Investment Finance

10 Most Common Mistakes Made by Property Investors

Friday, July 23rd, 2010

10 Most Common Mistakes Made by Property Investors

1. Failure to plan:
   1. Purpose/Reason/Objective
   2. Strategy
   3. Resources
2. Wrong property:
   1. Poor location/locality
   2. Splinter investment
   3. Tenant and/or rent-ability issues
3. Poor Structure:
   1. Ownership which results in:
      1. Higher tax liabilities
      2. Asset being put at higher risk
      3. Earlier and higher land tax liabilities
   2. Finance which causes:
      1. Home to be put at excessive risk
      2. Cashflow problems which affects lifestyle
      3. Higher tax liabilities
      4. Stunted returns
4. Excessive risk though:
   1. Excessively high LVR’s
   2. Portfolio imbalance
   3. Lack of awareness of matters such as the All Monies Mortgage clause
   4. Absence of buffers
5. Incorrect finance product:
   1. LOC, IO or P & I affects tax & interest liabilities, cashflow and savings capacity
   2. Offset or high yield a/c which affects tax & interest liabilities and returns
6. Absence of Panel of Experts acting in synergy
7. Lack of awareness:
   1. Using “after-tax” income to subsidise negatively geared properties
   2. Not using ‘natural love & affection’ rules to convert tax liabilities in tax concessions as the rich do
8. Unproductive money flow practices that inadvertently:
   1. Increases your personal home loan
   2. Mixes deductible and non deductible debt clouding deductibility
   3. Creates a growing deductible expense and failing to claim the deduction
   4. Complicates tax recording and reports resulting in lower tax refunds
   5. Diminishes savings capacity & creates the need to repeatedly re-create N/D debt
9. Failing to keep pace with market values resulting in time being wasted on property classes beyond the budget or target range ultimately costing you substantial capital.
10. Getting the balance wrong:
    1. Overleveraged putting the whole portfolio at risk
    2. Underleveraged and not optimising wealth creation

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