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Ten property investment pitfalls to look out for and how best to avoid them


There's no denying it, investing in property for the first time is a big step and a little bit scary. As with any significant decision in life, you need to do your homework before jumping in.

John Sheehan, General Manager of Invest by Metricon, flags a few common pitfalls to watch out for.

Pitfall 1: Forgetting to ask yourself why?

The real estate market in Australia is historically healthy, and interest rates are low. It makes a lot of sense, on paper, to invest in property. But it still pays to take a time out and make sure it's what you want and what you can afford.

"If you sit down with a financial planner, and that's an excellent idea, one of the first things they're going to ask you is, 'why now?'" John says. "You need to know the answer. Figure out what you want to achieve, how you're going to get there, and what it will take to make that happen. That will help you build a realistic plan."

Pitfall 2: Failing to do a realistic financial health check

Speaking of realistic plans, anyone can plug their salary into an online calculator and get a rough idea of their maximum borrowing potential. But that's only half the story. Just because you can, doesn't necessarily mean you should.

"You need to take a good look at how much it costs to fund the lifestyle you want," John says. "If there are realistic cuts you can make, then great, but you have to be able to commit to that. Investing in property is smart, but you need to be across the costs involved too, including stamp duty and insurance, and be sure you can make it all work."

That includes factoring in a decent buffer in case your circumstances change suddenly. It's also worth applying for a free copy of your credit report here.

Pitfall 3: Underestimating your saving potential

Yes, you need to know you're going to be able to make the repayments on your investment property. But it's also important not to undersell yourself. You don't want to be your own worst enemy, assuming you can't do what it takes to help secure your financial future.

"Self-doubt can really hold people back," John says. "They think they'll never be able to save up enough to get where they want to be. But you'll be amazed how much you can achieve when you set your mind to it."

Here are five great savings apps to help you along the way.

Pitfall 4: Thinking you can't invest in property until you've paid off your mortgage

This one crops up a lot when we chat to would-be property investors. The truth is, if you've already bought your first home to live in, every mortgage payment helps build up equity in that home that you may be able to leverage to invest.

"You've already done the hardest bit," John says. "You're on the ladder, and if you've bought in a good location, your home's probably increasing in value. You could draw on that potential to borrow against an investment property. The sooner you do that, the better if you want to get smart about securing your future."

Pitfall 5: Thinking you must own your home to get on the property investment ladder

While drawing down equity on your home is one route to building a property portfolio, it's not the only way. Many younger would-be investors are choosing the rentvesting option. That means opting to buy or build an investment property in a more affordable but still popular area while renting to live in a more central location you love.

"Rent money doesn't have to be dead money," John says. "If you choose rentvesting, you can keep the lifestyle you love while still paying off a mortgage, which can build up equity towards further investment."

Pitfall 6: Thinking you must ignore your heart to be smart

Buying an investment property isn't the same as buying your forever home. You don't apply the same checklist. But that doesn't mean there's no emotion involved at all.

"Planning the particulars of the investment property is the rational bit," John says. "But the emotional part is where you want to get to, the ambition for financial freedom."

An investment property should be appealing to renters and stand out from the crowd. First impressions count. You can read more about how to build a winning rental property here.

Pitfall 7: Don't over-capitalise

Choosing the right home and land package in the right area is key to a successful property investment strategy. One of the biggest pitfalls to avoid is spending more on building the house you intend to rent out than you could hope to make back if you do sell.

"I can't stress enough that you have to do your research," John says. "I recommend taking a look at to research rental returns, vacancy rates and sales potential."

Pitfall 8: Failing to plan for the worst-case scenario

Yes, this should be an exciting step, but you do need to be prepared for the worst, just in case. It makes good business sense to think about what kind of backup you're going to need. And that doesn't mean just insuring your property investment.

"You can't just think, 'she'll be right,'" John says. "you need to cover all your bases. That means looking at personal protection for loss of income or death too, as well as ensuring you have a good financial buffer in the bank."

Pitfall 9: Assuming apartments are a wiser investment

It's a misconception that units are the best option for budding property investors. They might seem like a good idea because they can be a bit more affordable and perhaps more central, but John says purchasing land and building a new home to rent on it makes more sense in the long run.

"There's more worth locked up in land," he says. "You can't duplicate it. Once it's gone, it's gone. There's minimal growth potential in apartments. And if you invest in one in a big complex with 600 units across three buildings, when you go to sell it, there's inevitably going to be someone else selling the same thing."

Pitfall 10: Overlooking the benefits of building new

When you buy a home and land package with a company like Metricon, you're purchasing into decades of experience and a Lifetime Structural Guarantee*. If you invest in an existing property that's been around for a while, there can be nasty surprises hidden behind the walls. But that's not the only pitfall you should be aware of.

"Property investment is a business, and one of the benefits of running a business is the deductions that entitles you to at tax time," John says. "You'll lose a lot of the depreciation benefits if you buy old."

Speak to your accountant about tax benefits that apply to your personal situation. We’ve also compiled a guide to depreciation and how it may be able to help you.

Make sure you seek financial advice

While we've tried to be as helpful as possible, this article should not be considered professional financial advice. It contains general information only, and you should seek out independent, professional advice on your personal situation before making any financial decisions.

If your financial adviser thinks an investment property is a good idea, based on your current financial situation, then talk to one of Invest by Metricon's friendly experts today.

If you feel ready to start your property investment journey, learn more about Invest by Metricon today. Invest by Metricon offers an end-to-end process that allows you to obtain a rent-ready, premium home in one of Australia’s leading estates, simplifying your investment journey. With new build investment opportunities across Victoria and Queensland, you're sure to find something that suits your investment strategy, no matter where you live.