For beginners in property investment –there is a lot of information available for those who are primed for success. While most set it out to hit big time in real estate – sadly, just a few will get through their initial investment and even lesser for those who’ll climb the top of the ladder. Because there are more drawbacks to contend with, lest one becomes an industry statistic.
The succeeding phases of the dynamic property cycle will present more red flags than one can ever imagine. New investors shouldn’t expect the market will do the hard work for them, as a thorough selection of properties will be essential – aside from having a team of experts to guide you.
Here’s a summary of strengths and weaknesses in property investing:[table “3” not found /]
Check these tips on most common blunders property investors make that you need to avoid:
1. ACTION will accompany the results.
Two peculiar traits of a new real estate investor: too impulsive and being overly-watchful, thus, never does anything at all.
It is all “too much, too soon” for the impulsive ones. The tell-tale signs: attending a seminar and then purchase the first foolish scheme without much thought. If efforts do not make them millionaires – they just fall flat on their faces and withdraw.
The watchful are not action people – notwithstanding the seminars and the podcasts they’ve had, still, the ending is a disaster. No action at all. It’s like an “analysis by paralysis!”
The impulsive investors can learn from their experience and be successful, while the procrastinators will undoubtedly never conquer their qualms.
Soundest option is to search for that joyful medium where one can understand as much about his investment endeavours to make him feel at ease. (Warning: You can never have it ALL at the start).
Know what you need first to do? Step out and immerse yourself in the playing field.
With the property cynics out there — most investors are second-guessing themselves. Should they wait for the market’s decline or is the current market up for a good buy?
Our advice: Most experts sometimes get it wrong – do not time the markets.[table “4” not found /]
2. Use logic vs. emotions.
‘Buying a home’ decisions are based largely on emotions rather than logic.
Not surprising at all as the home is a refuge – it’s where one raise and grow a family.
It’s not reasonable to let emotions blur one’s assessment that it’s more prone to over-capitalise on the purchase. One tends to ignore the most important task of bargaining for the best value to fulfill investment objectives.
Novice property investors should use methodical research in their property purchase. How?
Answering the questions below means one’s consideration is the financial gain more than their own sentiments (e.g., loved the stunning views).
- Local demographics – can lead to one’s required capital gains;
- Best Location – can appeal to quality tenants;
- Attractive to owner-occupier market – sustains long-term property prices.
In the final analysis, investing is all about economics rather than emotions.
3. New investors usually fail to plan (so they plan to fail!).
A new property investor’s key objective is to build-up a profitable property portfolio – one that will provide financial freedom and best choices in life.
Yet, doing this without even a plan is like going on a trip without an itinerary. Planning is creating the future right into the present so you can do something about it NOW!
You’ll be successful to achieve wealth by:
- Establishing goals.
- Creating a strategic plan to meet expected results.
With all future decisions in sync with the total strategy: focus on the objectives (both the short-term and long-term), such as:
- What’s the desired income: long-term capital growth? Or short-term yields?
- As a smart investor, what helps manage one’s cashflow?
- What property is being purchased to achieve income goals?
A wisely-thought outline of one’s journey in investing is the key.
Plan and better yet, have a personalised strategic property plan which will achieve the desired financial freedom.
Start the plan with these steps:
- Outline financial goals.
- Check if goals are practical, especially for one’s timeline.
- Calculate progress vs. goals – does the property portfolio work for you?
- Are you working for it to accomplish goals?
- Evaluate ways to expand wealth creation.
- Determine the unexpected risks.
The most tangible advantage: growth of wealth is safer and quicker with having a well thought of property portfolio than the typical investor.
4. Wrong choice of property will happen.
This is undeniably one of the biggest mistakes in property investing.
Choosing the right location for the investment is critical.
- Will it beat the averages since it is going through gentrification?
- Are there rich owner-occupiers who want to purchase?
Buy an investment-grade property that will continue to be in high demand by future owner-occupiers and tenants. As there are approximately 10M properties in Australia – below 2% of those currently in the market are considered as investment-grade.
5. Patience is the key.
Majority of property investors wish to get rich quick. They imagine real estate is the answer to their financial woes. Do you know that looking for short-term gains is not strategic investing, but mostly about assumption?
What are the key takeaways?
- Selling real estate is not instant and there are costs involved.
- Property via the power of compounding is infallible providing solid, long-term gains. (use the profit to leverage from one property to another and with the combined gains – one adds more properties).
- Most property investors build their safe asset base for financial freedom in 20-30 years (that long!).
- There’s no such thing as acquiring property and flipping it for short-term gains, unless you are manufacturing growth ie through renovation
- Go for the high-performing assets with consistent growth over time.
Recommendation: Do not seek property investment with the notion of accumulating wealth instantly. Rather, patience and persistence should be your best traits to become successful.
6. Do the homework.
There are a lot of preparations, and most cannot appreciate the market in just one sitting. With the cyclical nature of real estate – it is tough to be in total control, even experts are not spared.
Read books, attend seminars and you’ll be good at what to buy. Sadly, it’s not. Start researching online for an area, then do trips to those open for inspections. The problem though is the lack of perspective- and this is what really counts!
Most novice property investors hardly recognise what differentiates local community knowledge and basic investment principles of one’s market. Most investors connect with property strategists now so they’ll have a good chance at success.
7. Know the details.
You’ve found the exact property and bent to have it. Did you do a full research? Know why it’s being sold. It can help you bargain for a good price when you’re aware of the reason for selling.
Observe the personal circumstances of the vendor. It might look a bit insensitive; though these are opportunities to strike a good deal.
Keep in mind:
- Inspections for structural defects and for pest infestations;
- Well-designed floor plan, home looks cosy and liveable;
- Quiet or noisy neighbourhood and lighting okay at all times of the day;
- 2nd and 3rd inspections on different times.
Are you ready for the BEST investment?
8. Bad cash flow management is a risk.
Bad cash flow management is a risk you should avoid.
It’s always a good idea to consult a professional accountant so you’d be familiar with the financials, including all the costs involved in both the property’s acquisition and ownership.
How much income will your investments make? Enough to cover for your expenses? If not, how will you cover any deficit?
A good rule to follow is to allocate 10% of the property’s value for costs such as land taxes, insurance, etc.
It is great to aspire wealth you can make from real estate investments but then be aware of the out-of-pocket costs you will incur to sustain in the long run.
Overrating your expenses and undervaluing your income means no awful surprises!
9. Self-managing is a limitation.
Most investors think self-managing is an easy way out – looking for their own tenants, functioning as their own property managers. They believe personally handling these activities gives them higher returns and saves them a ton.
This looks workable in the short-term, but what if one means a portfolio with more than 10 properties?
Managing a huge portfolio is a demanding job:
- Find quality tenants.
- Study the renting laws.
- Do regular inspections to check if tenants are caring for the property.
- Collect rental payments.
- Handle repair and maintenance issues that usually turn-up.
- Act at the tribunal should things turn amiss.
- Be on call 24×7 for the tenant.
Does it sound so attractive? Nope – it isn’t at all. Hiring a professional property manager on your behalf will result to good tenants (good rental outcome), high returns for profitable property and more time just as valuable as money. One adds properties, expands portfolio and increases wealth.
10. Consult on professional financing.
As you win here, you know that the best property investment decisions are those that help you as an investor with minimal risks.
The best guidance to any new investor is to consult a competent mortgage broker. Acquiring the right kind of financial perspective can eventually save you a lot.
Having a good broker who recognises a good investment will surely direct the right action you need to take.
The best advice we believe we can give you is not to go after every glittery and shiny thing you find in the market. It is important that you carry out your research and due diligence when planning to invest in property to make a data driven investment property decision.
Our fully customisable tool will help you in choosing which areas have both Good Capital Growth and Positive Cash Flow. It lets you narrow down 15,000+ suburbs by combining all 40 data points as filters. It also lets you compare suburbs historical & current performance. And once you have identified the best location, it also lets you do feasibility studies on 5 properties all at the same time. Thereby saving time, budget, and covering the full cycle of your investment property research workflow
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