3 mistakes investors make in a market downturn

May 16, 2019

property investment mistakes

The aim of property investment is to make a return on one’s investment over time, so when investors hear that the market has declined and home values are falling, many investors tend to feel panicked.

When their emotions get the best of them, and media hype starts giving them nightmares, property investors can make rash decisions, potentially leading to costly mistakes.

Mistake 1: Low-ball rush selling

A classic mistake made by investors in a downturn is to put an investment property on the market because of fears that housing prices will continue to plummet and they won’t recover from current price falls.

But, historically speaking, the property market has a distinct cycle where the market will drop, then recover in value and rise again, before falling in value and starting the cycle all over again.

To avoid feeling panicked by property market shifts, investors need to look at the historical cycle of property in the area rather than the national averages, says property commentator Michael Yardney, and follow the cycle for years, not months.  

Mistake 2: Selling at the wrong time

Timing is of the essence when selling a property; which means watching the local market, not national, and advertising when property prices in the area have reached their peak.

Canstar General manager of wealth Josh Callaghan says it’s also important to watch the industry, as disruptions such the Royal Commission can have an adverse effect on the property market.

This industry shake-up has led to major lending groups revising their practices and looking into how they package their finances.

Based on Mr Callaghan’s philosophy, selling while lenders revise could be a mistake as buyers are apprehensive to take on more financial commitment, and those wanting to make a purchase are likely to be looking for distressed sales, rather than paying top dollar.

Waiting to sell once the market and industry have recovered from the Royal Commission is a far better idea, this will also see investors lessen their stress, and get a higher return on their investment.

Mistake 3: Property shopping without research

While buying low and selling high is a catch-cry for many investors, it’s also important not to get caught up in a buying frenzy because market prices have plummeted.

Sure, we all love a bargain, but when it comes to buying property, some deals are best left well alone if in-depth research isn’t carried out.

Usually, homes priced low are at this rate for a reason, the most common being the property is in poor condition, situated in an area with a high crime rate or the property owner needs the money to pay off other debts or can’t make mortgage repayments.

Two golden rules of investment according to Josh Callaghan are to avoid purchasing a home based on price and to always do market research because rushing in may cost far more than you anticipate.

How to avoid making these mistakes

By knowing and steering away from these costly mistakes, property investors can avoid making these common errors so they continue to make a sound return on their investments well into the future.

If finances are a concern, then property investors can safeguard against this by having a financial buffer in place, such as an offset account that contains enough funds to cover 12-months of mortgage repayments as this reduces interest paid.

A financial buffer also gives an investor reassurance and greater economic security should they need additional funds to float their investment in tough times.

Sound research and financial backing can help prevent investors from making rash decisions and costly mistakes.

Written by Refinancing.com.au

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