[ad_1]
When you start out as an investor, the idea of buying a property as you march towards financial freedom is full of excitement and promise.
Yet, the closer you get to making it a reality, the more stressful and confusing it can all become – often because you are trying to make sense of conflicting information and advice coming at you from all corners.
When I’m advising investors who are unsure of what action to take next, there are three simple but important questions I suggest they ask themselves to remain decisive and action-oriented:
- Do I understand the full costs of buying an investment?
- Am I getting the right advice?
- Am I buying with my head or my heart?
If you can answer these questions in confidence, then you are well situated to avoid the most common homebuyer mistakes.
If you’re struggling to answer these questions confidently, then perhaps a little further investigation is in order.
1. Do you understand the full costs involved in buying an investment?
I’m not going to generalise by saying this applies to all new investors, but in my experience, I’ve found that a large majority of first-time property buyers aren’t very good at accurately estimating the costs involved in buying an investment property.
They may get an estimate of what amount they borrow from an online calculator, and they occasionally look into other property ownership costs, such as water and rates.
But there is so much more to it than that.
First of all, you need to consider the other costs of purchasing a property, over and above the deposit.
The mortgage repayment you will pay is not the end of the story, by any means.
There will be a number of upfront costs and fees including stamp duty – depending on the purchase price, this can range from $3,000 through to $30,000-plus – along with loan application fees, settlement costs and mortgage insurance if you do not have a 20% deposit.
Some loans will allow you to include mortgage insurance into the loan, which means you will ultimately pay interest on your LMI fees, but it gives the benefit of not having to find that lump sum of cash upfront.
All of these costs can add up to a number of unexpected, up-front, out-of-pocket expenses – and we’ve not even discussed the costs of property ownership yet.
After your upfront costs and mortgage repayments have been accounted for, you will have other financial responsibilities to take into account.
These will be ongoing costs like council rates, water charges, insurance, and maintenance expenses.
Finally, you need to build a financial buffer. This will help to protect you against rising interest rates and unexpected financial hardships, such as losing your job.
2. Are you getting the right advice?
Just like it doesn’t make sense for your hairdresser to make your business decisions, you shouldn’t rely on your real estate agent to provide advice when you’re making substantial financial decisions.
They are acting on behalf of the seller and they do not have your best interests in mind, regardless of how helpful they appear.
They might sound very convincing when trying to sell you a property outside your price range but remember, they don’t know your financial situation and they are being paid a commission.
To gain personalised advice from someone with a vested interest in your financial success, you could consider working with a buyer’s agent so you have your own professional advocate.
Furthermore, it pays to remember that a real estate agent is not a lawyer and their advice on clauses and conditions to add to contracts should be taken with a grain of salt.
For example, many real estate agents advise buyers to add a building and pest inspection clause to contracts.
Buyers then assume they can back out of a contract if, for instance, asbestos is found – only to find that this could constitute a breach of contract because it is not a major structural defect.
Getting professional legal advice might suggest changes to your contract in order to give you more protection, flexibility, and ownership over your decision to proceed with the purchase.
3. Are you buying with your head or heart?
We’ve all heard the advice to stay objective when making investment decisions, but it can be difficult to remember this when you walk into a property that could just be your ideal investment.
Instead of remaining objective, you may find yourself immediately daydreaming about wall colours and furniture choices – even though you know that it won’t be you residing in the property.
This can be dangerous and make you blind to a property you really should avoid.
First of all, the stars in your eyes will be obvious to the real estate agent and won’t do you any favours in negotiating a better price.
Secondly, this kind of emotionally-led thinking can prompt you to go beyond your budget, leaving you open to all sorts of financial risks.
Your longed-for investment property can quickly become your biggest regret if you have to skimp on your favourite hobby or work three jobs just to afford it.
Finally, if you find a fantastic investment property that seems to fit the fill, you’ll do almost anything to justify making it fit your budget and criteria.
But remember this: all the fancy renovations and fixtures in the world can’t make up for the good location, major noise pollution, or resale potential, so, be careful.
At the end of the day, the road to success is paved with many investors who have gone before you – but without clear intentions, they’ve never quite accomplished lasting success.
Go into your next property purchase with your eyes wide open and an expert team of professionals on your side, and you’ll be in the best possible position for long-term wealth and success.
[ad_2]
Source link
