The biggest mistake property investors make

One of the biggest mistakes I see property investors making is that they buy an investment property.

What I mean by this is that when you're an investor, you can't be thinking like an investor. You need to put yourself in the shoes of a homebuyer if you're going to buy the best possible investment property you can.

For most new investors, they can often get caught up in the numbers. They want to make sure that the area they are looking at fits their borrowing capacity. They want to know that it's a good area and that vacancy rates are low. They also need to be able to get a high enough rental yield to help service their loan and not weigh down their borrowing capacity in the future.

The problem is they are forgetting the very things that make homes desirable in the first place - owner-occupier appeal.

Across the entire country, there is roughly a 70/30 split between properties owned by owner-occupiers and those that are owned by investors.

For the most part, it's owner-occupiers that create demand and are the ones that drive up prices over the long term. In short periods of time, we can see investors buying and pushing up prices. But this is not the norm and that usually happens when markets are at their hottest.

Overall, owner-occupiers buy homes for their families, and the things that they are looking for are what ultimately make for a good investment.

If you think about the characteristics that make a good family home, they are pretty standard. They need to have multiple bedrooms for the kids - ideally 3 or 4. There needs to be a decent-sized block so there is some outdoor space. A quiet street with good street appeal is highly sought after.

They also need to be located in areas where there are jobs, access to good schools as well as other things like playgrounds, childcare, and other amenities.

When you see an owner-occupier buying a property, if they really like the location and think it's a good fit for their family, they will pay whatever they can afford. They are not thinking about the potential rental yield or the vacancy risk if they ever leave. Or how much the property might go up in value in the next 12 months.

They simply want to buy a great family home in a good area.

And it's this factor that so many investors miss. Investors often look for good areas that are growing, but they will buy a two-bedroom unit in a suburb where families actually want a four-bed home. Or they will buy an off-the-plan apartment, not thinking about who might want to buy it from them in the future.

For most Australians, their Principal Place of Residence is their largest investment. But they don't go into it with that mindset.

Owner-occupied homes are also turned over less and tend to perform far better. Suburbs that are primarily made up of owner-occupiers are often highly sought-after locations and outperform over the long run.

When you're looking at buying your next investment property, start looking from the perspective of a prospective owner-occupier. While you still need to think about all the factors that make a good investment, start by thinking about buying the property for your family and see if it still stacks up