Avoid These 5 Critical Mistakes on Your Property Investment Journey

Thinking about diving into the property game? Whether you're a seasoned homevestor or a first-time buyer, snagging a property is a big deal that needs some serious thought.

There are loads of traps that can mess with your profits, but guess what? Dodging these slip-ups could also mean hitting the jackpot with the biggest profit of your life.

In this article, we will be delving into 5 mistakes you should avoid in order to maximise your earnings from property investment.

1. Failing to do Research

Before diving into a property purchase, it’s crucial to roll up your sleeves and do some thorough research.

Start by doing your own due diligence on the property. For example, checking out the market prices of similar properties in the area not only helps you gauge if you’re getting a fair deal but also gives you the upper hand in negotiations. Also make sure to check out all the costs and expenses involved, taxes, maintenance fees and any other fees associated with the property.

Another key area to explore is the zoning around your potential property. Understanding the zoning not only hints at the area’s growth potential, potentially leading to increased property value, but also flags any profit-dipping factors. For instance, a high plot ratio in nearby plots may signal plans for a towering building that could obstruct your property’s view.

If you’re buying a resale property, make sure to make a trip down to the physical property and see the environment for yourself. Ask yourself questions.

Is this property the one you want to stay for years to come?

Are the neighbours good?

How is the accessibility?

Not taking all these factors into account and skipping your own research could lead to significant profit losses when it comes to buying a property.

Source: imgflip.com

Research is important but knowing what to research is even more important. The worst part of having a knowledge gap is not knowing what you don’t know. For example:

What is inflation and how does it affect your profits?

What is your nett return on investment?

What is the difference between option to purchase and offer to purchase?

All these terms may seem technical but they are crucial in investing and especially so in property investing. 

Here at I Quadrant, we are dedicated to transforming families through financial literacy in order to create a fulfilling life for you and your loved ones. Our tried-and-true strategies are easy to understand and a great way to help you get started on your investment journey.

Whether you are looking to purchase your first home or a property for investment, learn from the best to optimise your portfolio. Click here if you’re interested to find out more.

3. Spending too much on Renovations

When you first get your hands on a new property, the temptation to dive into extensive renovations to give it a unique touch can be strong. However, from an investment standpoint, this impulse may not be the wisest move, especially considering that high-quality renovations can easily rack up costs in the ballpark of $100,000.

Before you embark on a major renovation journey, it’s crucial to weigh the potential returns, especially if you anticipate outgrowing the space in a few years or if the property is primarily an investment. Moreover, if your goal is to rent out the space, the uniqueness of your property might not be a top priority for potential tenants, who are typically seeking a comfortable place to reside.

Thus, renovations are not always necessary and should not be your priority if the property is destined for resale. Moreover, renovations could potentially work against you when it comes time to sell your property in the future. 

Prospective homebuyers might not share the same taste or appreciation for the renovations you’ve undertaken, and when you factor in the cost of these upgrades into your selling price, your property could end up being priced higher compared to similar properties in the area.

4. Not Considering All Loan Options and Not Refinancing

When it comes to purchasing a big ticket item like property, many homebuyers opt for housing loans rather than paying the full amount upfront. 

However, a common pitfall is that buyers often fail to explore all available loan options, relying instead on recommendations from family members or real estate agents. Unfortunately, this approach can lead to suboptimal loan packages, resulting in higher interest rates that could erode their profits.

Securing the services of a reliable loan broker is crucial in this scenario. A good broker can sift through options across various banks to find the loan package that best suits your needs. This not only lightens the load of monthly mortgage payments but also ensures you maximise the potential profits from your property investment in the long run.

Additionally, in this climate of high interest rates, refinancing is crucial as fixed rates are now lower than floating mortgage rates.

 

Source: Loan Experts

If you find yourself currently taking a floating interest rate loan, it might be a savvy move to explore the option of refinancing to a fixed-rate mortgage, especially if fixed rates are currently more attractive (Updated as of 29 Jan 2024 when the article was written) This switch can alleviate the monthly mortgage burden and, if you’re renting out the property, potentially enhance your cash flow by reducing your monthly mortgage payments.

Moreover, for property owners who have held onto their investment for several years and witnessed appreciation in property prices, considering a gear-up strategy could be beneficial. Leveraging the increased property value allows you to extract extra cash from the property, even before selling it. 

By strategically reinvesting this cash, you can generate additional interest income while retaining ownership of the property with the tenant covering the mortgage. Alternatively, this extra cash can also be used to ease the mortgage pressure if there is negative rental yield.

5. Not Doing Price Gap Analysis

When doing research, one of the most important factors to consider is the price gap analysis. In fact, price gap is one of our homevestor criteria when selecting properties with predictable price growth. 

But what price gap are we looking at?

We are looking at the price gap between asset classes, whether is it between

     

      • Condominium v.s. Landed Properties or

      • Between New launch and Resale condominiums

    For example, two people with similar starting capital and salary would have two totally different outcomes in their return on investment if they decided to invest in different asset classes.

     

    Source: URA

     

    Source: Squarefoot

    These two properties are in the same area and if the investor has done price gap analysis and spotted the small price gap between the landed and condominium property, they would have made 10 times the amount of profits in the same amount of time.

    However, do take note that the past records do not guarantee future trends and you still have to do your own due diligence in order to ensure you choose and invest in the right property.

    To learn more about the price gap between New Launch and Resale, click here.

    Conclusion

    To sum it up, buying a property can be a bit of a tricky road with some dos and don’ts that might sneakily eat into your profits. 

    Doing your homework on market trends, closing up your knowledge gap, and being careful with how you spruce up your property—it all matters more than you might think. Plus, keeping an eye on interest rates and comparing price gaps between properties can go a long way in making sure your profits stay intact.