Common Property Investment Mistakes & How to Avoid Them



Property investment can be highly lucrative – there’s no doubt about that. But there are pitfalls to avoid and mistakes to be made that can impair the revenue you’ll receive. In today’s blog we share some of the most prevalent mistakes investment property owners make to help you to circumvent common disasters and maximise potential revenue.

 

Forgetting about depreciation

Depreciation is just another word for the value of general wear and tear that occurs on your property as it is used on a regular basis. This can be claimed against your taxable income and deducted, reducing the overall amount you’ll have to pay out on your profits. Each year hundreds of thousands of dollars go unclaimed by property investors who are unaware of the regulations and processes involved. Ideally you should take this into account when buying the property – but don’t worry if you didn’t – it’s not too late to start taking advantage of depreciation now. You can find further guidance on our dedicated depreciation blog here.  

 

Repaying debt without a plan in place

There are usually multiple debts to be repaid during the course of property investment – it’s par for the course. But there are two ways to go about the repayment of associated debts – the smart way, and the not-so-smart way. In an effort to avoid mounting costs, landlords keen to clear debt try to pay down different sources simultaneously. Whilst this may seem to be a resourceful and sensible course of action, it could actually eat into your profits. This is because not all debts are created equal – some are tax deductible, for example. It’s worth assessing your debts in their entirety and discussing them with your accountant, who can advise when to pay and how much to pay on a monthly or yearly basis.

 

Never updating rental fees

Rent should naturally fluctuate to keep up with the fast-paced property market. Yet many landlords leave their rents to stagnate - sometimes for a number of years – until they are forced to increase the rate to ensure that the property retains viability. By this time the difference has run into hundreds of dollars – a raise that’s not only not going to be well-received by tenants, there are laws governing rent increases restricting the amount and frequency of rent increases. Instead adding $10-20 each time the lease is renewed ensures that you stay on top of inflation, depending on the market rental rates at the time of lease renewal.

 

Inflexibility

For every landlord that fails to put their rental fees up often enough, there’s another losing out as they cling to an idealistic yet unrealistic rental value that’s putting potential tenants off. Although you may have a rigid view of the value of your property (likely because you’ve spent a lot of time and money getting it up to scratch), it may be left vacant for months on end if you’re not willing to reduce your ideal monthly fee, even by $20 or $30. Don’t view it as a loss and instead think of it as a gain – it’s much better to have tenants paying $480 per week than an empty property generating $0 of income. The week or weeks that are spent holding out for an extra $20-$30 per week rent while the property remains empty, quickly erodes any gain from a higher monthly rent.

 

Self-managing property

It’s tempting to manage your property yourself. The main reason behind landlords choosing to manage independently is money – they want to save on the cost of paying a professional. But the true scale of the role only becomes apparent later when you find yourself spending hours and hours each week on admin, tenant support and marketing. There are a number of specific downsides to managing your property yourself – primarily it’s incredibly time consuming and likely cuts into your work and home life. But from a financial perspective it can also be damaging – as without specific expertise and experience in property management you could find you’re losing out on additional revenue or make costly mistakes that wipe out your profitability altogether.

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