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Mistakes when investing in real estate and how to avoid them


Debt repayment indiscriminately

Trying to pay cash for all your various sources of debt at the same time can be tempting. However, not all debt is created equally. Certain types of debt come with other benefits they don't have – such as tax deductibility.

One choice is to use your spare cash to only pay in cash for your non-tax deductible debt. This could include personal loans – such as used to buy a car or a holiday – or debt used for your primary residence.

Once this non–tax deductible debt is eliminated completely, you should move on to your income tax deductible debt — such as a loan on your investment property. In this way, you minimize the debt that does not give you extra cash at tax time, and maximize the debt that possibly can.

Omission of depreciation.

Moving forward with the topic of tax – especially as tax time will soon be upon us – a lot of property investors may not be maximizing tax depreciation deductions on their properties, this could lead to missing hundreds or even thousands of dollars of potential returns.

This problem could be fixed by seeking the help of a competent Quantity Surveyor who will prepare a depreciation schedule based on their assessment of your property.

Deferred rent.

What many investors often forget is that the real estate rental market can move much faster than the real estate market as a whole. This is why rents are often left to stagnate unchanged for several years. This means that by the time investors realize they should probably increase payments, they'll probably have to do so by $50 or $100 at a time – an amount that probably won't be very well received by tenants.

A better approach might be increasing the regulators $10 or $20 each time the lease is renewed. This will probably be every 6 or 12 months, depending on the lease period, and should be much more acceptable to those at the end of getting a raise.

Increasing rent regulators are better received by tenants.
Manifestation of an inflexible approach

On the flip side, investors may inadvertently lose money by clinging firmly to their ideal rental asking price. This unbending approach may cause their property to remain free. If their desired rent is $500 a week, it means they lose that whole amount for every week that no one is willing to pay that much.

Lowering the amount by dollar investors for $30 or $20 can convince a potential tenant to finally agree. Instead of viewing this as a $30 or $20 loss, it could instead be viewed as a $470 or $480 gain.

Where is the value?

Investment decisions should ideally be made based on the potential for wealth generation – something you can't “just know" without looking at metrics. These metrics include historical growth, local employment drivers and unemployment rates, percentage of vacant premises, harvest and population growth to name a few. They will provide a more informed indication of whether the property will fulfill or just provide a trendy zip code.

Look at metrics before making investment decisions.
Managing your own property

More and more people seem to think they can do it all, including investors trying to take care of every aspect of investment property management.

In the process, they have spent their time dealing with tenant complaints and other tasks that take them away from their primary goal – working on the next phase of their investment strategy.

By using the expertise of a property manager, you could mitigate a range of risks that you might not even know about, such as maintenance legislative changes, smoke alarm regulation, safety requirements, and many more.

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