5 Costly Mistakes Property Investors Make

If you’re thinking of becoming involved in the real estate investment business, take some time to consider the following all too common mistakes that newcomers to the business tend to make.

Mistake #1: Gambling on Real Estate

Too many people enter the real estate market for the wrong reasons and with unreasonably high expectations.

Buying investment properties solely for short-term profit is a big risk!

Real estate is a very specific commodity. To make money you need to either hold on to your property for a number of years while the market steadily increases or you catch a property boom where you buy fast and sell fast. Yes, the latter still works.

Beware of buying property in order to turn it into a steady source of rental income. Local markets are very sensitive, and certain areas go quickly out of favour. A back-up plan will be necessary if you’re to have any chance of enjoying rental revenue.

Bargain priced properties can be found in every market, and you can always secure yourself by finding low-interest financing to increase your cash flow. This way, a drop in the market won’t cause you too much concern. Real estate almost invariably comes back up in the end.

Mistake #2: Investing Blind

If you want to avoid bankruptcy it’s important that you arm yourself with enough knowledge of the real estate business before you start buying.

This doesn’t mean you need to know every little detail about the business but there are certain points that are worth understanding.

Decide on one or two ways to find and buy real estate and stay focused on those techniques. The more knowledge of financing, acquisition, negotiating and, of course, your local market you have, the less risk there’ll be to your business.

If you can find suitable courses related to real estate, join and study meticulously.

Remember, though, that you’ll never be able to learn everything, simply because the real estate market is constantly changing.

Real estate is one of the few investments in which risk is directly proportional to knowledge. For this reason it’s important that you keep your ear to the ground and try to stay up-to-date with what’s happening in your line of business.

Whilst it’s true that knowledge is important in other fields, too, such as the stock market, there’s no proof that you’ll lower your risks of loss by learning more. Buying a bargain property will generally be a better investment than buying bargain stock. After all, who know if the company you bought into will still be in business next year? The building, however, is there to stay.

Mistake #3: No Cash Reserves

The core of the real estate business is, like with most other businesses, cash flow.

Handling repairs and other expenses when cash is low can be tricky, to say the least, but with education and experience, your skills will increase.

You can teach yourself to make certain repairs etc., but even so, without a certain amount of cash available, you’ll never succeed as there will always be times when unforeseen situations arise which need your immediate attention, often proving to be expenses you simply won’t be able to cover without a large enough reserve.

If you’re not able to keep your properties in tip-top condition through lack of funds, you’ll have to accept tenants who probably won’t be as respectful to the property and take less rent. That’s no way to build up a successful business.

Renovations are a prime example. With this kind of job, nothing could be worse than trying to do it all yourself. Your goal is surely to be a real estate investor, not a contractor or odd-job person? Teach yourself to handle small repair jobs like changing a door-lock, fixing a leaky tap or changing a light bulb but becoming involved in major repair work will take far too much of your time.

If you’ve just bought a renovation project and you’re lacking case, you’ll undoubtedly be tempted to complete the job yourself, hopefully in matter of weeks so that you can start making money instead of spending it. After all, while it’s standing empty, you’re still having to pay the mortgage. Consider also how much of your own time you’re losing. While you’re tied up with the repair work, you could be out on the market finding your next investment.

In reality, you’re more likely to lose more money by doing all the work yourself than you would if you had enough money to pay others to do it for you.

Mistake #4: Being Greedy

Property flipping has become a popular way of investing, where one investor ‘flips’ a property to another investor, thereby generating cash reserves.

Let’s say you find a renovation property with a potential to make 20,000 ringgit in profit. How much do you imagine you could gain by flipping it to another investor? He’ll want to minimise his risk by ensuring maximum profit for himself, too, so probably no more than about 2,500.

Ok, that’s not a huge amount of money and you may not feel it’s worth your while but remember it’ll mean you have more than you started with and it’s money you can put into your reserve for funding repairs etc., on other properties.

Another reason for failure in real estate investment property is through lack of proper planning.

Before you make a bid on a property, no matter how cheap it is, make sure you know exactly what you plan to do with the property if your bid’s accepted. A property standing empty while you decide whether to ‘flip’ it, let it or renovate it is money being lost.

Unfortunately, more than 90% of those who decide to become involved in real estate investing quit within three months. Why? Because they have unrealistically high expectations. Like any other business, real estate can give you a steady income that will provide you with a reasonable life-style. If you’re looking for a get rich quick plan, you’d be better off looking elsewhere.

Mistake #5: Spending Too Much Time on Worthless Deals

Everybody understands that if you don’t make an offer, you’ll never buy a house. They also understand that the more offers you make, the more houses you can buy. What many don’t understand, however, is the importance of understanding whether or not a property is a good deal before you waste time considering anything else.

There’s no point in analysing the cost of repairs and improvements, closing costs etc., before you know you whether you can actually get a good deal on the property concerned. Before you even view the property you should have a good idea as to whether or not it could be a worthwhile deal.

Don’t make an offer until you’re sure the property can make you a profit. If the seller’s asking thousands more than you’re willing to pay, mention the repairs that need doing or that the area isn’t a popular one. You’ll eventually get to know the tricks that will help you pull the price down.

Sometimes those new to the property investment market are afraid of making an offer for fear that it may not be accepted. Why be? The worse thing that can happen is that you’ll lose your deposit. If you receive a counteroffer, decide what you can or will pay. If the asking price is still too high, counter them again. If, at this point, the seller is still holding his ground, move on. There are always more deals out there waiting to be found.