5 Warning Signs That A Property Is A Bad Investment
There isn’t one single strategy suitable for everyone when it comes to property investment. Choosing the most successful property investment strategy depends on your type of personality, skill level, risk-taking ability, time availability, and the financial circumstances at that particular moment.
Looking to avoid making a bad property investment?Get in touch with Crash Realty today.
Here are the top 5 warning signs that a property is a bad investment.
Relying On Hotspots
The majority of property investors invest to financially gain from the process. If you invest in a suburban property that’s on the verge of a boom, you are more likely to make a good profit in a short period of time.
According to Australian architect Michael Yousef, it’s all about prior research. “You don’t magically just stumble upon an area that’s on the verge of booming. You don’t want to be joining the race at the back of the pack and fighting for everything, you need to know what areas are on the brink and get ahead of the chasing crowd.”
When there is more demand for the property, real estate markets can grow at 20-30% per year and a herd mentality appears as a result. The most important thing is to pick that hotspot in advance before things start to become too competitive. You can make a fortune when you get it right and watch your investment depreciate over time if you get it wrong.
Many property investors fear that they may not get a tenant or the tenant may not pay the rent on time. Hence, when a property for sale offers a guaranteed rent for the next couple of years, they grab the opportunity with both hands.
One Industry Towns
The location of your property plays an important part in determining how the property will perform in the long run. Consider how a location is likely to perform in the short and long terms to make the correct decision when investing in real estate.
For Leila Maminezhad, the founder of a corporate cleaning company, setting up shop in a one industry town is never a good start. “If a town relies on something for business, you’re not going to get many people interested in your property. It’s definitely wise to steer clear of investing in these types of towns unless there’s a drastic change in terms of what drives their local economy.”
In fact, property is typically a long term investment involving high purchase and selling costs. But there are certain risk factors that may cause it to change. If the property you plan to invest in is reliant on one main industry like tourism, mining, government, or manufacturing, it is more likely to carry more risk compared to a property that has multiple industries supporting it.
Sold Predominantly To Investors
Whether you plan to invest in brand new or second-hand properties, there are areas or buildings that have investors, owner-occupiers or a mixture of the two in them. You need to look for a better deal when investing in such properties.
Large Gap Between The Price Of An Equivalent Second-Hand Property
If your property investment strategy is based on investing in brand new properties, it can be difficult for you or even a valuer to calculate the value of the property. Just because there are other properties sold in the region, it doesn’t mean your property is worth that amount.
Telecommunications mogul Neil Royle notes the need to look at the market before you enter it. “It’s the same in business too. You need to assess the market, know what’s going on, who’s spending what and where. It’s very easy to waste money in real estate if you’re not analysing the current market.”
The other investors could have been unprofessional amateur investors who assumed they were buying well. The best way to see if you are paying too much for the property is to check the price of a renovated second-hand property in the neighbourhood and compare it with the price you will be paying for a brand new property in the area. We all make mistakes when investing in real estate. But it is easier to analyse such decisions with hindsight. The most important thing is to do your homework and work around any issues that come up.
For someone new to the property market, it’s easy to end up sending tens of thousands, if not more, down the money drain if you’re not careful.But with Crash Realty, you’ll know exactly where to invest and where to save.