When it comes to solid, long-term investments that deliver consistent and predictable results, real estate is always at the top of the list. Touting strong returns on investment, relatively predictable appreciation and being near-inflation proof, property investing seems like the easy choice for anyone looking to build their wealth.
While this is true, many people walk into this endeavour blindly and make mistakes that could easily be avoided with some preparation, a little education and restraint on the end of the investor. It pays (handsomely) to do your homework and make sure that the choices you make in your real estate investments are well thought out.
What are these common mistakes?
1. Failing to think of the future.
According to Amal from Accountingpreneur “You need to have a plan! This is the first step to any type of profitable business venture.” Failing to think of the future in terms of your goals and aspirations for your rental property will inevitably lead to lacklustre (or negative) results. If you are buying a property as an investment, you need to think of it in terms of a business. All successful businesses have growth plans and expectations, as well as goals and targets to hit. That doesn’t mean you will hit them all at first but you will come closer to a goal that you set and miss than a goal you never set.
2. Falling in love with a property for the wrong reasons.
What is the purpose of a property investment? To create a return. It is common for people to fall in love with a property or become attached to it because they like it. If you rent it, it doesn’t matter what you like; it matters what your future tenants will like. Make sure to consider who will likely be renting the property and who you would want to rent it to, and make purchase decisions on that as opposed to your taste.
3. Expecting too much, too soon.
Property investment is a long-term wealth-building strategy. In the first quarter of 2022, the UK’s housing price increased by 12.6%. Wouldn’t you love to have your investments appreciated by 12.6% in the first quarter of 2022? Of course, you would! The problem is, to get this type of return on your investment, you need to be willing to stick it out for the long run. Property investment should be viewed in decades, not years.
4. Underestimating the costs of ownership.
Ownership is expensive. Failing to plan properly and budget for the operating expenses of a property investment could be catastrophic. Alongside purchase, finance, and closing costs are the ongoing expenses of running an investment property. Underestimating these costs can lead to negative cash flow, poor property maintenance, stress, and many other unnecessary and negative consequences.
5. Choosing the wrong financing options.
Make sure to understand all the options available when purchasing your investment property. Choosing the wrong type of mortgage can lead to extra fees and interest costs. To make sure you profit from your real estate investment, do your research before choosing your financing option.
6. Overpaying.
Don’t pay more than what it is worth! Even if you like it, overpaying for a property is never a good choice. If you spend even 5% more than necessary, it could add years, or more than a decade, to the amount of time it takes to pay off your investment debt. Buying is an emotional process; even if your emotions say it’s ok, look at the numbers and never overpay.
7. Doing everything on your own.
You aren’t a superhero. Property investing is a complex process, and it is advisable to get professional help when necessary. Having the right legal, financial, and real estate advisor will lead to a stronger, healthier, and more robust property portfolio.
Avoid These Common Property Investing Mistakes!
Use these tips to avoid the most common mistakes in property investing. If you do your research, buy based on logic instead of emotion, and prepare your finances properly, you can capitalize on the great opportunity available to everyone who wants to invest in real estate.
