5 Common Real Estate Investing Mistakes Every Newbie Investor Should Avoid

Investing in property is one of the most popular ways to build wealth among Australians. In testimony to this belief, the latest data from the Australian Taxation Office (ATO) revealed that there are over 2 million property investors in the country.

And this end goal is not a pipe dream. If you are an avid listener of The Smart Real Estate Investment Fairyou know that the people of all walks of life who have achieved financial freedom (as well as long-term life goals) by investing in real estate.

However, winning big in real estate investing is easier said than done. Often, this investment journey is strewn with pitfalls that could waste your time, money and energy.

So, in this article, here are five of the most common mistakes to avoid at the start of your investing journey.

1. Lack of planning

One of the biggest mistakes a novice real estate investor can make is not setting specific goals from the start.

The easiest way to avoid this mistake is to have a plan before investing in real estate. If you are buying a property for the first time, there are many things to consider to ensure that your first venture does not fail.

When you’re on the drawing board, here are some questions that can help get your investment strategy started:

  • What are your short and long term goals? Do you want to achieve financial freedom, get extra income or retire early?
  • What type of property do you want to buy? Looking for a unit or house? Should I buy a existing or new property? Or are you looking to get into commercial real estate?
  • Where do you want to buy your property? Are you buying in your area or on a highway?
  • How will your first property fit into your long-term goals?
  • What is your investment strategy? Will you rent out your property or resell properties for profit?
  • How many properties do you envision having in your portfolio?

Of course, these questions only scratch the surface, as you will need to take a more holistic approach when developing your investment plan by considering your financial and personal circumstances. But asking these questions can be a good starting point for your planning process.

2. Failing to do due diligence

When buying a car or a new phone, every savvy consumer knows that comparing different models and prices is a good idea. They also ask a lot of revealing questions to determine if the purchase is giving them value for money.

It’s important to understand that real estate investments require the same method of research because making data-driven decisions is a trait most successful real estate investors share.

Some novice investors make the mistake of basing their investment decisions on recommendations from friends and family members who lack investment expertise.

And while some investors are hitting the books, they won’t go beyond the registration information and make their decision without going the extra mile to do their own homework.

To get started, be sure to do your homework on the following:

  • Local market trends, real estate market cycles, hotspots, etc.
  • Landlord-Tenant Laws in Your State or Region
  • Zoning requirements
  • Infrastructure
  • Offer and demand
  • Strata Title (If buying one unit)

Doing your due diligence in your research will ensure you make well-informed real estate investment decisions, so be sure to check out our Research for expert reports, statistics and analysis on the Australian property market.

3. Think short term

Another common mistake new real estate investors make is entering the market with no idea what kind of return they can expect. They also neglect the time horizon needed to reap the return on their investment.

This mistake can be costly, as it could lead to regrets and financial loss. With that, avoid thinking of real estate investing as a get-rich-quick scheme and think of it more as a long-term business investment that is sustainable and scalable.

Real estate investing is a long-term investment, and most seasoned investors will advise investing your money in a property with high potential for capital growth that will pay off over the long term.

4. Invest with your heart, not your head

When buying your dream home, it’s understandable that your decision is based mostly on emotion and less on logic.

However, when it comes to investing, letting your heart drive your buying decisions is a common mistake that should be avoided at all costs.

Letting emotional attachment dictate your property purchase could leave you with the wrong property, which could turn into a failed investment. Additionally, letting your emotions cloud your judgment means you are more likely to overcapitalize on your purchase, rather than negotiating the best possible price and outcome for your investment goals.

To avoid buying a real estate lemon, here are some tips:

  • Base the decision on the data. Ultimately, investing is about economics, demographics, and finance, not emotions.
  • Think like a tenant. If you are considering renting the property, research what tenants are looking for in a property and know what type of tenant you want to rent to. For example, if you’re looking to rent to families, look for a property in a good school zone with a safe neighborhood and multiple bedrooms. Also, be sure to research local rent prices to find out what tenants might be willing to pay.
  • Avoid properties that require high maintenance. This is where it will be useful to keep a cool head, because a buyer in love with a property tends to overlook its flaws. Always keep an eye out for major repairs or renovations when inspecting a property. Cracks in the walls, damp basements and signs of pests are red flags that indicate the home will need maintenance and may require more money than you hope to spend.
  • Invest according to your goals. As we’ve already mentioned, any property you buy (whether it’s your first purchase or any subsequent property) should match your investment goals. And while estate agents (or your heart) may try to persuade you to buy a property, if it’s not in line with your investment strategy, remember to stick to your long-term goals. .

5. Underestimating expenses

In an ideal world, an investor’s only expense would be the mortgage. But as any seasoned investor would tell you, that’s just the tip of the iceberg.

In addition to mortgage payments, newbie investors must also consider maintenance costs, repair bills and condo fees, as well as other property taxes and insurance costs. And this is not yet the exhaustive list!

When investing in real estate, it’s a good idea to create a maximum limit and set aside a certain amount of money for emergencies and unexpected costs associated with owning or managing a property.

Also, make sure your investments are financially sound. If you plan to rent the property, be sure to calculate your cash flow figures and remember to make the necessary preparations for tax season so that you can collect the tax deductions available to landlords.

Disclaimer: The information provided in the article is general and should not be construed as personalized investment advice. It is strongly recommended that you seek financial advice from a suitably qualified advisor.

If you want to find out more about the latest real estate market insights from industry experts and other background information that will help you along your investment property journey, check out our incredible podcasts. Also be sure to check out our News section for the latest real estate market reports, information, news and helpful tips and strategies for investors.

RELATED TERMS

Cash flow

In real estate, cash flow is the total amount of income earned from rental properties after paying its operating expenses.

Due diligence

Due diligence is a review, audit or investigation carried out to confirm the details and information under consideration; it also refers to reviewing financial records before entering into a transaction.

Due diligence

Due diligence is a review, audit or investigation carried out to confirm the details and information under consideration; it also refers to reviewing financial records before entering into a transaction.

Property taxes

Property tax is a tax paid on real or tangible property owned by a natural or legal person, calculated by the local government where the property is located based on the value of the property.

Property taxes

Property tax is a tax paid on real or tangible property owned by a natural or legal person, calculated by the local government where the property is located based on the value of the property.

Property taxes

Property tax is a tax paid on real or tangible property owned by a natural or legal person, calculated by the local government where the property is located based on the value of the property.

5 Common Real Estate Investing Mistakes Every Newbie Investor Should Avoid



spinnaker logo


Last update: June 15, 2022

Posted: June 16, 2022