The national property market is showing signs of increased investor activity. The market is seeing a mix of experienced investors returning after consolidating during the pandemic and first-time investors entering the market.
For newcomers especially, navigating property investment can feel overwhelming, and even seasoned investors can fall into common traps.
Let’s explore some of the most frequent mistakes investors make, and how to avoid them.
Chasing too much rent
It’s natural to focus on maximising rental income when investing in property – after all, it’s a financial decision with significant expenses attached. Between mortgage repayments, high-interest rates, insurance, maintenance, property management fees, and, for units or apartments, owners corporation fees, the costs add up quickly. However, trying to squeeze too much rent out of your property can backfire, leading to costly consequences.
Take, for example, a $600-per-week apartment. Raising the rent by $25 might seem like a quick way to add an extra $1,300 annually. But if the property sits vacant for just two weeks, that extra income vanishes. Moreover, a higher rent might prompt renters to move out, triggering additional expenses like leasing fees, advertising costs, and potential repairs to attract new renters. What an existing renter might tolerate – like minor marks on the wall – could require costly updates, such as fresh paint, to appeal to a new renter.
Rather than chasing top-dollar rent, aim for a moderate increase that aligns with the market. This approach minimises vacancies and avoids the hidden costs of renter turnover while still helping you achieve consistent returns.
Falling behind rental market rates
While chasing excessive rental returns can be risky, the opposite mistake – failing to increase rent when needed – can also pose challenges. Many investors choose to keep rent static for good renters, valuing the stability and care a reliable renter brings to their property. This can be a smart strategy, even if it means a small shortfall in rental income.
However, letting your rent fall significantly below market levels can create problems over time. If circumstances change and a renter can no longer afford to pay market rates, it may be in everyone’s best interest for them to move on. Yet, catching up to market rent after a prolonged gap can be difficult, both financially and logistically.
Additionally, falling too far behind market rent could lead to complications if disputes arise or matters escalate to bodies like VCAT. Bridging large gaps in rental rates is far more challenging than making gradual adjustments. To strike a balance, ensure your rent remains aligned with the market while avoiding increases that push renters beyond their means.
Overcommitting on long term leases
Signing a renter to a long-term lease might seem like a smart move. It offers income certainty for investors and housing security for renters, creating a seemingly win-win situation. However, this approach can backfire if circumstances change – particularly if you decide to sell the property before the lease ends.
For investors, exiting a lease agreement is far more challenging than it is for renters. For example, if you find yourself needing to sell a property with 18 months remaining on a two-year lease, you’ll be limited to marketing it primarily to other investors. Owner-occupiers, who make up a significant portion of the buyer pool, are unlikely to wait over a year to move in. This reduced competition can lead to lower sale prices, as investors recognise your limited options and may undercut the value of your property.
To avoid this scenario, keep leases to 12 months or month-to-month arrangements when flexibility might be necessary. This approach gives you greater control and ensures your property appeals to a wider range of buyers should you need to sell. While long-term leases may suit some situations, they require careful consideration of future plans and market conditions.
Not maintaining the property
One of the most common mistakes property investors make is neglecting regular maintenance. Unlike shares, property is not a ‘set and forget’ asset – it requires ongoing care to preserve its value and ensure renter satisfaction.
Some investors choose to delay maintenance until the property is vacant, planning to address all issues at once. However, this approach can lead to escalating costs. Small repairs left unattended often become larger problems over time. For instance, a simple $200 dishwasher repair could balloon into a $1,000 replacement if ignored for too long.
Proactive maintenance not only prevents costly surprises, but also helps maintain a positive relationship with renters. By addressing necessary repairs promptly, you safeguard your investment while creating a more pleasant living experience. In the long run, staying on top of the little things can save you significant time and money.
Not attending owners corporation meetings
For investors in apartments or units, skipping owners corporation (OC) meetings is a surprisingly common mistake – despite being an easy one to avoid. Most OC meetings are held annually and are increasingly conducted online via platforms like Zoom or Teams, making attendance as simple as logging in from home.
Participating in these meetings gives you a direct say in decisions that impact the management and maintenance of your property. Unlike standalone houses, where you have full control, owning within an apartment development means your asset is tied to collective decisions. Attending OC meetings allows you to build relationships with the OC manager and other owners, ensuring that decisions align with the long-term interests of the property.
When owners skip meetings, several risks arise:
- Deferred Maintenance: Without active participation, essential upkeep, such as gardens, stairwells, or communal areas, may slip through the cracks, diminishing property value.
- Excess Spending: Conversely, a majority of owner-occupiers could push for upgrades that enhance their livability, but don’t deliver financial benefits for investors.
Regular attendance ensures balanced decisions. For example, if a quorum isn’t met during an Annual General Meeting, decisions can default into effect after 28 days without owner objection. This dynamic gives even a small, vocal group of owners disproportionate influence, potentially leading to suboptimal outcomes.
With consistent participation, you can protect your investment, help maintain the property’s quality, and even foster improvements.
Skimping on property management fees
It’s natural for investors to keep a close eye on expenses, especially in today’s economic climate. However, focusing too heavily on minimising property management fees can lead to significant drawbacks. Your investment property is likely one of your largest assets, second only to your home, and ensuring it’s properly managed is critical to maintaining its value and long-term profitability.
Opting for lower fees often means sacrificing quality. Lower-cost property managers may have less experience, limited knowledge of legislation, or reduced access to reliable tradespeople. This can result in delayed repairs, mismanaged renter issues, or compliance risks. Conversely, an experienced property manager provides stability, market expertise, and proactive problem-solving, often saving you money in the long run.
For example: A $1 million property rented at $700 per week incurs an annual management fee difference of about 2.2% between premium and budget services. That’s approximately $800 per year – or just over a week’s rent – before factoring in tax deductions. While saving $800 might seem appealing, the added value of a skilled manager handling issues swiftly and professionally can far outweigh the initial cost.
It’s easy to undervalue a property manager when everything runs smoothly. But when problems arise – such as a renter defaulting on rent or urgent repairs needed – a competent property manager becomes invaluable. They’ll handle the situation efficiently, protect your interests, and ensure your investment remains in good hands.
Take home message
Successful property investment is about being proactive and strategic, ensuring your decisions today build value and adaptability for the future.
By staying involved and forward-thinking, you can protect your assets and position them for long-term growth in an ever-changing market.
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