5 mistakes to avoid when buying an investment property

August 3rd, 2018 - by UrbanCondo Team

Property investment future

Property investment is an exciting adventure to begin. Mistakes, however, are made every day by property investors who act impulsively without game plans.

In this post, we’re going to look over five mistakes property investors can make; some that could throw their plans off track and sour their finances. 

Purchasing first, making investment objectives second

Ask yourself a simple question before you even think of buying a new investment property: Why are you investing in the first place?

Are you in this to make some quick money in the present? Are you buying now to secure something that can fund your retirement in 30 years? Are you looking to flip a house and sell it right after? Are you hoping to pass on the management of your property to your kids when they’re old enough?

Much of these answers rely on a decision you need to make: When will you exit this investment?

Be specific before you start investing. That way you’ll have a sound game plan from the beginning to end.

Investing emotionally rather than logically

We all know that buying a home for yourself is an exhilarating and often emotionally overwhelming experience. You know when it’s the house of your dreams, and you also know when you wouldn’t be caught dead in a sinkhole like that.

Purchasing an investment property or condo unit is a different breed of property buying, though, and it requires logical judgment over the emotional “I just gotta have it!”

This is not a passion project where you restore your parent’s first home in the suburbs from dust to its destiny. If you think this way about an investment property, you’ll lose money. Never let emotional bias – whether that pertains to the neighbourhood or property type – cloud your logical judgement.

Return to the investment objectives you’ve already outlined and see if the properties you view will fulfill any or all of those goals. Will tenants pay a good price for the property as is or does it look worthless? How much money will you have to put into the place to make it presentable? Are they structural changes or superficial ones?

You may want to leave the structural work for the families looking for their dream-home-passion-project.

A logical investor considers: neighbourhood, condition of property, demographics of the area, average rents and additional work required. If all of these points align into a profitable couple of years, you should consider the investment.

Neglecting your due diligence

Failing to do the proper calculations, neglecting conversations with financiers, purchasing emotionally, or jumping blindly at any bargain could lead you towards paying the wrong price for the property, or, signing yourself up for the wrong one that requires way too much work.

Always know where your money is going, which neighbourhood you’re investing in, and which type of property is best for your budget. Understand your own cash flow and the market you’re buying into so you can see if it’s profitable or not.

You can do this by speaking to local real estate experts, noting the building and neighbourhood amenities, its accessibility to the rest of the city, and checking some comparable rent prices.

Being too hesitant, or being too confident

You’re going to have to find a middle ground between over-researching a property investment (and never pulling the trigger) and rushing into a purchase because you haven’t done any research at all.

The over-confident investor may act foolishly and invest in something they haven’t researched, singing their money away to the first convincing salesperson. This may pay off if you’re lucky but understanding the right investment opportunities comes from a lot of learning and practice.

On the other hand, being too fearful or hesitant can lead to missed opportunities. Too much deliberation or anxiety can fuel an internal monologue going over the same details. Before you know it, someone with a bit of decisiveness has scooped the property up from under your nose.

Thinking you’ll save money by managing the property yourself

Think of all the work that goes into filling an apartment or rental property:

You’ll have to scour the city for tenants, field their applications, vet them, and keep on top of their tenancy making sure they pay their rent on time. You must make sure you’re reachable should anything arise, maintain the property, fix any problems with the property or coordinate and hire someone to do this for you. You’ll have to issue tax receipts and keep all related paperwork in order.

This could be manageable by yourself if you’re only overseeing one (local) property that you’re dedicated to. But, if you have another career, family obligations or any other properties in your portfolio, managing all of these details will be hectic and overwhelming.

Hiring a good realtor or property manager as soon as your rental property is ready for the masses will take care of this day-to-day hassle, allowing you to still benefit from the life of a property investor (just without all the headaches).