You have probably heard it from many people, that you can make lots of money from property investment. And so you join a few property investment courses or seminars, and go straight ahead to buy your first property to invest in.
As a first-time property investor, you might be starting out with the intention of making a huge success in real estate investment. While being optimistic and motivated is one of the factors to property investment success, you should also be realistic and take note of the pitfalls to avoid so you don’t end up more lost than you first started.
Here are the 10 common mistakes that first-time property investors make, and also some tips on how you can overcome these to make success in property investment.
Following your heart instead of your head
There is a difference between buying a property as a family home, and buying one as an investment. The decision to buy a home is an emotionally-driven one; it’s your heart doing the talking. ‘This place feels nice’, ‘I like this house, so cosy’…You get the idea.
However, when it comes to property investing, following your heart instead of your brain is a common mistake! You should always approach an investment property analytically and rationally, not emotionally.
Think: Is this the best location to attract quality tenants? Can I gain enough profit from this property if I sell / rent it out?
Consider based on the financial gains rather than personal feelings. Cuz really, property investment is all about economics, not emotion.
No strategy, no plan
…is a formula for failure. Harsh, but so very true.
Property investment is not an easy endeavour, in fact, we all know the risks involved. Which is why attempting to succeed in property investing without a proper plan, strategy of direction is like shooting in the dark – you’d miss your target 99% of the time.
In order to win big in property investment, you need to have a clear set of goals, and then devise a cohesive and comprehensive roadmap to get to your destination.
Think: Are you chasing short term yields or long term capital gain? What type of property you need to buy in order to meet your income goals?
Throughout your investment journey, make sure to focus on both the short term and long term goals, and make sound decisions in line with your overall strategy.
Dive in too fast or too indecisive
Well, there are actually 2 mistakes here. One is being too hasty and impulsive, and another one is being too cautious and never act at all!
Like anything in life, the best thing you can do is to find the perfect balance between the both. Be a little bit more patient and learn as much as possible about property investment to be confident with your investment decisions; but don’t stop learning!
On the other hand, don’t be afraid that you haven’t learnt enough and so are too hesitant to begin! If you never start, you never know, right?
Property investment is much like life itself, so that life lesson you have been taught in school, is very fitting here – property investment is a lifelong learning journey.
Being too impatient
Why were you interested to dabble in property investment in the first place? Many newbie investors think that property investment is a quick fix to their financial problems, but the reality is that – it is not. Seeking short term profits in real estate is not strategic investing, and thus not sustainable.
Do you think property investment can turn you into a millionaire overnight? Sorry to burst your bubble, but the answer here is ‘no’.
You need to understand that property investment is not a ‘get rich fast’ plan; it takes time, costs and effort. It’s not easy buying and selling property, and doing so will rarely make you rich (especially if you do not heed these advices).
Patience is virtue, this is another life lesson that is very true for property investment. You will gain more success and profits if you approach property investment with patience and persistence.
Failure to do ample research
Speaking about patience in property investment, understanding property markets do take time. Even property investment experts have to constantly learn to enhance their investing knowledge in this dynamic market.
One of the common mistake a beginning property investor makes it being overconfident and thus fail to do enough homework.
Before deciding which property to invest in, you need to know the neighbourhood of said property, get a grip on the market sentiment in that area. You also need to find out more about the amenities, vacancy rates, historical values of other similar properties, etc.
Talk to the locals, engage real estate agents or property managers. Do your research and continuously add new info to your knowledge. The more you know about your investment, the better decisions you are able to make.
Buying the wrong property
Unfortunately, if you did mistake no. 5, you’d inevitably end up on mistake no. 6 as well.
Once you have done ample research and knew your market, you will know better, which property you should buy, and which that you should not. The demographics of an area makes a huge difference when it comes to the type of property you should invest in.
If you’re in a family market, you wouldn’t want to invest in a one-bedroom studio suite. If you’re approaching a college market where the tenant profiles are mostly students looking to rent, then your one-bedroom studio suite may bring positive rental returns.
So, do your homework, know your market, plan and buy accordingly.
Poor cash flow management
In point no. 4, we have mentioned that property investment takes time, costs and effort. Understanding all the costs involved in possessing and holding a property can be difficult, and you should always seek advice from a professional in this case.
You need to ensure that you can afford to not only buy, but also hold onto any property that you buy. It is advisable to have a set of contingency solution as well, such as in scenarios of extended vacancy periods or unexpected maintenance costs.
One good advice is that – do not go into property investment empty handed. Examine each potential property analytically and do your income and expenses calculations wisely. Engage the help of a professional accountant if you need to.
Improper financing structure
To excel in property investment, you also need to understand the ins and outs of the financing structures and options involved. Securing the right type of financing can save you money in the long run.
A qualified and reliable mortgage broker who also understands property investment will be able to guide you in the right direction.
Not thorough enough
This mistake is like an extension of mistake no. 5. So, now you see the importance of doing ample research?
Okay, let’s say now you’ve found the ‘perfect’ property and you’re ready to dive into it. But pause and consider just for a little while more – do you know almost everything about the property? Do you know why the vendor is selling? Why is the vendor selling at a lower price than average? Are there any structural defects of the property?
Most importantly, think from the perspective of your prospective tenant: is the property a good place to live in? How are the neighbours like? Is the surrounding congested during peak hours? Etc etc…
Inspect every aspect possible! This ensures that you secure the best possible investment every time.
Doing it all alone
Yay, we’re finally at the last point! You’ve learnt about 9 mistakes, and have taken steps to ensure that you won’t make them, but this is where the hard work really begins…
You’ve done all your research (as thorough as possible) and decided on the ultimate perfect property. You’ve got the ideal location, right type of property in the market segment, the property condition is pristine, neighbours are great people; finding tenants won’t be too challenging, right? “I can do it all alone!”
Well, theoretically, yes. And no. Finding tenants is only one part of the hard work. The ongoing property management is the full-time job! Besides, you’d also need to understand the laws to renting your property, looking after your asset, collecting rent, build a rapport with your tenants, and also deal with any emergency issues relating to your property.
The list goes on for things that you can think of, and some others that you might not even be aware of! In this case, hiring a professional property manager to help you manage these things on your behalf frees up a bulk of your time so that you can focus on finding more investments to add to your portfolio and generating greater wealth.
Property investment beginners should learn from past mistakes
So there you have it, 10 of the common mistakes made by first-time property investors, and how you can avoid them.
Conclusion is, in property investment, you should always do ample research before diving in to any property investment. Learn about the property investment market, such as different types of property investment and how to earn from them.
At the same time, do not fear the challenging journey ahead and never make your move. All the best!
This article is intended to convey general information only. It does not constitute advice for your specific needs. This article cannot disclose all of the risks and other factors necessary to evaluate a particular situation.
Any interested party should study each situation carefully. You should seek and obtain independent professional advice for your specific needs and situation.