo-experts-choice-2020
    Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

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

    Fast online application with no fees. Free extra repayments and redraw facility. Min 40% deposit. Crowned Best New Home Loan for 2020 by the Mozo Experts.^

    Compare
    Details
  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR 70-80%

    interest rate
    comparison rate
    Initial monthly repayment
    2.09% p.a.
    fixed 2 years
    2.56% p.a.

    Flexible loan structure – create up to six loan accounts with different rate and repayment types. Free redraw from your loan using Macquarie Online.

    Compare
    Details
  • Fixed Home Loan Special Offer

    Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    1.89% p.a.
    fixed 2 years
    2.94% p.a.

    Competitive low rates starting from 1.89% (2.94% comparison rate) 2 years fixed for owner occupiers. No monthly account keeping fees & No loan establishment fee.

    Compare
    Details
placeholder

Talk to a Mozo home loans expert

Buying your first home, refinancing your existing home or thinking of investing? Speak to Steve, our home loans expert today!

Get Started

Mistake #1 Choosing the wrong location

We’ve all heard the saying “location, location, location”, so it shouldn’t surprise you that picking the wrong location is at the top of our mistakes list. Some of the things to avoid when hunting down an investment property include locations on main roads without infrastructure like transport, shops and parks nearby.

The reason? Well, this type of property without amenities, will not, exactly be an attractive rental to tenants. That’s why it’s always important to draw up a list of things that your ideal investment property should have to ensure you’re not only buying in the right suburb but the ideal spot within that suburb as well.

Mistake #2 Buying with your heart

“Oh what a lovely splash back, and that garden terrace is to die for!” But wait...before you fall in love with a property that you deem as just, “so me”, remove your heart from the buying equation and ask yourself - is it really worth paying a premium for those features if you won’t be living there and will it actually increase the potential for higher rental yields?

You may be better off buying a property that is a bit more rundown but can be spruced up with a bit of DIY reno.  

Mistake #3 Relying on rental incomes  

A lot of investors buy with the mindset that their rental income will cover the majority of the investment property related expenses but what happens if you can’t find a tenant for an extended period and your income doesn’t cover the costs?

It’s risky, and if you can’t meet the repayments you could end up defaulting on your loan and the bank could seize your investment property. So only borrow what you can reasonably afford to repay yourself. Use our home loan repayments calculator, to get an idea of an amount that will suit your financial situation.

Mistake #4 Being apathetic about rental incomes

Speaking of rental income, make sure you keep an eye on the market and make rental increases whenever your tenant’s lease has come to an end (usually 6 or 12 months). Your tenant is likely to take increases to rent of $10 or $15 far better than if you hike up the rent by $50, because you’ve been apathetic and let too much time slip by.

Mistake #5 Failing to budget for a rate rise

While home loan interest rates are currently at record lows, you never know when the market could shift. So make sure you can reasonably afford your ongoing repayments if your lender was to increase your rate down the track by using our rate change calculator.

Scenario: Ted has a $600,000 investment loan, which he’ll repay over 25 years. When he took out the loan his rate was 4.5%, so his monthly repayments were $3,335. But if his lender lifts his rate to 5%, his ongoing repayments will be hiked up to $3,508 - a considerable difference of $173 a month and $2,076 over a year.

Mistake #6 Not knowing what you can claim

One of the best parts about buying an investment property is negative gearing, which ultimately means if your rent isn’t covering your home loan repayments you can claim a portion of that expense. But the interest on your loan isn’t the only thing you could claim at tax time.

So make sure you have a chat with your accountant to ensure you’re maximising your tax return with the deductions available to you. These include the costs of any repairs to your investment, council rates and strata charges (and much more!).

That’s a wrap up of the common investment mistakes to avoid. The next step? Read up on how to land yourself the best investment deal with our tell all guide.

^See information about the Mozo Experts Choice Home Loans 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.