Investing can be a rewarding pastime but full of tricky traps for first time investors. Often an investor can be tripped up with simple mistakes and purchase an investment that may not hold the best outcome. So what do you need to look out for to ensure your investment delivers above your expectations?
No one wants to rent it
Whether the location is incorrect, the price too high or the building itself is a difficult shape to work with; your potential tenants need to love the property to help you pay off your investment mortgage. If they don’t, then you may be stuck with an investment that is not making the returns you projected. In some cases you may be out of pocket for the period of time that there are no tenants in the location, this may put added pressure on you and your own cash flow.
Ensure when you start looking for a commercial investment that there are plenty of tenants who want to rent the space. In some cases you may need to spend some time staging, repairing or advertising your property for an extended period of time, all these costs can add up over time and devalue the investment from the onset.
Rushing into your purchase
Letting your emotions take control of your purchase is a big no-no. Even if there is a gorgeous chandelier in the reception, even if there are sparkly new appliances in the kitchen area, even if it’s in a prestigious suburb you MUST contain yourself. These things may not make a perfect investment for you. There is no need to rush into your purchase, spending the time finding the perfect place, in the perfect location, at the right price will pay off for you in the long run.
Not budgeting for fit out and repairs
Investments don’t always come turn key ready. Most investments will require some sort of repairs or updating just to get it ready for renting. It’s important that when you start to look at investing that you are conservative with the amount you spend on the building itself. Cadwells have created a handy fit-out guide to help you budget for the right amount and not end up stretching yourself too much. Ensure that you do as much research as possible when it comes to your budget and allow for 10-15% of your total budget allowance in case of costs you just don’t know about on first inspection.
Not doing your research
As with all investing, whether it’s residential property, commercial property, or stocks, you must always do your research.
Can you answer these questions:
- Can I afford to invest?
- If all goes wrong, can I afford to lose this money?
- What do I expect to get back?
- What am I willing to invest in?
- Can you afford the fit-out?
- Can I afford any emergency repairs?
- How much insurance will I need?
- How much time do you want to spend managing your investments?
As always, when it comes to investing, speak to your financial planner and accountant before looking into any new opportunities. With the right decision and the right property your investment portfolio could be the start of something beautiful.