7 Big Mistakes First Time Investors Make
There are so many mistakes you can make as a first time investor that will significantly affect the return on investment and how long it will take you to become financially free. Here are 7 mistakes first time investors make that you should try to avoid. Are you making any of these mistakes right now?
0:00 – Introduction
0:49 – #1: Not Having a Clear Strategy
3:48 – #2: Buying Close To Home
6:55 – #3: Buying Units
8:07 – #4: Purchasing Overpriced House and Land/Unit Packages
10:50 – #5: Rushing Into a Purchase
13:30 – #6: Getting Overwhelmed
16:10 – #7: Not Negotiating Properly
there are so many mistakes you can make as a first time investor that will significantly affect the return on investment of your investment property and how long it’s going to take you to get financially free so in this episode we want to talk about seven big mistakes that first time investors make so hey i’m ryan from onproperty helping you achieve financial freedom joined by buyer’s agent ben everingham from pumped on property how’s it going yeah good man hell yeah very good i’m back up on the coast recording some vids for you guys so really excited to share this content
i’m just so keen for the next three days man it’s gonna be so fun we’re like shooting down to breezy on wednesday together doing a bunch of inspections and checking some stuff out it’s just gonna be sick to have you around the office for a few days man
yeah and so the market is changing at the moment so there’s a lot of exciting stuff happening a lot of first time investors getting into the market and so i think the biggest problem that we see not just with first time investors but basically all investors is not having a clear strategy
yeah so i think part of the reason why so many first timers are coming back is obviously money’s cheap it’s super affordable in a lot of markets around australia plus the liberal government’s just talked about what 10,000 grants for first timers starting from the first of january 2020 so huge opportunity to sort of get in there a little bit easier than you might have been able to
yeah and so having a clear strategy of how you’re going to invest is so important so i remember my parents buying a property back in the day when i was a kid there was just no strategy in that property they didn’t know why they bought it i guess they bought it for capital growth but that was it but they didn’t really time the market or anything didn’t understand the cash flow but unfortunately that didn’t cost them heaps of money but they didn’t make any money on it
let’s just say that the first property that i bought and i did like nine months of research i was absolutely killing it i bought the wrong street i bought the wrong type of property i bought the wrong type of product
you didn’t have a strategy did you have no
plan i had this like 50 page document on why i thought this property was a good investment and it was all bullshit stuff that doesn’t even matter completely so it’s sort of you know and that still worked out okay like i think the lesson that i learned is if you bought quality market close to the city you know that where there’s good demand and luckily i lucked out that it was the right time to buy sydney as well in 2011 you know things worked out but it could have on the flip side worked out way worse if i bought at the top of 2017 and yeah i’ve done the same thing over the last 20% so
so it’s really important to have a strategy and we’ve both done videos on how to create a strategy and we’ve gone into more detail in that so i’ll link up to those down below but the basics of it is understand where you’re at understand okay financially where do you actually want to be talking cash flow talking equity whatever your goals are and then i guess look at the obstacles getting in your way and what type of investment vehicle and what type of property is going to get you from a to b because if you’re if you want financial freedom and positive cash flow then a property that’s going to be highly negatively geared in a turbulent market that may or may not get capital growth you know is that going to be your best next step towards your goal or is it going to be better to buy you know a cash flow property or something so depending on where you want to end up will then determine what types of properties you invest in so getting clear on your strategy or not having a strategy is the biggest mistake we see people make so make sure you do that first and if you do want help getting clear on the strategy then ben and the team over here at pumped on property do offer free strategy sessions to people who are looking at getting in the market but just need help with that strategy so go to onproperty com au forward slash strategy if you want to check that out the second mistake which we see super common
definitely made every one of these mistakes but the second major mistake a lot of people make an idea is buying close to home you know it’s it’s more comfortable for some reason to buy way you know but if you live in a regional marketplace you know obviously that could cost you something long term in terms of your performance of your property or you live in sydney right now for example and the place that you want to own is worth a million bucks then you’ve sort of got to take a different perspective so i think buying close to home is dangerous because you have a bias around it’s better you know this huge sydney bias on like sydney is the best city in australia why cuz i grew up isn’t the best sydney show probably probably you know but it’s definitely the most beautiful city from my perspective but it’s an expensive one in our domain and you know what i bought was i grew up in angling which is the south side of sydney i bought my first property and miranda i could drive there and literally about eight minutes without traffic like door to door and for some reason that felt safer and more secure
yeah and so that’s the thing buying locally feel safe secure because you feel like you know the area you know that it’s a good area but generally speaking you don’t necessarily know the financials around that area so we’re about in the cycle is that area does the properties in terms of their potential growth and their yield fit in with your strategy if you have to buy units instead of a house like is that what you actually want to do and so a lot of people sacrifice a lot of research and the research you should do as an investor because buying local they think they just know the area but really when you’re coming into this as an investor not a homeowner it’s very different you need to look at very different things like vacancy rates in the area you know what’s the population growth what’s the average income of the area is that growing what’s job growth you know so many different things you
know and it’s such an easy way to start like it’s not overwhelming to look outside of where you grew up there’s a really cool report that ryan and i look at each month called the heron todd white or haich d w month in review you can just google that and it’ll show you all the major metro or the major regional markets in australia you can start to get an idea of where it looks like the right time to buy a where’s the wrong time and then from there as ryan said you know start breaking it down into which suburbs make the most sense and just a super easy way is if you buy within 20 ks of the city or if you buy walking distance to the beach in one of those areas that are at the right time you’re going to do less damage to your long term performance than buying for example 50 k’s away from the city or in some out the back regional market that you know doesn’t get population growth or job growth and those things that actually lead to future price gains
so make sure you’re doing your research on area it’s not always bad to buy local it can be a really good investment to buy local but you need to actually make sure that it lines up with your local box with your investment strategy and your goals and needs to line up with that we can not just be comfortable because you can drive past it
you know i still can drive past a lot of the property and i can take some advice but i keep luckily moving into the market just before it starts going up
yeah so the third mistake new investors make is buying units
yeah so called logic did an analysis of all of the markets in australia including the big cities and the regional ones plus all the little ones and they’d found that in the last 20 years houses have done 96% better than units so a lot of money to leave on the table if you’re buying something worth 400k 96% is like $380,000 the value that you might not have and it’s big and obviously market by market those numbers change that’s the average
yeah and that’s the thing like looking at like the units in different markets there’s been oversupply issues and things like that as well and then units you have less control over your investment less control over the strata fees and i think it was the first property you bought right is strata fees just got a high two massively which obviously destroyed your cash flow of the property and so not having that control can be you know pretty bad for a first time investor and so units aren’t necessarily bad investments they can obviously still be great investments but they just tend to carry higher risk and less of a chance of a good return than if you look at statistically what houses have done so moving on to the fourth one which is one that i hate seeing people make this mistake and i’ve had a lot of friends make this mistake to huge detriment is purchasing house and land packages that are way overpriced
unfortunately the way 80% of brand new houses or units are sold in australia is as a house and land package or a unit of the plan package and that effectively means that someone’s coming to you with generally something that looks beautiful and shiny and they’re selling you this beautiful brand new home in this really cool area that’s going to explode in value that you know presents really really well but it’s got all these tax benefits and then you find out after you’ve done it and i’ve been through this as well i think on my fifth property i’ve got sort of stitched up this way and i lost 40,000 bucks in a year which compared to some people we’ve both spoken to like we’d lose hundreds of 1000s of dollars yeah
will do house and land packages in mining towns which they then can’t rent out or sell and so they’re still in the situation so you just need to be really careful with house and land packages again with every investment type there’s some good ones out there but there’s also some carry higher risk and this is definitely the high risk category especially if you see things like guaranteed rental returns that’s generally a red flag because that means that money is coming out of a higher sale price and so an easy way to just protect yourself against overpaying for a house and land package is just to look at the local area and to look at existing houses that are similar to the one that you’re going to build and look at okay what are these houses renting for how much are these houses selling for what are they actually worth because what’s the point of going through a house and land package and building new if you can buy the exact same thing that’s just been built for 50 grand or 100 grand cheaper and also look at vacancy rates in the area as well so just be very careful with house and land packages
yeah and i think that these house and land packages it’s really important to not get caught out with the hive like genuinely these people helping you do it for free it might be your counting it could be a mortgage broker it could be a financial advisor or it could be like a property coach or a mentor that hold your hand or someone that you’ve seen on stage get you into this brand new package but unfortunately most of the time these guys are making between 30 and up to 200,000 bucks behind the scenes and it’s can really affect you long term so in terms of if you do want to do brand new because i know there’s a lot of massive first time buyers grants around australia i think in brizzy right now queensland you get about 10 to 15 grand and now it’s the same in perth if you build brand new on top of the other stuff then go find your own piece of land go to three or four builders and get the one plan priced out from them and then try and make the smartest decision you can
yeah so that’s obviously more work but then you’re gonna get something for a good price
yeah so the fifth mistake we see people make is rushing or getting very emotional when purchasing a property
yeah purchasing a property is hard the first time around like it actually is tricky and a lot of people get fatigued because they might lose five or six houses before they actually get to buy one they might just sacrifice a bunch of the things that they should have been looking for
yeah well it’s not even that they missed out on them necessarily and going through the negotiating process but i got a friend who she’s looking for her first purchase at the moment and she went to you know eight open for inspections during the week and then she did like five or six on the weekend you know and she’s just in the starting journey of that and so it’s like that wears you out pretty quickly and so are there’s this property it’s like good enough even though it doesn’t really have the aspect that she wants you know and it’s like do you actually know but you just get so fatigued from doing it that you know sometimes you just like i’m just so tired i just want to buy something and then you jump into the wrong investment
i remember driving around looking for my second property
mosquito flying around
our second property that i bought and i went up to the central coast of sydney because it was where i could afford to buy and i just drove around for one big day with an agent he showed me 13 properties and then i bought one and i had no like even when you say like orientation or aspect yeah there was no like i should buy like a north facing east facing backyard that was like
what was it west land
it ended up being a lot a lot of the things that i’ve accidentally done i’ve actually worked with it that was a full on accident you know like it’s just about being patient at that time i was so excited to buy here he did the traditional real estate thing which is show me all this crap and then the last one looked a little bit better and you know anyone who was doing i had no idea so just you bought the last one pull the last one of the day when i was super fatigued but i didn’t get it for a good price at the right time and i wasn’t a dummy on the second one like i started to learn more i used the building and pest inspection that looked really bad to negotiate like a 25 grand discount and started to get more sophisticated from that point on
yeah and a way to i guess avoid this fatigue as well comes back to mistake number one which was people not having a strategy if you have a clear strategy and understand what type of property and what type of figures in terms of purchase price rental income and opportunities that you need in order to move you towards your goal then it becomes a lot less easier it becomes a lot easier to sift through property so you’re not just looking at everything and not really knowing what to buy you’re only looking at the things that really match up with your goal which kind of leads us to the next mistake is people just get overwhelmed because you know when you don’t have that strategy and you’re just looking at everything is extremely overwhelming feeling what do i buy i don’t know as well as the process of how do i make an offer you know how do i negotiate how do i settle forget finance all that sort of stuff is very emotional
this sooner i think everyone recognizes that buying a property is scary and that is overwhelming and it is stressful and it’s a whole lot of new stuff and humans hate you it’s like oh my god i’ve got to retreat back into what i know the sooner you can just accept that and go okay i’m gonna feel uncomfortable now let’s get logical let’s get rational and let’s learn a little bit more before we jump in because you said ryan like i think the strategy plays out 99% of the stuff because if you’ve got a strip like when we call it strategy what we’re talking about is a simple little one page list of things that you want to buy so it could be like good good suburb for these reasons take you know right market because of the heron todd white report tick you know right aspect for the backyard or a nice quiet street or a bit closer to the city or the beach a house tick you know
it starts to become really easy because if a house has the wrong aspects you’re like oh wrong aspect throw it away and then okay house does have the right aspect let’s look into it all it’s on the main road throw it away you know and so you start to go through that sort of stuff so that definitely reduces the overwhelm when it comes to picking your properties and if you’ve done yourself a research first then you know exactly Hey, what’s up those you’re looking in. So you’ve reduced your overwhelm, not looking outside of that. And that’s all just if you’re willing to be patient and take your time, that can reduce a lot of overwhelm as well. And then I guess, build a good team of advisors around you. So have a solicitor have a conveyancer has someone that you’re going to get for the building and pest inspection. And if you have that team around you, then they can help you and guide you through the steps.
Yeah, and you know, if you don’t have those people, there’s this incredible search engine called Google. Normally, the best players are at the top of Google, well, not always, but most of the time, or you can ask someone that’s bought a property before who they used. Or you can even ask the real estate agent who sold you the property around which manager, they’re always probably gonna say, their own company, and stuff like that. But it is it is tricky, but it’s not impossible to do this really well. And I think I talked to people every single month that a 345 properties down that has no idea why they own anything they own or no idea where they’re going. So if you can do the right stuff up front, you know, you can save years and years off the journey that we’ve both been through to get to a better result sooner.
Yeah. And the last mistake that we see people make is not negotiating properly, and just letting the real estate agents take them for a ride, basically.
Yeah, so negotiating is super simple, right? If it’s a very, very hot market, it means your ability to negotiate contract is hard on its strengths. And so what that means in a hot market is, before you even place an offer, you should have been on the sold section of real estate calm and trying to find comparable sales so that you know where it’s what it’s worth, then in a hot market, all you do is a pretty good offer with pretty good terms, you know, say you want to pay 400k for a place, maybe you put an offer at 390,000 with some okay times. And then because it’s a hot market, you’re only going to have a few days to sorted out. So you go, you know, then you want to pay 400k in your next offer with your best terms. And it’s that simple.
Yeah. And then the big thing when negotiating as well is that then put time pressure back on the agent. So what happens with first time investors is that often they’ll make an offer and an agent, because you’re so invested in that property and purchasing it, that agent kind of holds that offer, and then uses it to their advantage and for their own leverage with other people who are potentially interested in the property. So when there’s an open home, they’ll say there’s already written off on the table to try and push others to make higher offers. But if you can make an offer with the agent, you know what the property’s worth or what you’re willing to pay for it. As Ben said, in a hot market, you make an offer pretty close to what you want, but with some wiggle room, and then you can make a second offer, and then say, Okay, you’ve got either to end a business today, or you’ve got 48 hours in order to close this, otherwise, my offers off the table. And that doesn’t mean you can’t go back and renegotiate on that same property. But it means you’re not left sitting in no man’s land, and can’t go and look at other properties or make offers on other properties. Because you’ve got this other sitting there waiting. And in a cooler market. It’s just the same process. And then you can you can start with a lowball offer and something that’s, you know, a little bit ridiculous that low, like
what you want is for the agent to just straight up say no, that’s, that’s when you know, it’s too low, you know, when the agents just laughing at you. And they’re like, no, that’s not even going to be close. And, you know, another cool thing about technology today is on realestate.com, or domain, you want to know who you’re working with, or you’re competing against, like, you want to know who the agent is. So click their name underneath the listing, and it will explode out how many sales the items made in the last 12 months, as well as all the properties have sold. Now, the general rule of thumb, if an agent selling less than 15 to 20 properties a year, they’re kind of, and if they’re selling less than 10 a year, then you’re probably on a semi equal footing. If there’s an agent that you’re working with, it’s selling between 30 and 100 properties a year, then, as a professional negotiator, that agents probably going to have the upper hand, but those agents that are selling more are generally far more honest. And they’ll tell you up front exactly what it needs to be,
they can be the easier ones to negotiate with. And that’s if you have the price and what you’re willing to pay, and you have a step process where you make an offer, and then you can renegotiate higher, you kind of doing their job for them as well and that they can present your first offer to the owners. And then when they come back with a second offer, they’ve now negotiated higher for you even though you’re going to do that anyway. And you do that with a good agent or a poor agent is shown and it helps them because a lot of people don’t understand the agent is trying to get obviously the most money out of the buyer, but they also need to work with their seller and the owner of the property to convince them that this is a good offer. And this is one that’s worth taking. And so that’s why negotiating is really important because you need to help the owner through that process of understanding that this is a good offer. I do want to sell for this. And if you don’t get that owner to that point, I don’t help the real estate agent. Get the owner to that point. And then deals can fall through all the time. Even though it’s a great offer,
you know, some that you just said there is absolutely vital. And that’s educating the educating the agent on how you want the deal to go. So the first thing you need to know is exactly how much you’re prepared to pay. And if it goes $1 over that, then just walk away and find another property, like that’s the most leverage that you have. But the second thing is educating the agent. So recently, I bought a property on the sunny coast, the agent came in and I said, Look, mate, I do want to buy this property, I’m in a good financial position and can move forward with it. But I’m not prepared to pay what the what you think it’s worth, you’re not said this is my thoughts, I’m going to give you an offer with really bad terms really low to start a conversation, then I’m going to give you another offer and another. And I said all of this is between you and I, so that you’ve got negotiating power with the person selling that you’re selling the property for and it worked exactly the way that I wanted to, I bought it for about 120 grand below what the guy had paid for it before. Now, that doesn’t always happen that way. But I knew that it had just passed in an auction and some other stuff. I just think it’s really important to educate the agent and work with them and say, hey, how can I help you get the sale over the line? Join me to leave a little bit of room in there for you to come back so that it feels to the client like you’ve been working for them.
Yeah, so that’s a really advanced. So that’s a negotiating strategy that you’ve worked out, obviously buying hundreds of millions of dollars worth of property now for clients, you start to learn this sort of stuff. But yeah, just even having that simple negotiating process will make a huge difference. And me and Ben did a video fully explaining how to negotiate. And so we’ll link up to that down below if you need some extra help with that. So they have seven mistakes that first time investors make not having a strategy, buying local only buying units, overpaying for house and land packages, rushing or getting emotional or feeling overwhelmed or not negotiating properly. So if you can avoid those, you’re going to put yourself in a much better financial position. And if you do need help setting your strategy and understanding Okay, where am I? Where do I want to be and what type of property investments are actually going to help me get there. Then as we mentioned earlier, Ben and the team over at Pumped on Property here do offer a free strategy session so you can get on the phone with them and talk about your situation and talk about what you want to do. And they can help you really get clear on a path for you to build your property portfolio. So head over to onproperty com.au forward slash strategy. I’ll link to that down below as well. And you can book in a time there that suits you. Go ahead, check that out. Otherwise
stay positive Yeah.