Property investing may seem like a fairly simple process. Given many people have, at one time or another, bought themselves a property (usually a home) means, most understand the mechanics of acquisition. You find a property that’s within your budget and seems like a good prospect. You negotiate its purchase, settle and then pop in a tenant who helps pay down the mortgage while you wait for the capital gains… simple.
This sort of DIY approach to real estate investment is fuelled by the growing number of amateur analysts and investor communities that have sprung up on social pages over recent years. While they can prove supportive and helpful, people of these pages are happily dishing out advice to anonymous recipients. These buyers then plough on into the investment world with no idea of the financial damage they’re doing to themselves.
But there are some very good reasons why you shouldn’t go it alone when it comes to building a property portfolio. In fact, DIY investing is riddled with dangers.
Bad investment choices
The number one danger in DIY investing is the simply bad property and location selection.
Most buyers don’t have access to the wealth of available data that specialist advisors do. A skilled and experienced professional can look across a range of metrics and quickly determine which of those locations has the most promise when it comes to capital gains and rental returns.
In addition, different property types will perform to different levels – even in the same suburb. Again, advisors are skilled at studying the pros and cons of all options to help secure the right asset.
Finally, not all assets will suit every investor’s situation. Some investors will need to trade off capital gains potential for higher rental returns. Others will need to maximise depreciation benefits. Determining the right asset for your circumstances takes specialist skill.
Paying too much
This is the most common error DIY investor make. Many will find a reasonable property investment that’s making a decent rental return. Unfortunately, these buyers are often entering into negotiations against experienced property operators such as agents, developers or builders. They simply don’t stand a chance of outwitting them.
Property advisors representing their clients, on the other hand, will negotiate terms in their investor’s interests. They understand the landscape and the comparable evidence. They know what contract conditions can be flexed and which should be deal breakers.
Overextending yourself
DIY investors are always at risk of borrowing beyond their ability to service a loan.
This danger is particularly relevant now, given how interest rates are rising so fast.
When you go solo on your investing journey, you will be dealing with banks and brokers. Many borrowers will push their finances to the limit to secure a loan, thinking very little about the product they agree to and how it will meet their needs both now and in the future. Often, they’ll overinflate the rental estimate they can achieve in order to justify in their own mind what they can afford to pay in loan servicing.
In my business, we advise people to work with buffers and margins. The plan is to have a good financial safety net to weather unexpected costs such as rate rises or emergency repairs.
Short-term thinking and herd mentality
DIY investors tend to follow the herd, which can see them investing in less-than-appropriate assets in undesirable locations.
Take the mining-town boom between 2011 and 2015. These markets were generating outrageous rental returns on the back of huge worker demand. All sorts of seemingly smart people dove in, overpaying for houses on the back of high rents – then, when demand tanked, so did real estate prices. Property values plummeted and investors were left in dire straits.
Using an advisor insulates you from bad, frenzy-fuelled decisions. It keeps your investing personalised and focussed on the long-term upsides.
Unscrupulous marketeers
This is a huge hazard for DIYers. While looking to gain an education in the world of property investing, DIY investors will attend free seminars or undertake online courses. While some knowledge may be earned, many will end up in the circle of sharks. These are operators who, under the guise of providing knowledge, lure unsuspecting investors in to buy their property. They will claim to have “incredible off-market opportunities”.
Little knowing buyers don’t realise that the person paying these marketeers are the property developers. Oversized sales commissions are prompting them to sell to you at inflated values.
Specialist advisors can insulate you from these crooks and help keep your financial plan on track.
So, while DIY investing might seem viable, in truth, it’s a rocky shoreline you can easily run aground on. Instead, rely on a professional advisor’s skills, experience and ethics. They can create a bespoke strategy and guide you through the process, with the ultimate goal being financial security through property investing, delivered in a safe, sustainable way.
Always review any property investment strategy, location research and investment analysis data with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy. Never be SOLD an investment, know your numbers!
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