Below Market Value

Mistakes to avoid when property investing

Everyone makes mistakes, but when it involves a crucial decision the result is something else - disappointment. The experience holds true in buying property investment. Because the stakes are high, the mistake can be a life-ruining experience.

Experts said the first home buyers mistakes result from:

1. Oversight. Overlooking the imminent increase in mortgage interest rates;

2. Listening to wrong people. First time home buyers, who immediately shows confidence can fall prey to nice-talking agents and brokers.

3. Buying based on emotion. Inexperienced investors can easily fall victim to sales pitches about properties that are lacking in fundamentals. This is way we are adamant about teaching our clients to look at the figures and not become emotional when investing.

Industry players – the mortgage broker, property lawyer, real estate agent and property adviser, warn on some of the biggest mistakes by first home buyers:

1. When interest rates vary. First home buyers should weigh the current mortgage repayments with those in August 2008, when the RBA's official cash rate was 7.25 per cent. If the first home buyer is not prepared for that three to four per cent buffer, he would be in trouble, according to finance service experts.
Example: A home owner with a $300,000 home loan is paying $1656 a month in mortgage repayments, against $2420 at the same time a year before. It is equivalent to a monthly basis for two people on
$40,000 each.

If the interest rates rise quickly, a first home buyer can be devastated, financially, and could lose his house if he defaults on repayments. Choose your mortgage solution wisely and if concerned about rising rates lock in fixed loan and not variable to avoid such an occurrence.

2. Undermining the full value in buying a home. First time buyers miss including all other costs involved, such as the actual stamp duties, rates, valuation costs, loan application fees, corporate fees, and others which needed to be paid at settlement.

3. Short financing periods. First time investors also fall into the pit of short financing periods, at the time where where extension is difficult. According to some property experts, it is much better have a longer period, or at least 21 days, to secure financing.

4. Not paying your deposit. A deposit is required within three days from the sale, usually from finance approval (depending in what state you live). If you were slow in getting finance approval and did not prepare yourself by obtain pre-approval you could lose that bargain you worked so hard to snag!

5. Allowing agents not to include a building inspection condition into the contract. Some real estate agents gyp the first time buyers to not include a building inspection in the contract. The purchaser then cannot end the contract if sought out a building report later which discloses a significant structural defense.

6. Assuming the bank approval. Some buyers simply browse on the Internet site to compare the bank's information on their loanable amount. Experts said; however, there is a difference between what the bank will indicate they can lend out, and what they will.

7. Freaking out at building inspections. First home buyers freak over building reports. They would feel there is no way to buy the property, and then would pull out.

8. Going beyond the budget. First time home buyers fail to stick to their budget in buying the property. They want more than what they can afford, leaving them devastated in the end.

9. Buying with heart rather than head. Investors must use their head instead of their heart, or emotions. They can get attached easily with the investment as being “new and shiny” than knowing exactly how terrible it is as an investment.