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Q&A - What are some of the common mistakes made by property investors (Transcript)

Hear from Dale Alcock, Managing Director of the Alcock Brown-Neaves Group and Peter Gianoli, General Manager of Investor Assist, as they address common mistakes made when dealing with investment property.

Transcript: What are some common property investment mistakes?

Dale: I think the most common, in my opinion, for early investors or people doing it for the first time, is letting their heart rule their head. I think, getting emotionally involved, you know, "We love this location" or "We love this house" or "We're going ahead with this, and we just put a little more of this in and a little more of that in." And then they find that their entry price, be it land and house combination have just gone too far. And they've added things in that emotionally they think are right and give a bit of return. But at the end of the day, when you get down to the nuts and bolts of it and do the equation, they've just burnt their return along the way. And when you get the emotion involved, and you haven't looked at this with fundamentals, you're missing the mark. And so what you think might be more appealing doesn't necessarily result in a property that's got greater longevity, has got more appeal to tenants, et cetera. Because you really haven't sought that expert advice, and at the same time, kept within a budget.

Peter: Yeah, absolutely. And I think the other thing that property investors have been known to go wrong in is they're just not doing their research. There are lots of property investors, plenty who come to us, who go, "Look, I got caught up in a sales environment a little while ago and I signed up a contract, and I'm now not too sure about it." And you go, why aren't you sure about it? "Ah well the bank said I'm going to need to put in more money that I don't really have." And you go, oh, well, have you seen the investment? "Oh, no, we haven't seen it." And you think, well, that's a half a million-dollar investment you're talking about here. Do your research. Even if you do decide that you want to buy something on the other side of Australia, well I'd hazard a guess that you probably should hop on a plane and go and see something on the other side of Australia. It's a half a million dollars.

Dale: And it's interesting, just an anecdote from this week. I had a farmer from my hometown who rang concerned that his two sons had each bought a separate investment property from an operator. And he rang me to ask my advice. And I suppose my advice was, it's a pity he didn't ring me before they'd committed in the first instance. But then, when I googled the name of the organisation, the first thing that came up in the Google search was relating to a scam from the organisation of which they'd committed to purchasing two properties. So, you know, again, an early mistake for beginners... trust, confidence, reputation. Who are you engaging with and for what purpose and what outcome? And I think it's absolutely critical that your first step is the right step and it's a confident step.

Peter: Yeah. And I suppose the other tip is to make sure that you are allowing yourself enough time for your property investment to perform. So if you really are having to take a serious gulp and a serious cut to your family budget to get involved in the investment property, you need to ask yourself the question, can this survive for at least seven years? Because that's what it may take for you to get the truth out of the performance of your property investment. So as we like to say to clients, borrow 80%, buy 80% of the median house price in that particular area, and think eight years. Then, it's a pretty safe investment. But if you borrow a lot, lot more, and you pay over the odds, and you think you can turn it around in a short period of time, you're not investing. You're actually speculating. And you could be lucky, could be unlucky.

Dale: I think it's interesting too that in investing, people that purchase shares, they don't always buy in at the lowest point and exit at the highest point. But sometimes people think they can do that in property. Get in at the low point and get out at the high point. And I just sort of think you've got to be thereabouts. You know, it's not in absolutes. It's about that return over time. And as Pete indicates, it's about patience, and allowing time to go through that cycle as well. Peter: Yeah, and I suppose the one other mistake I can throw in is the one we get from our own clients. Particularly clients in their late 40s, early 50s. And they always say to us, "The biggest mistake I ever made was not buying the house next door when it came up for sale." And look, they couldn't buy it. At the time, they didn't have the disposable income, whatever the case may be. But they tell us the story. The house next door was available for $60,000. Twenty-five years later, it's now worth $660,000. And that's where they kick themselves. So we always say to clients, well okay, you can now afford it. You've now got the mathematics in front of you to show you that this property can work. Don't make that same mistake again the next time. Don't say, "I'll think about it."