"Sometimes it is appropriate to consider selling an underperforming property to enable you to buy a better investment."
Four mistakes to avoid in property investment: Michael Yardney
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When you look at the facts, despite there being over one-and-a-half million property investors in Australia, most don’t own more than one or two properties, which means that most property investors don’t ever develop the financial independence they desire.
In fact, only one in 200 property investors owns six or more investment properties, and you need at least that many to become financially independent.
Now that’s something to think about, isn’t it?
With our property markets now moving forward I would like to outline four of the common mistakes I’ve seen investors make, so you can avoid them and make the most of the new property cycle.
1. Buying the wrong property
While all properties increase in value over time, some increase in value significantly more than others. To build financial freedom you need to own the right type of property – one that grows in value sufficiently to enable you to borrow against your increased equity, giving you the funds to purchase further properties.
However, when you ask investors why they purchased their property they’ll say things like: it was close to where they live, close to where they holiday or close to where they want to retire. These are all emotional reasons for buying property, and while possibly a good way to buy your home, they are not the right way to buy an investment property.
2. Not having a plan
Most Australians spend more time planning their holidays than they do planning their financial future. If you don’t have an investment plan, how can you hope to develop financial independence?
I have found most Australians fall into four categories:
a. They don’t invest at all.
The majority of Australians fall into this group – they just haven’t taken action yet.
b. They don’t invest enough.
Many Australians have bought a home and understand the power of appreciating real estate, but they want to pay off their home before they invest in more real estate. This means they are not using the untapped equity in their home to further their financial independence.
c. They invest too much.
Some people invest too much – yes that’s possible! They have taken unnecessary risks and borrowed too much. Some of these investors came unstuck over the last year or two as property values fell, while others will run into trouble as interest rates rise in the future.
d. Those who invest the right amount.
Then there are those who invest just the right amount. Not too little. Not too much. They invest the right amount – sounds a bit like Goldilocks, doesn’t it?
These investors have an investment strategy and their investment property purchases are part of this plan.
The problem is that if you don’t have a strategy it’s easy to get distracted by all the “opportunities” that keep cropping up.
Unfortunately many of these “opportunities” don’t work out as expected. Look at all the investors who bought off the plan or in the so-called next “hot spot”, only to see the value of their properties underperform.