The 5 worst mistakes newbie investors make

“It’s sad, because not only are they losing on the time, they’re also not making the most of the money that they’ve got,” said Reshmi Kumar.

“They could make better decisions, they could choose the better properties, because they’re looking at the property on its own rather than where this property is heading.”

Here are the five most common mistakes the couple have seen over their decades-long investment career.

1. Focusing on debt

Property purchases are substantial financial investments, and the scale of the debt can often cause new investors to panic.

“The biggest mistake today that people make is they focus on the debt rather than the money needed to control the debt,” said Victor Kumar.

“Let’s say they owe a million dollars on their portfolio. They’re focusing on a million dollars […] but they’re not focusing on, ‘Okay, with that debt, how many dollars a week am I chipping in to control that?”

Instead of looking at the debt as an undifferentiated mass, translating costs into week-to-week expenses can keep panic in check and allow investors to effectively control their growing asset.

2. Keeping up with the Joneses

Every individual investor has different needs and circumstances, so blindly following the crowd can be a recipe for disaster.

Investors who “try to keep up with the Joneses” buy properties where they have been told growth prospects are good, instead of doing independent research and seeking out specialised advice.

“If everyone’s buying in Queensland, they follow there rather than looking at their own portfolio and saying, ‘Is Queensland a good fit for me?’” said Victor Kumar.

Reshmi Kumar noted: “Everyone’s on their own journey and everyone’s scenario is different, so what works for somebody may not necessarily work for you based on what the market is like.”

3. Not keeping on top of cash flow

Property investment is inherently a risky endeavour, and it is essential to know exactly what your financial position looks like before taking the plunge.

In the early days of their investment career, Reshmi and Victor Kumar would sometimes find themselves making dicey decisions, not realising that their cash flow was in the red.

“The business would cover the negative cash flow,” Reshmi Kumar recalled. “A lot of mistakes were being made in the beginning […] and the biggest one was, in those days, not having the finger on the pulse of the cash flow.”

4. Overconfidence

Another major mistake made by new investors is to overestimate their own knowledge, and dive into difficult situations before they have developed skills and experience.

When the Kumars were young, they purchased a large interstate property after attending a seminar about subdivision.

“First development ever. I’m complicating it by doing it in another state, doing it without any mentors, and not having a system in place,” said Victor Kumar.

“Without understanding the full DA process, we paid the deposit and got locked into a contract to buy that house.”

It took the couple a year and a half to unravel the dilemma, and ultimately they “had to do the development without finance in place”.

5. Fear paralysis

Being blasé about risk can lead to sticky situations, but trying to micromanage all the risks involved can also pose its own challenges.

When a renovation problem cropped up early in their career, the Kumars ended up “being a little bit too late to solve the problem” because they had succumbed to “fear paralysis”.

Eventually, Victor Kumar stated: “We picked ourselves up, dusted ourselves off, and said, ‘No, let’s get on with that’.”

Listen to the full conversation here.