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“Landlords grow rich in their sleep,” said, John Stuart Mill.

Agreeably then, everyone wants to own their piece of land and then some more. Investing in property is one of the surest, oldest and most commonly followed path of wealth creation in Australia, and everywhere else as well. However, gone are the days when every property was a gold mine. With increasing costs, not knowing what you are buying or how to manage your purchase can leave you with a slice of earth you would rather do without. To ensure your investment is as good as it sounds, and as sound as it looks, here are few traps to avoid when investing in a property:

Traps-to-avoid-while-investing-in-property

1.The location – Property options in Australia are many, but the location of a property is one of the most important factors that decide its worth. While it makes sense to invest in next booming suburbs , scouting for a tenant friendly area is something every investor must do. An investment property that is tenant friendly (located near everything one needs for comfortable living – schools, shopping malls, parks and public transportation) will not only fetch steady rental income but show capital appreciation as well.

2. DIY – DIY may be the norm for everything else you undertake, but taking up the management of your investment property in your own hands will mostly prove tedious and time-consuming. Though it may save some money that would otherwise go to the property agent (but can be claimed as the tax deduction), it may actually cost you more in terms of time and headache. Property managers will find tenants for your property, collect the rent, take care of the maintenance on your behalf and handle any disputes that may arise. Time is money, anyone?

3. The right amount of rent – The right amount of rent for any landlord is the highest amount possible, but that, sadly, is not a sustainable strategy. Asking too much would lead to lesser interest from prospective tenants, meaning the property may stay idle for too long, and asking too less may ensure a steady stream of tenants but also strain your finances. In order to determine the optimal rental amount, look at the average rates for properties similar to yours in the neighbourhood. Grab your free property report about your suburb for more information as well as ask your property manager for local insights.

4. The right kind of loan – Every home loan is not the same. Owner-occupiers usually prefer basic principal and interest loans but this may not be the ideal choice for investors. When building your investment property portfolio, having a positive cash flow is crucial and an interest only loan can help through minimal interest repayments that are tax deductible.

5. Cross-collateralization – Seasoned property investors avoid cross-collateralizing their properties. While it is a good idea to use the equity in an existing property to fund the home loan deposit for another, securing your home loan against more than one property is a property advice you rather not follow, unless you understand the implications of cross-collateralization well.

6. Not taking adequate insurance – Not taking adequate insurance can be your biggest folly. Landlord insurance protects landlords against any frivolous or accidental damages caused by tenants, any loss of rental income and related legal expenses, ensuring your tenants don’t leave you exasperated at any point in time.

7. Not being far-sighted – Property investment is a long-term wealth creation strategy. Buying a property to sell it off quickly will only bring momentary gain; however, holding on to it for a longer period can help investors create an expanded property portfolio.

Interest rates on home loans are at an all-time low, making your home investment a borrower-friendly domain in Australia. Compare mortgage rates online for lowest home loan rates and most competitive home loan deals in the market. To help you further in your quest here is an investment guide with insider tips on how to invest in property in Australia.

By Vidhu Bajaj

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