Mistakes To Avoid When Investing In Sydney Real Estate
Investing in real estate is a big decision. Keep reading to learn about some mistakes to avoid when investing in Sydney real estate.
Any kind of investment can fail. Property investment is no exception.
Markets conditions change. Neighbourhoods stop being the hot, go-to place for people with disposable income. Getting the edge on your next investment is vital.
Even so, property investment can also be a path to long-term wealth building. Sydney real estate, for example, has seen tremendous growth. Some home prices rose more than 70% over five years.
With that kind of growth in real estate, how can jumping into the game be a failing move?
It’s simple. There are some common mistakes that many people make when they first enter into real estate investing. The Australian Dream is alive and well, we just need to be smarter with our investments. To help you succeed where others failed, we’re going to look hard at some of those common mistakes.
Many people enter into property investing expecting it to make them rich overnight. When it doesn’t, they get impatient.
Investing in Sydney real estate, or any real estate isn’t a path to short-term financial prosperity. Real estate takes time to accrue value and it takes time to sell. Granted, real estate in a hot location accrues value and sells faster, but not that much faster.
In the rush to sell, people often overlook the many costs that go with selling a property, such as:
capital gains taxes
That’s before considering any other costs that you may have already paid, such as building insurance and renovations.
If your property hasn’t appreciated in value enough, all of those costs chew away at whatever profit you might otherwise make. That can get even more expensive if you took out a loan to buy the property in the first place. You need to pay off the entire loan, whether you make a profit on the sale or not.
Imagine taking your spouse to see a house that’s for sale. And you both fall in love with the place and the neighbourhood.
You know it’ll be expensive to fix up and that you probably won’t ever make back what you put into it. And you decide to buy the house anyway.
That is emotional buying and it’s fine when you’re buying a property for yourself. You’re allowed to be a little irrational about your own home. The same is not true when you buy investment properties.
An important factor to consider is this; the house you are buying is not for you. What you may consider to be undesirable, may be a perfect place to live for others. Some people like to live next to a freeway or don’t mind living next to power transformers.
Many people buy an investment property because the property is near to where they live, not because the property is primed to grow in value. The decision is based on emotional factors or simple familiarity.
You know the area and the people who live there. It seems obvious that other people would want to live there too and prove willing to pay a good price. Over the very long-term, you may even be right.
There are two major problems with that approach. Most people can’t afford to wait 20 or 30 years to sell an investment property. Any piece of real estate exists in a relationship with the surrounding area.
Without a thorough understanding of that relationship, you can’t gauge how long it will take to sell the property at a decent profit. All of which brings us to our next mistake.
Insufficient Research on Sydney Real Estate
There are really two levels of research that go into choosing real estate in Sydney. You have your informational research and your lifestyle research. Let’s start with informational research.
Informational research is comprised of facts and value trends. Some facts you’ll want to consider are proximity to schools, medical care, and shopping. You’ll also want to consider facts like vacancy rates, current rental prices, infrastructure investment and employment statistics.
When you put all of that together, you get a good picture of how things are in an area right now. Then you consider value trends. Did property values and rental prices go up or down over the last few years and is that expected to continue?
Then you need to consider lifestyle factors for the neighbourhood. For example, the Surry Hills area attracts young professionals and has a thriving nightlife. Sydney real estate in the Bondi area attracts surfers and expats.
Understanding the lifestyle differences in neighbourhoods gives you a better idea of what kind of tenants you’ll attract. This, in turn, lets you decide whether or not those are your ideal tenants. Don”t forget to use Landlord Insurance.
The one thing to beware of in analysis paralysis. That’s when you’ve accumulated so much information that it overwhelms your ability to decide. It’s a bit like going into a Bunnings Warehouse for nails and walking out with nothing because there were too many choices.
N.B. Our Property Investing Workshop, will guide you through many aspects of property investing. and will set you up for financial freedom
Underestimating Renovation Time and Costs
If your investment strategy involves “buying to renovate”, In order to keep initial costs down, you may decide to find and renovate a run down property. This approach will work, but many first buyers underestimate the expense or total time it will take to do the renovations.
Say that you planned on doing most of the work yourself. You may have overestimated how quickly you could finish the project, which adds time. The house may need work that requires expertise you don’t possess, which adds the expense of bringing in tradies.
Even if you planned on outsourcing most of the work, the costs and time to completion aren’t guaranteed. The simplest way to avoid these issues is to over-budget for costs and time.
Include a buffer of 10%-20% for the costs, because those are almost always higher than expected. Give yourself an extra few weeks to finish.
Preparing for predictable problems protects you if they do happen. If everything goes as planned, your property goes on the market sooner. Either way, you win.
Not Hiring a Property Manager
It’s possible to manage your own properties. Around 22% of rentals are owner-managed. Just because it’s possible, it doesn’t mean you actually want to do it. Getting a property manager is a great tip, and will free up more time for you.
Property management can quickly turn into a black hole that swallows all of your time, even with fantastic tenants. After all, even the best cared for properties will develop problems that need attention.
Plumbing will leak. Heating or cooling will fail. Paint will fade.
If you’re managing the property yourself, it’s all on you to deal with these problems as they show up. Then there are the problems that come with bad tenants. All of that work is a big reason why more than 75% of property owners choose to hire a property manager. It makes life easier.
Here a few of the benefits you get from hiring a property manager for your Sydney real estate:
handle tenant selection
arrange repairs and upkeep
deal with tenant disagreements
They essentially take on all the things that soak up your time and cause you stress. That leaves you free to focus on your next property purchase, spend time with your family or just go to your job.
Investing in Sydney real estate can be tricky, but it can also be a profitable venture. If you take care to avoid the mistakes above and treat it as a way to develop wealth over time, there’s no reason why you can’t succeed at it.
Australia Property Investing is committed to helping educate you about real estate investing. If you’re interested in our workshop or have questions, please reach out to us on the contact page.