Juliet Risdon
Juliet Risdon is a Director of JML Property and a property investor.
Having established the company in 1994, JML Property offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.
We are looking at the top 20 reasons for property investment failures. Before we start on the Top 10, here is a quick recap of the list so far;
20. Lack of Planning
19. Not using a Property Company that specializes in investment property.
18. Not having enough financial reserves for the property
17. Ignoring the ‘associated’ costs
16. Listening to unqualified advice
15. Relying On Your Emotions
14. Buying an old property vs. a new property
13. Being your own property expert
12. Not taking out adequate insurance
11. Owning an empty apartment
The top 10 mistakes, including finance mistakes, agents and tenants.
10. Creating negative cashflow
Property can be both an asset and a liability. In very simple terms, if the property puts money in your pocket, it’s an asset. If it takes money out, it’s a liability.
As a property investor, negative cashflow means that you have to pay out a sum of money every month on top of the rent collected in order to repay the bank loan.
If you are buying investment property, it makes sense that once you have paid the deposit, the rental income should pay for the bank loan, and have enough money left over to cover other related costs such as the management fees.
By avoiding negative cashflow, you are providing yourself with a ‘buffer’ in case circumstances change, and you will build up a growing amount of funds that can be used for further investment.
9. Hiring the wrong rental agent
Agencies tend to specialize. Figuring out which one best suits’ your needs is important.
Some agencies, usually the single agent and the smaller agencies, focus on low-end rentals. Others are more concerned purely with sales, and do very little rental placement.
Choosing the wrong agent for the job can cost you a lot of wasted time and lost revenue. Before placing your property with an agency, its always a good idea to ask them about the number of similar transactions they are currently handling. This will give you an idea of how busy they are, and what experience they have with your type of property.
8. Gambling With The Investment
Buying an investment should never be a gamble. If the fundamentals are correct, no matter what the market does you should be able to make some money.
High end property tends to fall into the ‘gamble’ category. Its fine all the time the economy is strong, but when there is a downturn high end properties can sit empty and remain unsold for long periods.
When this happens, there is usually only one solution. Price reduction.
In addition, there are many other considerations for luxury property. For example, and beautiful sea view can be blocked by new construction.
From an investment perspective, it makes more financial sense to purchase low to middle end properties that are easily affordable to the average market segments.
7. The wrong financial structure
The 2 big mistakes on financing that people make are over-borrowing and under-
borrowing.
Debt that can be paid comfortably by the home buyer or covered by rental payments is good debt. If you have borrowed 50% of the property price from the bank, when the property goes up in value by 10%, you actually make a profit of 20% on the money that you invested.
Over-borrowing is the biggest mistake. If you have a debt you cannot re-pay, the bank will seize the property and re-sell it. Under borrowing is not quite as serious in the short term, but having a property without any loan will hurt your long term wealth.
As a general guide, a loan of between 40% – 70% of the property value would be considered normal.
6. Mis-treating a tenant
It is extremely important to be as clear as possible with tenants.
Many investment property owners ignore tenant requests, are slow to react to problems and fail to return security deposits in a timely fashion. This creates a very bad reputation for the owner and the property that you will have great difficulty recovering from.
If you can provide the guidelines for the tenant from the start, you will have fewer headaches and happier tenants. The property will remain tenanted, and your vacancy periods will go down. It’s a classic case of the ‘golden rule’ ……treat others as you would like to be treated.
This is a usually the part that owners hate to get involved with, and many owners opt for a management company to handle these tenancy issues. More about that later.
Next week: The Top 5 property investment mistakes
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