Investment Property - The greatest risk may well be the buyer!

Written on the 1st of July 2010 by Nathan Cross

Investment property can be fraught with danger and provides plenty of opportunities to make mistakes.

Property Buyer Agents are becoming more widely used by property investors that want to ensure their purchase is researched and that they are not paying too much and that the property is in a good growth are. A Buyers Agent does the research and leg work and makes recommendations based on fact, not sentiment.

Risky Investment Property Buyers can be classified into different groups:

The Buyer that just want to buy now! They don’t want to miss out so they fall in love with a property or, after getting frustrated at not finding what they are after, jump in whole-heartedly and get carried away in the moment. The result is they often over-pay, which is why they are loved by auctioneers.

The Buyer that buys for the wrong reason. Maybe they're looking to reduce their tax bill or they have been won over by the promise of a rent guarantee. The outcome is they often pay too much for a poor performing asset that fails to provide the capital growth they ultimately require.

Then there is the buyer that likes the comfort of large groups. They move with the herd and as a consequence tend to buy property at the peak of the cycle when growth is fuelled by speculation. They buy property because everyone else is. The poor timing and lack of research of this buyer means they often miss the market upswing and have to wait years for growth. Sadly, they often sell-up out of frustration before the growth eventually comes.

There is also the impulsive buyer who buys an investment property like it was a magazine at the checkout. They happen to see a property on the market in their street or while on holiday and they decide on the spot to make a purchase. There's no need for research when you have good instincts. Sadly, the lack of research and cash-flow analysis almost always leads to a poor performing investment that costs too much to hold and potentially hundreds of thousands of dollars are lost over the long term in opportunity cost.

Lastly we have the procrastinator. This is the worst type of buyer, the type that simply waits and waits. Procrastination is a favourite pastime for this type of buyer and they find it easy to come up with reasons not to invest despite the lingering realisation that they should. They are easily spooked by cautious relatives and are unwilling to take calculated risks despite seeing clear opportunities.

Ask yourself:

Do I have the time?

Do I have the market knowledge?

Can I negotiate and get the best possible price or will I pay above market price?

What depreciation benefits are available with the property?

This is just the tip of the iceberg. If you hesitated or answered no to any of these questions, you may just be a “Risky Property Investor”.

For further information or assistance in purchasing an investment property, call Propertyfarm on 1800 967 548.