In the property investment market, there is plenty of information available that can make any potential investor attain success.
As such, many investors usually start out with an intent of making a big fortune in the real estate sector. However, as many research suggests, only a few individuals are able to go beyond the first investment and consequently less of them climb the property ladder to attain real wealth.
The reason for this is that there a quite a lot of pitfalls that usually keep several people in a static position in the property arena. Therefore, a successful investor will usually overcome most of this pitfalls.
To help you become one of the successful individuals, this article highlights some of the common mistakes that investors usually make and how to overcome them.
Beginning investors failing to plan
Most property investors beginning out hope that one day they will build a lucrative property portfolio. Unfortunately, several people begin the journey without any plan in mind. This can be likened to going on a road trip without carrying any map — in such a case, you are most likely to take a wrong road and get lost.
In order to successfully create wealth in real estate, you will have to determine your goals and devise a cohesive plan to reach them.
Simply make your investment decisions geared towards your overall strategy through embracing both a short-term and long-term focus.
In the bottom-line, determine whether you want to pursue long-term capital growth or short-term yields in your income and outline the investment journey.
Choosing heart over head
Most people will use their emotions more than logic to make their property purchasing decisions. This is usually understandable for many people as one feels good having a property that looks elegant. However, letting the heart reign in any investment buying decision is one of those common traps that combat various investors and therefore, needs to be avoided in any manner.
Whenever emotions take over your judgment, there are higher chances of overcapitalizing the property purchases instead of soberly negotiating to attain the best outcomes for your investment goals.
Any investor beginning in the property market should adopt an analytical research approach. Perhaps these are some of the questions an investor should ponder upon so as to focus on the financial gain instead of personal feelings.
- Will the property appeal to the whole owner-occupier market and sustain the prices for a long-term?
- Does its location favor the attraction of quality tenants?
- Is it in a position to generate gainful returns?
All-in-all, investments is more of economics rather than emotions.
Speculation over Patience
There is usually this misplaced notion that you can become an overnight millionaire in the real estate amongst beginners in the property investment. Such kinds of people also think that property has the capability to quickly fix financial problems. However, short-term gains are realized when speculating in the real estate sector other than strategic investing.
Purchasing and selling property is not that simple as many tend to think as it lacks liquidity and thus it will rarely make an individual richer due to the volatility of other types of assets. Selling off real estate usually takes time and also involves numerous costs such as capital gains tax.
Fortunately, through the compounding power, real estate has been proven to provide long-term gains when you have a portfolio of properties. To attain more success, a property investment should be approached with persistence and patience.
Poor cash flow management
Any investor beginning in the property market is susceptible to fall into the poor cash flow management trap. You need to be sure that the property you intend to buy, you can really afford it. Simply, measure and ascertain whether the income that an investment might generate is adequate to cover all the outgoings.
If it can’t cater for all the costs, determine whether you have the capability to manage the shortfalls and other contingencies like unexpected maintenance costs or vacancy periods. A good practice suggests that about 10% of the value of the property should be allocated to land taxes, management fees, maintenance, insurance, and rates.
Critically understanding all the costs discussed above of purchasing and retaining property can be hard to an average investor. As such, seek a professional accountant who has the capability give you the financial advice about real estate investment.
In conclusion, overstating expenses and understating income can aid you to avoid unnecessary and nasty surprises. You can dream that you can get rich from real estate but to be successful in property investment you should always be on the lookout.
Going it alone
Engaging yourself alone in the real estate sector can be a time consuming and daunting venture. However, getting the right type of advice can save you thousands of money.
You need a professional mortgage broker who is qualified enough to provide proper finance advice on property investments to a beginning investor.
Remember that if you go it alone and set up an incorrect financial structure it will be as bad as choosing the wrong property type.
Property investment usually involves a lot of considerations that you might not handle alone. Therefore, having a good broker who has the right knowledge about the investment is necessary to attain a successful pathway.
Being Less Than Thorough
After obtaining the right property, check whether it is time to make a move. You can ask yourself whether you have done enough research on the investment and really the vendor selling the property.
You will be better motivated to negotiate a good price if you know the vendor. Know why the vendor wants to sell the property so as to be aware of the condition of the property.
Before accepting the deal, make sure that the relevant inspections that could uncover any pest infestation signs or structural defects are carried out.
Find out if the property has a comfortable or an appealing floor plan. Just make sure you inspect the property so as to get the best possible deal out of the property negotiations.