3 Red Flags to Take Note of Before Investing in a Property

Earning revenue from a property you purchased can be a rewarding experience. Whether you prefer to buy and sell or focus on rentals, investment properties are a good source of passive income. While the strategies are not set in stone and may require adjustments at some point in time, you are less likely to encounter serious problems if you pay attention to warning signs. Make the most out of your Canberra property investment by weeding out red flags long before they have the chance to fester.

Below are examples of these red flags and what investors should do to feel more secure with their investments:

#1 Following the Hotspot Bandwagon

Both seasoned and newbie property investors often fall for the hotspot trap. It is easier to go with the flow thinking we will meet the same good fortune as investors before us. But the truth is real estate hotspots will not always yield favourable results. Avoid placing all your cards in their direction and adopt a more discerning approach instead. The key is to strike early and find an area with potential before it becomes saturated with investors and buyers.

Most property investments stem from the need to increase finances. Seasoned investors gradually develop the ability to spot emerging suburbs or districts, particularly those experiencing property booms. Hotspots are often located outside of the capital and you are likely to gain more profit if you lay the groundwork earlier than competitors. You can take your chances but note that complete development is years, even decades, in the making.

Expert advice is to diversify your approach and choose areas with consistent growth instead. The best places to invest in are those that have stood the test of time. If you are unsure where to buy an investment property, consult an expert. More importantly, keep tabs with market reports and always ask for a second opinion before you decide on a purchase.

#2 Not Doing Research on a Location

How your property investment will perform in the long run is dependent on your choice of location. Buying and selling property have high risks and high costs. That is why before deciding on a location, investors must know all the risk factors and how these might affect performance on a short-term or long-term basis.

When scouring for the best investment location, you might want to zoom in on the prevalent industry. Are the majority of the folks miners, public servants or factory workers? Is it a tourist hub or saturated with government buildings? Areas with only one major industry present more risks than areas where multiple industries thrive. Investors with no knowledge of the predominant industry of their chosen location will find themselves at a disadvantage and would be better off setting their sights elsewhere.

Neophyte property investors may have more luck if they invest near the capital instead. Areas around business districts are melting pots for different industries. They are more malleable to changes and likely to survive economic downturns. However, if you do have sufficient knowledge of a target location's industry compared to other investors, then take advantage of the opportunity before you. Should you have enough capital to support this investment, offset a possible loss by allocating some of your funds to more stable locations.

#3 Buying Property in an Area Already Occupied by Other Investors

Though having a competitor in the same area can also benefit your business, when you have too many of such competitors in one place, it ultimately becomes a red flag. Some of these investors, especially in the rentals sector, may even have a tight hold on the area that newcomer investors might have little chances of actually earning an income.

But competing for scarce resources is just one problem to consider. Similar to single-industry areas, economic changes could be challenging if you put your investment eggs in a location predominantly owned by investors. Properties sold in such areas are also less likely to be of good quality compared to areas with a more diverse populace.

That is not to say you should completely avoid investor-owned areas. There are always exceptions to the rules. Beachside properties, for example, offer fair competition for all. Many tenants and buyers like to live by the beach, so there is enough business to go around for both new and experienced property investors.

Consult a Property Investment Expert

Canberra property investments have better return on investment when coupled with proper research and expert advice. Get in touch with our buyers' advocates and get tips on where to invest or how to maximise your investment property.