With the benefit of hindsight, we can assess where people got it right with their strategies and where others got it oh so wrong.

Here are FIVE of the biggest mistakes I have seen investors make in the last few years and where you can try to put things right going forward:-

1. Over Gearing

There are generally two schools of thought with gearing; those who say use other people’s money and gear as high as you can and those who want to keep gearing to a minimum.

The difficulty with low gearing is you can’t spend equity. If the money is out and working for you you can get your money (or the banks money) to make more money and so on. However as we have seen, with some pretty spectacular results, over gearing your portfolio is a very dangerous game. It leaves you nowhere to go when things take a turn for the worse and the speed with which the credit crunch hit took everyone by surprise. There was barely anytime to regroup and to restructure and with nowhere to go when rates tipped upwards for a short time many people simply could not cope and went under very very quickly.

So while gearing enables you to do more deals those deals are worthless if you go under. That may be a risk some can live with but if you’re not that type of person then keep your gearing low. Yes it might take you longer to build your portfolio but that’s the price you pay for stability and peace of mind.

2. No Money Down

Much like over gearing no money down can be a boon and a curse. Too many people rely on no money down because they have no money! That might seem an odd statement but I’ve always deemed no money down deals much like tax.

We want to minimise the amount of money left in a deal sure but not at the expense of the entire portfolio. Avoids taxes yes but don’t evade them or you’ll end up in prison!

The problem is that too many people did no money down and still seek it now because they have no money. Property is a cash intensive business and the fact is that you can easily find yourself in trouble very quickly if you don’t have plenty of spare cash.

If you don’t have any money then you can still stay in the property game but build up a cash reserve first then look to build your portfolio.

3. Over Spending

The fact is we had it good for a time and that is no longer the case. You spent too much money, you bought an expensive car, you bought a big house and you bought investments you can’t keep. Well its time for them to go.

It’s even more important to  watch the pennies with your properties; you need to negotiate with your letting agents or even take over the management, don’t just write cheques for tradesmen, get quotes and barter. Watch your cashflow like a hawk.

4. Retiring Too Early

A lot of people have got into property and still are with a view to ‘retiring early’. But the reality is very different. Many people packed in their jobs or other businesses to do property full time. When the market took a downturn and they couldn’t remortgage or sell so easily they’re left wondering how they’re going to pay the bills.

The fact is unless you’ve got a few hundred grand in the bank as unencumbered cash and a very low standard of living you’re going to have to earn some money. So get your thinking cap on and find a way to make some money. You’re simply going to have to put retirement on the back burner.

If you have a skill can you use it in your own business, can you return to work or can you turn your new found skills to something else in property for example finding deals for others, refurbishing property or even crime scene cleaning – that was what I was going to do; it was the only job where I could connect forensic science and property together!

5. Not Diversifying

I have seen a lot of people try to create cookie cutter style strategies out of property. They discover a strategy or system and do it to death. They may become supremely efficient at it and will usually then try to sell it to others!

The problem comes when the rules change. The advent of sale and rent back regulations happened extremely quickly and, whatever the rights or wrongs of it, the market was almost killed overnight. Certainly the ability to finance such deals disappeared almost overnight.

Those whose businesses almost solely concentrated on sale and rent back either had to opt for expensive and time consuming regulation or leave the industry altogether having to find something new.

I am seeing the same again with investors solely concentrating on options; they’re just a tool to use not an overarching strategy.

So the lesson here is to diversify; spread your risk a little bit by buying in a couple of different suburbs, buying a couple of different types of properties, using a combination of strategies and ensuring that you have some ‘movement’ in your portfolio if the need arises.

To close; there have been two types of clients that I have seen come through the credit crunch all the stronger and have no fears about rate rises or a future dip in prices:-

1.The investors who watch their cashflow to the penny, they look for every way to save money often self managing their portfolio, finding tenants themselves, even making repairs themselves. Many of these landlords are actually doing exceptionally well and a number have mortgages on a repayment basis and are still cashflowing!

2. Then there is the investor who has other means of financial support. They have lots of cash, a great income or other investments. They are easily able to afford to pay for repairs and maintenance, subsidise voids and even negative cashflow properties.

So which one are you? In my experience it’s a heck of a lot easier to become No1 than it is No2!

So if you want to ensure you’re still here for the next boom then knuckle down to concentrating on your portfolio, reducing your expenses, increasing your cashflow and if necessary finding a job! Just don’t be a rabbit caught in the headlights and do nothing – while rates are low now is the time for action.

Article Provided by Lisa Orme

Mortgage Broker and Property Investor

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